This weekend, a new law passed by the Seattle City Council in May 2022 went into effect. Ostensibly designed to help app-based workers, the law sets out minimum amounts that deliver drivers need to be paid for food runs they undertake.
Completely unsurprisingly, the new law has led to costs of food delivery going up. That in turn is set to put a crunch on local restaurants, already hardly a rich sector able to absorb additional costs. It will also hurt none other than the app-based workers the law is supposed to protect.
The “App-Based Worker Minimum Payment Ordinance,” SMC 8.37, was passed by the City Council on May 31, 2022. The ordinance was sponsored by Councilmembers Herbold and Lewis—neither of whom still serve on the City Council today.
The ordinance requires that:
Network companies must pay the greater of:
- Minimum per-minute amount of $.044 and minimum per-mile amount of $.74 -or-
- Minimum per-offer amount of $5.
Already, KIRO is reporting that DoorDash, GrubHub and Instacart are charging customers more. But the law is also pressuring local restaurants.
Also per KIRO, Alexandra Serpanos, the owner of Nikos Gyros in Seattle said “I’m trying to keep this restaurant alive and afloat. The margins are so slim. It’s so hard for small businesses and you see small restaurants closing.” She added, “We’re going to be impacted. The customers are going to be impacted… if people can’t afford it, that’s obviously going to impact my sales. I can’t keep raising prices. There’s only so much people are willing to pay for a gyro or a salad.”
According to DoorDash’s data, “For a full-service restaurant, operators can expect the business to make anywhere between 0 and 15% profit, with the average restaurant profit margin landing around 5% – 10%, depending on your source.” But according to Toast, “the average restaurant profit margin usually falls between 3 – 5 percent.”
So, this is going to hammer an industry that is already not known for strong profit margins.
More ironically, if the cost of delivery goes up, Seattleites will likely just stop ordering food for delivery. This will, of course, result in less demand for deliveries and fewer opportunities for drivers to make money off of delivering food, even if theoretically they bank more per delivery run.
A customer interviewed by KIRO made this exact point, saying of the law coming into effect, “I’m less likely than to order out. I’m already a little bit weary of ordering out through Uber Eats or Grubhub or what have you because the fees are already pretty high up there. Some places it’s nearly double the cost of what that meal would have been.”
So there you have it: A law ostensibly put on the books to help delivery drivers is actually likely to dry up work for… delivery drivers.
As a side note, it looks like the delivery apps are largely defaulting (for now) to slapping the $5 fee on everything. But that might not make them compliant given the “greater of” language in the ordinance, which also sets out per minute and per mile rates.
Admittedly, taxi meters in many cities function with such a calculation, but it is much harder to tell people ordering food online what they will pay, definitively, when the total amount will not just be affected by distance and route, but also traffic—not always easily navigable in Seattle. If customers can assume the price will just be $5 a delivery higher, that is one thing. If the amount becomes more variable due to the “greater of” language, that will also dampen use of delivery apps which will also dry up opportunities for drivers.