There is such a thing as a free lunch
I was the former Head of Innovation at Grubhub, so I have seen the truth behind many of these claims first hand. Sadly, I invented a lot of the food delivery technologies that are now being used for evil. There were so many great points made here, and I’m glad people are finally paying attention to this. I will try to only add to a few.
COVID-19 is exposing the fact that delivery platforms are not actually in the business of delivery. They are in the business of finance. In many ways, they are like payday lenders for restaurants and drivers. They give you the sensation of cash-flow, but at the expense of your long term future and financial stability. Once you “take out this loan” you will never pay it back and it will ultimately kill your business.
In the case of restaurants, these platforms slowly siphon off your customers and then charge you to have access to them. They are simultaneously selling these same customers to your competitor across the street, but, don’t worry, they are also selling their customers to you.
For drivers, they are banking on a workforce that is willing to mortgage their assets, like cars and time, well below market value, in exchange for money now. They know that most delivery drivers are simply not doing the math on the actual cost of providing delivery (time, gas, car maintenance, payroll taxes...etc). If they did, drivers would realize that they are actually the ones subsidizing the cost of delivery.
Delivery platforms are “hyper-growth” businesses that are trying to grow into a no-growth industry. Food consumption really only grows at the rate of population growth, so if you want to grow faster than that, you have to take market share from someone else. Ideally, you take it from someone weaker, who has less information. In this industry, the delivery platforms have found unsuspecting victims in restaurants and drivers.
The competition for customers has not gone away. It has simply moved online. Many restaurants have been too slow, or unwilling to adapt. Delivery platforms and other restaurants are taking advantage of this to gobble up market share. Restaurants need to realize that they are now running e-commerce businesses and they need to act accordingly. Being proficient on Google, Yelp, Facebook and the dozens of other platforms is no longer optional, it is essential.
My team is trying to do everything we can to help restaurants transition, but restaurants have to be willing to change. You can learn more about what we are doing to fight back at zero.eatgeek.com. Stay hungry.
I work on the Google Search team. We understand the concern about unauthorized order links. That's why we remove any order links from Google business profiles if a business reports there's no authorized relationship. They can do that following the instructions in our help page about order links here: https://support.google.com/business/answer/9503613
LOVED THIS ARTICLE! I've been a chef for about twenty years. Third party delivery is becoming a plague, and over the last several months, everyone is starting to finally realize it. Business models vary, but I think it's fairly accurate to say that if a restaurant takes home 20% after all of their expenses, then they're doing pretty well. If a third party company like Door Dash wants to take 20-30% off your sales as a delivery fee, you're not making money - so who cares if you're getting more sales? What I don't understand is that when you go to a restaurant, there's generally a gratuity, roughly 15-20%, and sometimes a lot more if the service is really on point - if everyone tipped the drivers that amount, then people would be falling over each other to be able to work as a driver making the deliveries. I work in a restaurant that is only doing to-go and delivery food while everyone is closed - our Service Staff does the deliveries instead of waiting tables. They're making more than twice the amount of tips they made before, and we don't have to deal with third party companies taking their cuts. When a Grub Hub driver shows up at the door with your food, they don't always get a great tip because there's already a fee for the delivery - but if it's someone from the restaurant, they seem to be very well taken care of. Cost vary depending on restaurants, but the packaging can cost a lot more than people think - I did rough calculations and we have about $1.85 per person invested in the food before it even leaves the building. Granted, we don't have to pay someone to wash plates, silverware or glasses, but that packaging really adds up. I've seen places have aline on the bill for "To-Go Packaging," but it seems sort of tacky, so we opted to not do that. And regarding Note #2 - third party delivery people are complete unknowns to restaurant owners, and in some cases are not the person you want associated with marketing your restaurant. Ever looked in the delivery vehicle? Probably not, but maybe you should. We spent $400 on insulated food carriers - those things are not cheap! But when you get a pizza that's 140º twenty minutes later on the table, it's easily worth it. I really think that the only drivers who care are the ones working directly for the restaurant - I get Domino's once to twice every month and the drivers are much more professional than most third party carriers.
They are making profits. Huge profits. They're just not on the balance sheets, but in the investors' pockets, and what's left is offset by creative math in the amortization and depreciation columns.
Come on, you know this.
This entire article is missing one big thing - it doesn't ask why the companies spend so much money. And the answer is - they spend it on market share. When you're sufficiently large and most of your competitors dropped off in this war of attrition then your customer acquisition costs drop precipitously - because you've already acquired all the customers you need and new ones may no longer even have an alternative.
That's why, in the long run, it inevitably leads to mergers and takeovers. Uber ejected out Southeast Asia and Grab basically took over the entire market for private drivers and a good chunk of the food delivery business, though Foodpanda and Deliveroo are still alive - but how much longer for?
To understand why investors are putting so much money into these businesses you have to take a very long-term view - not the immediate profitability today. They have their eyes on the prize - becoming the next SV giant worth hundreds of billions of dollars.
There's even more to it, actually, if you consider the entire market of door-to-door logistics. Food deliveries are just an element in a larger whole - that's why Uber launched Uber Eats - because it's all about moving things or people from point A to point B using private individuals and their vehicles.
This extends also to things like courier services - i.e. delivery of parcels within a city, that you can order on the spot and have stuff delivered within an hour or two for a slightly higher price. Or groceries, another service within this space.
At this point it's no longer about simply replacing taxis or carrying food, or delivering packages - the winners become a complete platform for rapidly moving stuff and people around in a highly distributed fashion.
Once users pick their winners and get used to being able to go to a single app and order anything that needs simple logistics - from ordering a cab to, let's say, moving a house or ordering a pizza - then, again, acquisition and marketing costs drop nearly to zero.
The goal for these startups is to become the Google or Amazon of logistics.
Does Google have to advertise for anybody to use it? No. Does Amazon? Also no. They are, of course, conducting marketing activities of course but there is no need for them to spend massively on customer acquisition because most people already know about them.
The potential for apps like Uber is in the hundreds of billions of dollars per year globally. The winner is going to become the next trillion dollar business in a decade or so. Dumping a few hundred million per year is nothing in comparison.
Plus, owning this much consumer data, including physical location, travel routes, food choices etc. is also extremely valuable and allows them to launch new services on top of what they've acquired.
The metric to focus on is not profit but LTV.
It's actually pretty simple math - let's assume you're losing $1 billion dollars every year for 15 years - but in the process you've built a company worth $100 billion. Was it worth it? And here we're really talking about at least several hundred billion. Investors will be eager to burn tens of billions of dollars for many years just to have their share of the big pie in the end.
Also, here's another thought to consider (and it is already happening) - how is it going to change the food business as such?
As the food delivery market grows, the need to have a restaurant in a good location drops. You can open a kitchen in a low-cost location to cater only to deliveries. Why splash out on a high street spot when you can turn some disused industrial building a few miles further for a low cost alternative? From the user perspective it doesn't matter where the food is made.
It's already happening, as I said. Business owners either set these up themselves or the delivery companies do it for them. Grab has a GrabKitchen concept, where it offers food from several outlets - including virtual restaurants that are away from expensive locations.
This article couldn't be suggested to me with a better timing....
Due to the pandemic I've found myself doing food Deliveries in an attempt to get some income as I have lost all work.
After a few days doing deliveries, I started to feel it was a waste of time.
I had always been reluctant and skeptical of the delivery business model as here in Australia where I live, it has always been seen as a really low paying job. Normally international students or people with low qualifications take it as they have very little options within the market place, specially if they don't know english very well.
But then after my job in events totally crashed, I bit the bullet and enrolled.
I started tracking myself with a GPS and the app, so I could generate some data.
Pooling that data I'm starting to see the real income per hour, and trying to make sense of the math I envision that the only way to make it viable is to have an extremely low-cost lifestyle (like... sharing a room with someone and have zero leisure expenses while eating chinese noodles and frozen pizza almost every day).... Otherwise it explodes into a need of 50-60+ hrs per week of driving. For which you'd need to be lucky to get enough orders at an equivalent frequency/consistency.
If I continue to do it, at the pace that I'm doing it, as a main income source, at some point I will not be able to maintain or renew my basic working assets; motorbike and phone.
So at this pace I'm operating on a loss... I get some cash in, but somewhere in the (distant?) future I will net a loss if I were to keep doing vehicle maintenance and/or eventually getting a new phone (cracked screen? Software obsolescence?).
So as a delivery courier, the system essentially banks on you having your working assets before hand, not getting them for going into business, as otherwise your payback is very far in time (perhaps even farther than the actual asset life cycle), unless you live on chinese noodles and frozen pizza.
Anyways, this is only my opinion from my experience, as I know that I have a somewhat increased cost structure compared to other people (slightly bigger bike, and I don't share a room... luxury 😂). Maybe some others do make a bit of a long-run profits. (Short-term profits are there, but what I say is that they are wiped out when you have to either do some maintenance, or renew your assets)
And all what I said, without any sort of social security (my income is kind of unverified, got not retirement savings from the platform, can't afford any sort of insurance beyond the compulsory third party for vehicles)..
Churn baby churn.... pizza inferno 🎶🎵
to drive down the pizza costs to zero, you could also have sold the same pizzas over and over again, bringing them back to the restaurant over and over again
I drive for Doordash. The model is horrific for food delivery apps. The way I look at, food delivery is a luxury not a necessity. That being said the customer should pay a per mile fee of $2.00 with a 5 mile minimum. The fee to the restaurant for the app should be no more than 5% of food costs. The pay to the driver should be $1.50 per mile $7.50 minimum plus tips. I don't think most customers realize currently drivers receive next to nothing and restaurants pay as much as 30% in fees. I am not sure if that works fiscally but it is more fair.
HAHAHAHAHAHA love this so much!
Doordash should be glad they are not running in China.
They would've been scammed so badly.
On a more serious note tho, I think there are multiple business model problems here:
- on demand food ordering is biggest limiting factor for optimization: if doordash were to launch a pre-ordered lunch / dinner subscription service, they can batch more orders and minimize most cost.
- existing restaurants are not set up to win the delivery game: easy to access locations, high cost rent, menu choice,and many other operations are built for dine in.
I love that this guys literally admits to commit fraud without being afraid of any consequences. And you wonder why people dislike wall street...
To your comment:
“ Maybe it’s some ghost kitchen / delivery platform hybrid...”
This feels like what INDIANAPOLIS’ Cluster Truck has become. They are a centralized kitchen that offers a wide variety of cuisines more like a food court’s selection than a restaurant. There is no customer storefront or seats available because the centrally located kitchen facility is optimized only for the pickup of orders by a fleet of drivers and bicyclist. No option exists other than delivery. All the food seems to travel well, likely because it wouldn’t be an option otherwise and because they optimize packaging. For some of their dishes they partner with other local business on recipes so they can say “Get so-and-so’s burger here”.
You have missed the entire objective of making a loss! This is a customer acquisition Stratergy once critical mass has been achieved and market dominance the orders being to be directed to Ghost Kitchens and the poor businesses are left with no direct access to what was their customers.
By position themselves (delivery platofmrs) between consumers and the businesses they effectively become the gatekeepers who decide where an order is sent for fulfilment.
By the time businesses realise it is to late, they (the business) have helped build up the delivery platforms business, expanded their reach and portfolio of products and services and become so.dependant on them that little or no attention has been made to build customer lists for future indirect.marketing activities (not that this is easy to do.when the business never has direct access to the customers details not even the delivery address! As only the driver has this, data protection lol)
This is also the same business model.used by the likes of Uber hailing services and also tripadvisor booking.com and alike!
Quietly position yourself between consumer and business! Then control the market and demand high commission and fees!
What is needed is a new paradigm! Thankfully I have developed such a solution....
Watch this.space 😎
If you're interested in a downward, equitable wealth transfer, your friend could order pizzas to deliver to the needy. Capital from Softbank converted to food for those who need it during the pandemic, and your friend can even -make money- doing it!
This makes some good points. Some things I have observed being in the commercial real estate space:
1. Dominoes takes the bare minimum amount of space needed for a kitchen only. So they are saving on how much space they have.
2. They don’t rent in more expensive sub markets like a lot of restaurants on these platforms so beyond the little amount of space they rent, their cost PSF is low.
3. Their product is scalable (relative to other food stuff). One pizza can feed a family. The time to assemble and cook a pizza is super fast; the ancillary products they offer are all the same way. Unlike a more typical restaurant where maybe each person in a household is ordering an individual dish.
Most restaurants make little money on food and pay a shit ton in rent to be in a high traffic area because they want people coming into the restaurant and ordering booze with their food. So the things they are paying the most for (their space and location) doesn’t help them on delivery.
It's rare that a very well written "everything is broken" piece misses one of the most broken aspects. Gig economy. Gig worker. No allegiance or accountability to merchant, gig company or consumer. Gig worker delivers food for MULTIPLE companies (whoops). Drives your food around a bit before even heading in your direction. (double whoops). Drinks your milkshake because it can't be stapled shut in the bag that holds the food. Pretends the restaurant is to blame. Shouts dismissively "Report it to the website" as they side hustle back to the car to screw another set of people. Side hustle, my butt. It's a straight up hustle. And their tip was collected an hour ago. Long gone. Hustled.
The real winner here is the owner’s friend, who got ten pizzas a day as long as the experiment ran.