Venture Bytes #67 – Prop 22 – A Win for the Third Way

Prop 22 – A Win for the Third Way

California’s Prop 22 ballot measure passed with a 58% majority, or 6.7 million votes. The initiative exempts gig companies from Assembly Bill 5 law to classify their workers as employees. Instead, the companies will provide gig workers with improved conditions, such as an earnings guarantee of at least 120% of the state’s hourly minimum wage, (though this won’t apply to the time when drivers are waiting between passengers), new health benefits for workers who log a minimum of 15 hours, and medical and disability coverage for injuries and illnesses on the job.

Gig companies including Uber, Lyft, DoorDash, and Instacart will be allowed to continue classifying their workers as independent contractors by providing them with a few additional benefits. While the decision provides some welcome relief to these companies, it will still likely drive up the costs of riders’ fares. The new deal will add 1% to Uber’s costs, whereas reclassifying the workers as employees would have added 5%, according to Morgan Stanley. In order to cover the new benefits of their California employees, the companies will likely have to pass on some of the costs to customers.

In a blog post, Tony Xu, the CEO of DoorDash, wrote that his company wanted a so-called third way, seemingly going beyond conventional definitions of employees and independent contractors. “We are committed to working with lawmakers across the country and in Washington to develop tailored solutions that reflect the 21st century economy, and provide certainty to everyone who has come to benefit from the gig economy, including Dashers, merchants, and customers,” he wrote.

The successful ballot measure has a high probability of becoming the opening shot in changing the labor laws to reflect the dramatic shift in the way we work. Many of these labor laws were written well before the rapid developments in the labor market. In the new gig economy, some 40% of the American workforce consists of contingent workers: contract workers, part-time workers, independent contractors, and those who freelance. Between 10% and 20% of Americans have irregular and on-call work schedules, according to government and private surveys.

That said, the question of worker classification is established under each state’s laws, so it’s up to individual states to introduce legislation. However, the California ballot measures could prove to be a strong precedent and provide a road map for other states that may have considered imposing similar new laws on gig companies. Ultimately, if that holds true, the deck will be cleared for all the gig economy companies to thrive and, in the process, continue to transform our way of life.**

McDonald’s Jumps on the Alternative Meat Bandwagon and Further Validates the Nascent Market

Meat alternatives and the broader plant-based foods have penetrated deeper into the mainstream. The latest to jump on the bandwagon is McDonald’s. The company just announced plans for a major investment in plant-based menu items that it considers a long-term growth driver. McDonald’s, according to data from Piper Sandler, sells approximately 550 million pounds of beef per year. That’s roughly 2.6 billion burgers to its to 69 million consumers per day at over 38,000 restaurants across more than 100 countries.

This translates to a global market opportunity of roughly $10.5 to $13 billion (2.6 billion burgers x $4-$5 average price). More importantly, McDonald’s McPlant line of products will help evangelize plant-based meat alternatives in the U.S. and internationally. Plant-based meat and dairy alternatives have gained momentum during the pandemic and are driving sales at retail and grocery stores. Dollar sales of plant-based meat surged 265% over an eight-week period ending April 18, 2020.

This was 6 times the sales of conventional meat. Retail sales of plant-based meat showed a similar trend with an 18% increase in 2019, which was 9 times faster than total U.S. retail food sales (GFI). The sector gained strong validation when large food companies such as Tyson Foods, Cargill, and JBS, which together process two thirds of all the beef in the U.S., added their own plant-based meat alternatives. Accordingly, over 700 new plant-based foods were introduced at U.S. retailers looking to offset the stagnating or declining sales of animal meat products.

While, initially McDonald’s has decided to manufacture its own meat alternatives for its burgers, a tie up with Impossible Foods and Beyond Meat, leaders in terms of innovation and replicating animal meat, cannot be ruled out. In fact, as both companies ramp up production, increase throughput, strengthen their supply chain, and widen their consumer base, it will be hard for other suppliers to match their level of quality and price.

Furthermore, Impossible has expanded its retail footprint internationally to Hong Kong and Singapore. To further boost its distribution network and improve margins, it has added digital sales channel and wholesaling in partnership with Cheetah. Increasing access points for customers will spur widespread adoption, increase scale, and volume and in conjunction with higher margins from direct online sales, will enable more competitive pricing leading to a strong network effect.**

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