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DoorDash’s IPO Points to Trouble Ahead for Third-Party Delivery Apps

DoorDash seemed a clear winner as the pandemic drove dining offsite, but a rash of new regulations, lawsuits and just plain tough breaks threaten the tech titan.

The pandemic has brought food-delivery apps to the forefront of public attention, and while they seemed prime to cash in on the shift to off-premise dining, the backlash against their business practices has been harsh. 

DoorDash, the largest food-delivery startup in the U.S., filed to go public last week in what should have been a crowning achievement. But despite a surge in online and delivery orders, the company is losing money. 

The company raked in an astounding $1.92 billion in the first three quarters of 2020, more than tripling the $587 million it took in over the same period last year, according to the company’s filing documents. The company still managed to lose $149 million over that period, though last year over the same period it lost $533 million. 

Essentially, apps like DoorDash outsource delivery for restaurants -- for a fee. That means DoorDash and its competitors have to eke out a profit by drilling into the already slim margins most restaurants see. Additionally, the apps expose themselves to regulatory nightmares as labor activists challenge their classification of drivers as “contractors” rather than full employees worthy of benefits. 

“There’s simply not enough value created in these businesses to reward consumers, couriers, restaurants, employees and shareholders,” Len Sherman, an adjunct professor at Columbia Business School, told the Seattle Times of DoorDash’s business model.

But if times were tough before, they’re only going to get tougher. 

On Monday, Chicago’s City Council proposed capping delivery fees apps like Grubhub, Uber Eats, or DoorDash can charge restaurants at 15%. Currently, these rates sit around 20-30%, according to Eater. New York is considering similar measures and Seattle and San Francisco have already passed similar laws. 

DoorDash, in its public filing, said it would seek to partner with more local businesses to improve profitability, but a recent lawsuit against Grubhub shows the dangers of the tech titans’ approach. Grubhub faces a class-action lawsuit from 150,000 restaurants that say the app wrongly listed their restaurant as a partner, Fox News reported

Generally, the restaurant community seems to have soured on the third party apps, and the media is catching on. 

New York magazine’s Grubstreet published an article on Monday simply titled “Here’s Another Reminder to Stop Using Delivery Apps,” citing complaints from restaurant owners and more general gripes against the gig economy.