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Delivery service -- A substitute for in-person sales

By Maggie Draper
web posted November 1, 2021

Although some delivery services, like Amazon or pizza delivery, have been in use for quite a while, COVID-19 has encouraged a greater quantity demanded for delivery methods, whether food or household goods. Services like Doordash, Grubhub, Uber Eats, Instacart, and Postmates have experienced a huge spike in business because so many people currently prefer to eat in or have goods delivered, rather than eat out or shop in person and risk exposure to the virus. While there still is some risk of COVID exposure in delivery contact, it’s much less than eating in a restaurant or shopping in person, making it a good substitute for these consumer activities. Similarly, other firms like Amazon, eBay, and other already predominantly online businesses have seen many more customers since the outbreak of COVID-19. Stores like Walmart, Target, Kohl’s, and tons of other predominantly on-site-shopping firms have seen less in-person customers and (for those that have online options) more online customers.

This year and last year especially, most restaurants have found a way to deliver their food by partnering with a delivery service such as Doordash, Grubhub, Uber Eats, or Postmates. The importance of delivery options at this time poses new issues for restaurants. They have to consider the opportunity cost of paying waiters vs. paying delivery drivers. Commission prices vary, but from the answers I read, I think around 20% of each order is a good estimate for how much food delivery services pay their drivers. I based some of my study on the restaurant my friend works at, where he makes $7.75/hour (excluding tips and tax). For a $50 food order at the restaurant where the customers eat in for two hours, the restaurant keeps $34.50 after paying the waiter $15.50. With a delivery service, an order of $50 would let the restaurant keep $40 after paying the driver 20% of the order. An order of $100 for dine-in (again, for two hours) would leave the restaurant with $84.50 after paying the waiter $15.50. For delivery, the restaurant would keep $80 after paying the driver 20%. These are the opportunity costs of delivery vs. dine-in service. Overall, especially as the new federally mandated minimum wage--something which should be determined by the states and not the federal government--drastically increases the cost of employing waiters (and will probably destroy many small businesses because they can’t afford to pay their employees), it seems that the delivery service is financially the better alternative for restaurants. This could mean the potential end of eating-out as we have so traditionally practiced in the past.

The higher demand for delivery also had a heavy impact on on-site stores like Walmart, Target, Kohl’s, and more. Since those stores all already had a form of online shopping and delivery, the impact wasn’t as damaging. For example, I shop at craft stores sometimes, but since the pandemic, I’ve been looking online for craft supplies rather than going in-person because there’s an online Michael’s store. In contrast, stores that have no online option suffered greatly from the pandemic. One example that’s sort of similar is used-bookstores--I like shopping at used-bookstores rather than ordering books online. While there are online used book stores, it’s not the same to shop for books online instead of shopping in person. Stores have experienced an increase in quantity-demanded for online shopping and delivery. Similar to the restaurant issue, other stores have to consider the opportunity cost of in-person employees vs. delivery drivers (for those kinds of stores it would be services like UPS, Fed-Ex, etc.).

Mainly this year and last year, COVID-19 has resulted in a change in consumer preference from in-person shopping and eating to online shopping for delivered food and goods. Both examples above show the same shift in consumer preference. Where in-person shopping at malls and retail stores was a big trend in the past, online shopping has become more and more prevalent and was greatly amplified by COVID-19. The change in consumer preference from in-person to delivery caused the demand for in-person or on-site labor to decrease, and the demand for online and delivery to increase. This change in demand caused the quantity supplied of in-person labor to decrease and the quantity supplied of delivery labor to increase. In the future, delivery services will probably be much improved because of the increased demand COVID has caused. ESR

This is Maggie Draper’s first contribution to Enter Stage Right. (c) 2021 Maggie Draper

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