The diminished supply in this case, by the way, isn’t prepared food, it’s the drivers who deliver the meals to hungry patrons.
This isn’t the first time surge pricing for food delivery has been in the news. In 2014 San Francisco’s Sprig, which is a delivery-only restaurant, implemented surge pricing for delivery of its own prepared meals as an alternative to not taking any more orders during the busiest delivery times.
As the on-demand economy grows, there are only so many people willing and available to actually make the deliveries. A 2015 Harvard Business school study determined that it costs on-demand companies an average of $650 to recruit a driver. Drivers often don’t stay with the same company or work for only one service. The result is that even when companies pay a good deal for new drivers, the demand still isn’t being met.
Two other factors are in play with rising driver costs. Like ridesharing companies Uber and Lyft, most on-demand delivery services prefer to treat their drivers as independent contractors, not as employees. Drivers are pushing back, most publicly with Uber and Lyft, because as employees they would be eligible for benefits and expense reimbursement.
Whatever the result of this struggle — whether drivers acquire employee status or the companies increase compensation plans to keep them happy as contractors — costs can be expected to rise. And cost-cutting tactics that might have worked a few years ago no longer apply. Many companies can no longer sacrifice profitability in favor of building volume or lean on ever-less-patient investors for funding in anticipation of a hefty IPO.
Restaurants that contract with on-demand delivery services typically pay from 10 to 30 percent of the order amount for delivery, according to Venture Beat. Restaurants themselves run on slim margins, so subsidizing the demand for drivers won’t come from that direction. As a result, the only possible source of extra money in the transaction is the end consumer. So get ready for surge pricing or start ordering meals during off hours, because it looks like the cost of food delivery is about to go up.
