Grubhub’s Disastrous ‘Free Lunch’ Promotion Shows Why the Gig Economy Is Broken

On Tuesday, Grubhub launched a promotional campaign in New York City offering “free lunch” via a promotion code, valid between 11AM and 2PM local time. 

Within minutes, it was a disaster. Glitches abounded, orders were delayed, and workers were overwhelmed. Buzzfeed News reported on customer service queues exceeding 3,630 people, unprepared restaurants that shut off orders, overworked workers pushed past the point of exhaustion, and a sea of food waste as orders overflowed and were left unattended.

Amid all the chaos, Grubhub took to Twitter to diligently promote its offer, then eventually acknowledged something went wrong, albeit in a lighthearted tone that didn't reflect the scale of what it had unleashed. Then it went back to promoting the deal up until 1:50PM local time.

Despite the negative reaction from workers and businesses that were subjected to the deluge, Grubhub is painting it as a "win-win." 

A Grubhub spokesperson told Motherboard that consumer demand "absolutely blew away all expectations" as its redemption rate was six times higher than last year's promotion, they averaged 6,000 orders per minute, and "were able to fulfill more than 450K lunch orders connected to the promo, which was a win win for businesses and diners."

Grubhub has a track record of making moves that rankle restaurants, customers, and workers alike. This is, after all, a food delivery company that took advantage of the pandemic by rolling out predatory fees that New York City had to outright cap and ban. After Proposition 22 was passed by an Uber-led coalition of app-based companies to overturn a California labor law that reclassified gig workers as employees, Grubhub-owned Seamless took that opportunity to make changes that resulted in driver wages being slashed in many cases.

Despite these examples and the chaos of the "free lunch" promotion, optimism abounds such as in two analyses from the Brookings Institute that suggested app-based food delivery could help address food insecurity. This is despite the unit economics of “gig companies” being fundamentally unworkable, requiring an explicit design to achieve profitability by achieving monopolies that will deter new competition but enable price hikes. Consumer subsidies, worker incentives, partnerships with cities, acquisitions—there are a multitude of ways delivery companies try attracting the critical mass necessary to realize a monopoly. And yet, every single food delivery company has failed in its attempt to crush competition, resulting in them being forced to operate in a fundamentally unprofitable industry as they perpetually burn other people’s money while promising a return at some as-of-yet undetermined date.

This is how you get promotions like Tuesday's, where money is lit on fire as an attempt to gain an edge over competitors, causing more chaos. The incentives behind such wasteful promotions are the same incentives that have shaped, informed, and driven the development of the food delivery industry for the past few years. 

Despite massive user growth during the first two years of the pandemic, Food delivery companies have not only failed to curtail costs or retain new users, but are now seeing their pandemic valuations crumble as investors start to look for actual returns. 

On March 13, the day Trump declared the COVID-19 pandemic a national emergency, Uber had a market valuation of $38.9 billion. It shot past $110 billion in February and April. Over the past 12 months, the stock has been on a consistent slide and lost 52 percent of its value, and on May 19, Uber's value sat at $45.73 billion. The picture is similar for DoorDash, and even worse for Just Eat Takeaway (Grubhub's parent company), which has seen its market valuation sink by nearly 80 percent. 

All this despite huge premiums customers pay, steep take rates for restaurants, and stringent commitments to cutting labor costs that have turned working for delivery services into a nightmare. 

This is why Grubhub's chief executive, Matt Maloney, went so far as to tell The Wall Street Journal that food delivery "is and always will be a crummy business," saying the company's future lies in its advertising service. 

We can imagine a promotional campaign where restaurants were given more persistent advance notice, offer more robust incentives to delivery workers, and offer greater subsidies to customers to make delivery more affordable. All of this would be nice, but it wouldn’t touch the structural issues that encourage Grubhub to fleece restaurants, workers, and customers, and led to the promotion happening in the way it did in the first place.

What if, instead, we started with the assumption that food delivery shouldn’t be privately run, given how poorly that experiment has gone for everyone involved. Co-ops are an interesting alternative to the current model, but we could go further. We could nationalize the delivery services and try to operate them at scale. We could municipalize them and operate various services within locales. We could, as a society, pursue a multitude of possibilities, but only if we ask what a food delivery system designed by everyone except venture capitalists and private firms would look like.

The technological change that has hastened food delivery has been developed to squeeze water from a rock. What if we repurposed the technology to achieve desirable social outcomes like food security without prioritizing the needs of investors seeking returns? What sort of food system could we create then?