Grubhub should be thriving during the pandemic; instead, delivery apps' unworkable business model, charging high fees to small restaurants, creates huge losses
The crisis is a stark reminder that food delivery tech companies may have an unworkable business model
Context & Ripple Effects
When the pandemic hit, restaurants had little choice but to pivot to delivery apps, and coverage at the time warned that lockdowns would leave them permanently more dependent on DoorDash, Grubhub, and rivals. This piece is the counterpoint arriving weeks later: the moment of peak dependence is also the moment the model's costs are exposed, with Grubhub posting huge losses despite record demand.
The critique has a longer lineage — Quartz flagged as early as 2016 that some industries simply don't fit the on-demand template, using Instacart's struggles as the case study. The Markup applies that same unit-economics lens to food delivery at its stress-test moment.
First-order effects
- Small restaurants now face the worst of both terms: they must list on apps to reach locked-down customers while paying high per-order fees that eat already-thin pandemic margins.
- Grubhub's losses show that surging order volume does not fix the model — each incremental delivery adds courier and discount costs faster than commission revenue covers them.
Second-order effects
- With restaurant commissions capped by their economics, the platforms chase margin elsewhere — DoorDash and Uber Eats later push into groceries and alcohol as inflation squeezes consumer spending on restaurant delivery.
- Cities enter the pricing fight: when apps raise fees to offset mandated gig-worker wage increases, New York and Seattle's experience with plunging orders and frustrated drivers becomes the reference case for regulators weighing fee and pay rules.
Third-order effects
- If the pattern holds, on-demand delivery follows the trajectory Instacart hinted at in 2016: capital-intensive models either retreat — as many pandemic-era rapid delivery startups did once the economics failed — or consolidate into fewer, larger platforms that subsidize food delivery with higher-margin categories.
- Restaurants' structural dependence on a handful of fee-setting intermediaries persists past the crisis, shifting bargaining power over menu pricing and customer data toward the platforms themselves.
The trend: On-demand food delivery is settling into a structurally thin-margin core business that pushes platforms toward category diversification, fee regulation fights, and consolidation.