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DoorDash just made a deal with McDonald’s that will make fast food delivery faster.
This is the story.
Faster Food Delivery
The timer starts when a DoorDash delivery person is almost at a restaurant for a pickup–maybe 80 feet away. If four minutes pass without the food, then depending on how long the courier waits, McDonald’s owes an extra fee. According to a new contract that kicks in next year, the delay could add six percentage points to what McDonald’s pays. On the other end, DoorDash gave McDonald’s a lower base rate.
I wonder if the new deal makes almost everyone happier. Consumers get their food faster. DoorDash squeezes in more stops per hour. McDonald’s pays less. Pressured to meet the clock, the food preparers and franchise owners are the only ones that might complain.
Some History
Used to be, just pizza was delivered to our door. And that took several hours. But now, especially because of Covid, tech, and consumer expectations, food delivery became a global phenomenon. From the delivery side, the DoorDash CEO said, “This is a cost intensive business that is low-margin and scale driven.”
Below, you can see the ascent of food delivery:
Then, a closer look reveals how the top firms compete in different urban markets:
It makes sense that to compete more efficiently, DoorDash needed the new deal with McDonald’s.
Our Bottom Line: Reference Points
Looking at what we call fast delivery, behavioral economists would say that our reference points have shifted.
To see what they mean, I always like a gas price example. When the price per gallon is dropping from $3.00 to $2.75, we think gas is cheap. However, when the price rises from $2.50 to $2.75, the same amount can feel expensive. The reason? The context or frame for our decision has changed. It has a different reference point.
For delivery, we can look at fast delivery guarantees. In NYC, GoPuff offers delivery of groceries or snacks “and more” in as little as 15 minutes. If it could, so too might DoorDash.
My sources and more: WSJ had the details for the new McDonald’s DoorDash contract while a McKinsey September 2021 report had the big picture.. After that, if you want to read more about reference points, anchoring, and behavioral economics, I recommend Nobel Laureate Daniel Kahneman’s excellent Thinking Fast and Slow. And finally, Arriving Today is the captivating (really) read if you want to know all about package delivery.
Please note that most of today’s Bottom Line was in a past econlife post. Our featured image is from The Verge.
