The rise of gig workers is changing the face of the US economy - CNN
“People who have access to the gig economy borrow less money than people who don't. ... The study found that laid-off workers with access to Uber ...
surged in popularity
During the Covid pandemic, newer, digital-first work platforms like DoorDash and Uber Eats <anchor>surged in popularity</anchor> as millions sheltered at home and turned to online delivery. Recent data indicates that the number of people working with these platforms has grown, too. A paper published by the University of Chicagoin May that tracked earnings through tax filings found that the number of people who report income from platform-based gig work to the IRS has exploded in recent years from just over one millionworkers to nearly five million — a clear indication of just how many more people use tech platforms to help earn a living.
The pandemic boosted food delivery companies. Soon they may face a reality check | CNN Business
The pandemic boosted food delivery companies. Soon they may face a reality check \| CNN Business

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# The pandemic boosted food delivery companies. Soon they may face a reality check

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By [Sara Ashley O'Brien](https://www.cnn.com/profiles/sara-obrien), CNN Business


5 minute read


Published
9:12 AM EST, Sun December 6, 2020


[Share with email](mailto:?subject=CNN%20content%20share&body=Check%20out%20this%20article%3A%0Ahttps%3A%2F%2Fwww.cnn.com%2F2020%2F12%2F06%2Ftech%2Ffood-delivery-pandemic-doordash "Share with email")

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![Rideshare drivers demonstrate against rideshare companies Uber and Lyft during a car caravan protest on August 6, 2020 in Los Angeles. - The drivers, organized by the Mobile Workers Alliance and Rideshare Drivers United unions, say Uber and Lyft's are pushing a "deceptive" November ballot initiative, which, if passed, they claim would "rewrite labor law" and turn app-based drivers into independent contractors, exempting companies such as Lyft and Uber from standard wage and hour restrictions. (Photo by Robyn Beck/AFP/Getty Images)](https://media.cnn.com/api/v1/images/stellar/prod/200810162602-uber-lyft-car-california-0806.jpg?q=x_0,y_178,h_1123,w_1995,c_crop/w_1280)

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—


At the start of 2020, it looked like the food delivery sector was about to face a reckoning after years of raising and losing billions of dollars.


One of the original food delivery businesses, Grubhub, was considering [putting itself](https://www.wsj.com/articles/grubhub-considers-strategic-options-including-possible-sale-11578505832) up for sale after losing its foothold on the market. Its competitors, DoorDash, Postmates, and Uber Eats, had also reportedly been in talks about [mergers](https://www.wsj.com/articles/food-delivery-firms-put-mergers-ipos-on-the-menu-11582030802?mod=searchresults&page=1&pos=1). Meanwhile, Uber’s CEO [signaled](https://www.cnn.com/2020/02/25/tech/uber-eats-jason-droege/index.html) a fundamental shift for its meal delivery service: focusing on profitable growth.


Then the pandemic changed everything.


The health crisis paired with the economic crisis created a perfect storm for the delivery companies – a large pipeline of the newly unemployed looking for work, countless people staying home and having food delivered, and restaurants increasingly depending on takeout and delivery.


Delivery services saw [skyrocketing](https://secondmeasure.com/datapoints/food-delivery-services-grubhub-uber-eats-doordash-postmates/) demand. Uber leaned on its Eats business as its core rides business plummeted. The valuations of Instacart and DoorDash [soared as the companies secured hundreds of millions of dollars in capital](https://www.cnn.com/2020/06/18/tech/doordash-funding-valuation/index.html), and expanded to offer deliveries from [electronics](https://www.instacart.com/best-buy) retailers and [convenience stores](https://blog.doordash.com/bringing-household-essentials-to-your-doorstep-offering-convenience-beyond-food-3aebe5550149). A lead investor in the recent DoorDash funding round [commented](https://www.cnn.com/2020/06/18/tech/doordash-funding-valuation/index.html) that the service had “become ingrained in the lives of local communities as an essential service.”


Now as the year comes to a close, DoorDash is about to ride that wave of pandemic-fueled demand to an initial public offering, expected this week.


“The stars have aligned. This is basically the perfect time for last-mile delivery companies to go public,” said Asad Hussain, lead mobility analyst at data research firm PitchBook, ticking off a number of reasons, including the unprecedented shift in demand from the pandemic as well as recent consolidation in the sector. (European company [Just Eat Takeaway.com acquired Grubhub](https://www.cnn.com/2020/06/10/tech/grubhub-just-eat-takeaway-uber/index.html) and [Uber acquired Postmates](https://www.cnn.com/2020/07/06/tech/uber-postmates/index.html), which means fewer companies are competing on pricing.)


[![LOS ANGELES, CA - OCTOBER 08: Rideshare driver Jorge Vargas raises his No on 22 sign in support as app based gig workers held a driving demonstration with 60-70 vehicles blocking Spring Street in front of Los Angeles City Hall urging voters to vote no on Proposition 22, a November ballot measure that would classify app-based drivers as independent contractors and not employees or agents, providing them with an exemption from Californias AB 5. The action is part of a call for stronger workers rights organized by the Mobile Workers Alliance with 19,000 drivers in Southern California and over 40,000 in all of California. Los Angeles on Thursday, Oct. 8, 2020 in Los Angeles, CA. (Al Seib/Los Angeles Times/Getty Images)](https://media.cnn.com/api/v1/images/stellar/prod/201113143449-uber-lyft-prop-22-protest-1008-restricted.jpg?q=x_2,y_146,h_1123,w_1995,c_crop/h_144,w_256)\
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LOS ANGELES, CA - OCTOBER 08: Rideshare driver Jorge Vargas raises his No on 22 sign in support as app based gig workers held a driving demonstration with 60-70 vehicles blocking Spring Street in front of Los Angeles City Hall urging voters to vote no on Proposition 22, a November ballot measure that would classify app-based drivers as independent contractors and not employees or agents, providing them with an exemption from Californias AB 5. The action is part of a call for stronger workers rights organized by the Mobile Workers Alliance with 19,000 drivers in Southern California and over 40,000 in all of California. Los Angeles on Thursday, Oct. 8, 2020 in Los Angeles, CA. (Al Seib/Los Angeles Times/Getty Images)\
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Al Seib/Los Angeles Times/Getty Images\
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Related articleAfter $200 million California brawl, Uber and Lyft's gig worker fight is far from over](/2020/11/15/tech/gig-worker-classification-post-prop-22/index.html)

“They’ve been an enormous beneficiary of the shift,” said Semil Shah, who was an early investor in both DoorDash and Instacart, which is reportedly eying an IPO next year. “I think both companies would’ve gone public at some point – I think it is unclear whether they would’ve gone public now without the pandemic, maybe it would’ve been a bit later, but who knows.”


Airbnb, another on-demand company, which struggled to right its business amid a steep drop in travel during the pandemic, is also expected to go public this week. Both companies are moving forward with their Wall Street debuts just as the first coronavirus vaccines are expected to be made available to some in the United States and abroad.


The vaccine rollout signals what could be the beginning of the end of the pandemic, and with it, yet another shift in demand.For Airbnb, the question is how much the end of the pandemic could boost business; for food delivery companies like DoorDash, the question is how much the end of the pandemic will hurt it.


“People have gotten much more used to ordering food and other products through delivery services. Some of that will decline once it’s safe to do things in person, of course,” said Scott Duke Kominers, an associate professor at Harvard Business School. “But new habit formation is powerful.”


DoorDash, which raised $2.5 billion from investors including SoftBank and Sequoia Capital, warned in its [IPO paperwork](https://sec.report/Document/0001193125-20-309968/) that its pandemic boom may not last forever. “The circumstances that have accelerated the growth of our business stemming from the effects of the Covid-19 pandemic may not continue in the future,” the company said.


[![01 Grubhub delivery US RESTRICTED](https://media.cnn.com/api/v1/images/stellar/prod/201125132049-01-grubhub-delivery-us-restricted.jpg?q=x_2,y_0,h_1123,w_1995,c_crop/h_144,w_256)\
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Alexi Rosenfeld/Getty Images \
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Related articleSome restaurants hate delivery apps like Grubhub and Uber Eats. So they're seeking out alternatives](/2020/11/27/business/restaurant-delivery-alternatives/index.html)

The company, which also owns Caviar, became the US leader in terms of sales in May 2019, according to data from Second Measure. But it took a pandemic for DoorDash to turn its first profit in the [second quarter of this year,](https://www.cnn.com/2020/11/13/tech/doordash-ipo-paperwork/index.html) before reporting losses again in the most recent quarter.


Delivery services like DoorDash have arguably had greater leverage during the pandemic as many restaurants are more reliant on reaching customers at home, but the pendulum may swing the other direction post-pandemic. Kominers, who recently co-authored an [article on](https://hbr.org/2020/07/delivery-apps-need-to-start-treating-suppliers-as-partners) the importance of a delivery app’s relationship with restaurants and other suppliers, said delivery companies need to focus on better sharing revenue and tools with merchants to build sustainable businesses.


The high fees that [delivery services](https://www.cnn.com/2020/11/27/business/restaurant-delivery-alternatives/index.html) charge restaurants on orders have come into the spotlight during the pandemic. Some states and cities have capped third-party food delivery fees to aid local businesses. Companies have explored new ways to work with businesses. DoorDash introduced Storefront, [a product](https://www.cnn.com/2020/11/27/business/restaurant-delivery-alternatives/index.html) that lets restaurants set up their own online stores where they are not charged commission on items sold, and [Self-Delivery](https://blog.doordash.com/a-new-way-to-partner-with-doordash-introducing-self-delivery-b9555da34e6c), a way for partners to list on its platform while taking care of their own delivery.


[![Instacart employee Monica Ortega uses her cellphone to scan barcodes showing proof of purchase for the customer while picking up groceries from a supermarket for delivery on March 19, 2020 in North Hollywood, California. (Photo by Frederic J. Brown/AFP/Getty Images)](https://media.cnn.com/api/v1/images/stellar/prod/200327115855-instacart-scanning-0320.jpg?c=16x9&q=h_144,w_256,c_fill)\
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Instacart employee Monica Ortega uses her cellphone to scan barcodes showing proof of purchase for the customer while picking up groceries from a supermarket for delivery on March 19, 2020 in North Hollywood, California. (Photo by Frederic J. Brown/AFP/Getty Images)\
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Frederic J. Brown/AFP/Getty Images\
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Related articleSome Instacart shoppers are having their jobs cut during the pandemic](/2020/07/30/tech/instacart-aldi-sprouts-in-store-shoppers/index.html)

Looking ahead, the end of the pandemic combined with an improving economy and legal challenges to their business model could make it harder for companies like DoorDash to continue their existing model of using independent contractors, who don’t have the same costly benefits and labor protections as employees would.


The companies notched a win in the [passage of a California ballot measure](https://www.cnn.com/2020/11/04/tech/california-proposition-22/index.html) last month, allowing the companies to avoid reclassifying their gig workers as employees in the state and skirt the costs associated with a full suite of benefit protections, such as a minimum wage, overtime, paid sick leave and unemployment insurance under California labor law. But [the issue is far from settled.](https://www.cnn.com/2020/11/15/tech/gig-worker-classification-post-prop-22/index.html)

This business model “survives by essentially forcing workers to compete with each other in a race to the bottom,” said Rebecca Givan, an associate labor studies professor at Rutgers University.


“While the economy is bad and unemployment is high, there’s always going to be desperate workers who will probably be willing to work on these apps even for very low pay,” added Givan.


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