The delivery reckoning is here

• Food delivery costs have gone up for customers over the last few years.
• But gig worker earnings have fallen from their early-pandemic highs.
• That's created a reckoning for food delivery and its business model.

There's a growing contradiction behind that burrito you just had delivered for dinner.

Chances are, you paid a premium — over one-third more than if you had walked into the restaurant for takeout — just to have someone drop it off at your door.

But at the same time, the gig worker who made the delivery for DoorDash , Uber Eats, or a similar service may be getting paid less than they would have a few years ago.

Making deliveries used to be more lucrative — during the pandemic, for instance — but many gig workers now make less than minimum wage. That's driving some to abandon gig work — a possible problem for companies who need delivery drivers to keep clients served, and in a timely fashion.

And while some cities have imposed minimum-wage laws for gig workers, that's also a problem for companies, they say, claiming it's leading to higher costs for consumers.

The increasing tension points to a broader question in the delivery world that's become clearer than ever this year: Can the delivery business be profitable for the companies, affordable for consumers, and pay workers a living wage at the same time?

"I saw the writing on the wall"

One Instacart worker in California said he made delivering for the app his full-time source of income in 2020. But starting early in 2023, his daily earnings started falling.

That's when he first considered that his work for Instacart wouldn't last forever. "I saw the writing on the wall," he told Business Insider. He asked not to be named in this article, citing fear of Instacart deactivating his account.

An Instacart spokesperson said the company's force of gig delivery workers "has remained steady" at about 600,000 in North America and that Instacart has made no changes to what it pays in California.

They also said workers who want to earn more through the app can sign up for different kinds of deliveries, such as prescriptions, alcohol, and heavy items.

That's not enough for the worker.

"I really feel that the gig economy, it's going to be there for a long while," he said. "But as for myself, it's just no longer really worth it." Now, he's looking for a regular full-time remote job.

New laws aim to raise gig worker pay

Cities like New York and Seattle are trying to solve the pay problem with new regulations mandating how much delivery workers earn.

In Seattle, a law that took effect in January aims to pay delivery workers for services, including Instacart and DoorDash, a rate equivalent to the city's $19.97-an-hour minimum wage for W-2 employees, for example.

One worker who has delivered food for DoorDash in Seattle since the law entered into force told BI that he's seen his per-hour earnings increase since January. He asked not to be named in this story for fear of retaliation at work, but BI has verified his identity and work.

"It's more steady," the worker told BI. "Before, you'd go out and make $14 or $16 per hour." Now, his income before taxes and his costs, like vehicle upkeep, are as high as $25 per hour. Unlike employees, contractor delivery workers have to cover many of their own costs.

But the delivery companies are campaigning against Seattle's law . They've also added fees to orders in response to it.

A DoorDash spokesperson told BI that the law has led to higher costs for customers and longer wait times to claim orders for its couriers. "No one wins under this law, including delivery workers," the spokesperson said.

Gig workers have had to get choosier about jobs

The dilemma isn't unique to the food delivery world.

Plenty of startups have attracted early customers by offering their products or services to customers by taking a huge loss — consider all those flyers from meal kit companies like HelloFresh that used to show up in your mailbox offering a dozen or more free dinners for signing up.

The strategy: To get you, the customer, so used to what's being offered that you'll keep paying for it — even when prices start going up.

Timothy Turer, who has worked in rideshare and gig delivery in Florida since 2016, remembers the dirt-cheap fares that Uber and Lyft offered riders early on.

"I had people jump in a car and being like 'You won't believe how much I paid for this ride: $5!'" he told BI. "I'm getting paid $15, so I don't know what you think you're doing, but they're just addicting you to the service."

Today, fares are higher for customers, but Turer said he hasn't seen the benefits. Consequently, he said that he's been more strategic about which rides he takes. He sticks mostly to trips that customers schedule in advance, such as early-morning journeys to the airport, which tend to be more lucrative for him.

Waiting around busy parts of town to pick up rides on the spot no longer makes financial sense, Turer said. "I don't want to do that anymore," he said. "The scheduled rides work very well."

Some workers figure it's better to leave the business

Companies are facing a balancing act between paying workers enough to keep them working, turning a profit, and not hiking prices for customers so much that it turns them off.

It's tough.

In February, Uber posted its first annual profit — but 15 years after its founding.

And rival DoorDash has yet to hit the same milestone despite narrowing losses and growing revenue. Meantime, Instacart, which said it was profitable in 2022 ahead of its IPO, swung to a loss in 2023.

Paying delivery workers is one of the biggest costs for the companies. But with many telling BI that the job has gotten less profitable for them lately, or setting up their own delivery services, or even begging food delivery customers for better tips, it's clear cracks are starting to show in the well-polished delivery system.

Are you a gig worker and have a story idea to share? Reach out to this reporter at abitter@businessinsider.com