Food delivery is a terrible business. M&A won’t make it better.
I worked at LivingSocial in 2012/2013. We used to joke that “we lose money on every transaction but make it up in scale.”
Takeout and Delivery was one of the last bets the company made. Basically food delivery. The customer service load is huge, the services aren’t really differentiated, and you have to both pay the driver enough for it to be worth it and keep prices low for the consumer to think it’s worth it.
Attracting customers on either side of the market means spending money to undercut your competition. As soon as you stop giving free delivery promotions or introductory no-fee periods for restaurants, they can instantly churn with little to no pain. Not to mention reaching small restaurants is incredibly time consuming. They’re not all just hanging out online. They’re running a business. They take a lot of expensive (human) outreach.
Margins are terrible, if they’re ever positive. It’s just a bad business.
And yet people keep trying. None of these companies have made a net dollar. But it’s a simple enough pitch and a common enough use-case that investors think, “yeah, that makes sense!”
I've said this in another thread, the business of all these "startups" seems not to be of making a sustainable business, but instead it's more of a pyramid scheme where one set of investors are trying to make money of the next round of investors (up to and after IPO). If we view it like that it makes sense, the merger/acquisition will increase stock prices because it seems like there is a holistic strategy. At some point the whole house of cards is going to fall down, but by that times all the early investors will have left and made a big buck.
Wealth is transferred from ordinary folk via the IPO-retirement-fund axis to the plethora of agents involved in the whole scheme, from the employees bashing out code and UX, right through to everyone involved the M&A and IPO and the whole tax / tax agent / government tax agency cadre.
Huh. That's a novel use of stupid index fund money. Just get your shitty investments listed on the stock exchange and cash out. Index fund buyers don't care, they'll swallow it right up and it's free to crash and burn at their expense. You could even do it deliberately, as long as it follows securities regulations. Being a pure momentum strategy, index investing has no intelligence.
At one point this would make index fund investing as a whole significantly less profitable. With all the horror stories we've seen unfold in the last five years, you could begin to suspect that boards actively and knowingly execute this strategy. You can only hope that a money manager would be smart enough to avoid the SoftBanks, Ubers and WeWorks. But I don't know that's a given. Shorting them out of your portfolio isn't an obvious strategy either, due to borrow costs and so on.
Anyone given a significant amount of thought to this?
Uber is not in the S&P500. And no fund manager is consistently doing better than the market. "Stupid index fund money" looks pretty smart in that regard.
It's false that no fund manager is consistently beating the market; you can easily find actively managed funds that have beaten the market for the last 5 years. The big debate is whether this is due to luck or skill, whether it's possible to tell the difference and whether it's possible to determine which fund manager will be successful in the future.
Uber is part of some indexes; S&P500 isn't the only one. The efficient markets hypothesis is obviously false, although from a distance it's usually a decent approximation.
And in case I'm about to get downvoted for violating the consensus -- 100% of my long-term investments are currently in index funds. But with the growing share of indexed investments, this is a very interesting question.
There are currently trillions of dollars (and growing) following the simple momentum strategy that index funds represent. It almost beggars belief that this is not, and will never, be exploited for gain.
> The big debate is whether this is due to luck or skill, whether it's possible to tell the difference and whether it's possible to determine which fund manager will be successful in the future.
And the other factor is this: if it is skill, do the high-fees still give you a better risk-adjusted return?
> do the high-fees still give you a better risk-adjusted return?
Yes. With your standard 2 and 20 fee structure, you don't pay performance fees on anything below 8% returns. Performance fees are where bonuses come from, so anyone coming up short sees capital and employees disappear overnight.
RenTech has a 40+% performance fee on their Medallion fund because it consistently generates 60% returns YoY.
You might have indicated you were talking about a hedge fund with non public listings and no transparency. If investing was as easy as picking whatever did well in the past then we'd all be billionaires.
> You can only hope that a money manager would be smart enough to avoid the SoftBanks, Ubers and WeWorks
The problem is, no one has much other choice than to go this route and invest into the "next potential unicorn". With classic stocks stagnating and many government bonds in low to negative interest territory, it's hard to make any noticeable profit.
The way to fix this would be to reform pensions to a government-backed system such as Germany or Austria have - that reduces the amount of "dumb money" in the system.
I don't see how this reduces returns for indexers in particular. Investing in an index means you get the market average. This may result in lower returns for the total market and thus also for indexers but for some active investors to overperform thanks to this some other active investors will need to underperform. Winning that directional bet requires someone else to take the other side of the bet and lose. Total market returns are zero sum.
There are several total market indexes and funds which follow them. They hold companies proportional to their market capitalization, irrespective of profitability. VTI holds 29,546,017 shares of Uber as of 5/31 for example.
Well, they're in the Russell 1000 and others, not to mention a bunch of ETFs that are basically indexes of their own. If you want a properly diversified global index fund portfolio, you wouldn't want to limit yourself to 500 of the largest American companies.
Mine contains 4 funds covering ~2500 global companies.
You wouldn't know them; the funds themselves are Norwegian. IIRC, the reference indexes amount to 50% MSCI World, 16% MSCI Emerging Markets, 16% MSCI Small Cap and 16% VINX Benchmark (Nordics).
Philosophy is diversification, broad coverage of both developed and developing markets, with both high-tech niche industries (heavily overrepresented in the Nordics) and global growth companies (overrepresented in the Small Cap index). Been considering specifically adding China, but dislike the political risk and human rights of top leadership. You might argue that the USA is still overrepresented in this allocation.
I was probably underestimating the number of companies covered by this; the Small Cap index alone represents more than 4500 companies. Although I doubt that my funds actually own all of them.
> Wealth is transferred from ordinary folk via the IPO-retirement-fund axis
Pretty much this. It's so infuriating to watch never-going-to-be-profitable businesses cash out on the backs of people's retirement accounts. It's one thing for a company's 401k to be stuffed with this crap, but when municipalities like CalPERS are investing in these indexes, it's outright criminal IMO.
Will it fall down? When? (The whole global macro climate right now is a wealth transfer scheme, i guess from ultimately third world countries to (eventually) investors)
Honestly it might not. How many of these companies have - or will - simply get acquired then shut down? Or, exist as part of a larger operation a la Uber Eats and could eventually get shut down with little fanfare, or exist as a permanent loss leader?
Couldn't agree more. I've also made this point ad-nauseam. How is this not more the typical story. The tech industry we all work in is just so good at selling snake oil in terms of technology that isn't relevant at inflated prices, we seem to have branched out into entire companies that don't make sense.
I worked for five years at a grocery delivery company, and even there it was a nightmare trying to keep delivery routes profitable - that was with at least 5 hour's notice on what people had ordered, and pre-selected delivery slots, which meant we could peak at each driver doing 10-12 drops an hour if they were in an area with a high customer density. I have no idea how companies like Deliveroo expect to make a consistent profit when they get 25 minute's notice, no delivery slots, and therefore little to no ability to batch a driver's work. Everything I've read indicates a single Deliveroo driver would expect to do 1-3 drops an hour, which is just wildly inefficient.
Having said that, I do now wonder if you could make the model work by offering very cheap, or even free, delivery on the condition that you place the order a few hours in advance for a pre-selected delivery time. I'm not sure what the market is like for customers who want to order takeout food, but also know they'll want to do that in advance, but I think there's probably a niche there if anyone fancies taking a pass at it.
> Having said that, I do now wonder if you could make the model work by offering very cheap, or even free, delivery on the condition that you place the order a few hours in advance for a pre-selected delivery time.
You're right and you just described how that "Special Offers" section of über ears works. They give you a small selection of restaurants that another user near you has ordered from and a 5min countdown to place an order yourself, if you do you get free delivery and über benefits from the efficiency of a double or triple order for one of their drivers.
> Having said that, I do now wonder if you could make the model work by offering very cheap, or even free, delivery on the condition that you place the order a few hours in advance for a pre-selected delivery time.
While a nifty idea, I don't think it really works. I see two major obstacles:
Food ordering is instant (or almost instant) gratification. You want your food and you want it now. Or if not now then in 30 minutes, max. You may have the odd outlier, who plans accordingly and orders dinner at noon.
The other problem would be the customers at the end of the delivery route. While that doesn't matter much for groceries that sauce on the former tasty duck à l'orange may be mighty congealed and rather unappetizing once it arrives as one of the last deliveries of a route.
I just don't think that there's enough of a market for pre planned food deliveries and quality assurance would be impossible.
If you have a good math and data science team you should be able to predict demand pretty reliably. I think membership fee programs may be the future here with a premium for faster delivery vs normal delivery. The key is to set expectations.
I think a questions that’s going to pop up is, why does delivery work for a company like Dominos’s (vertical integration) but not Postmates (horizontal)?
I've worked as pizza delivery. The tipping and per-delivery payments to drivers is why it works.
Roughly speaking, a delivery driver in my area nearly a decade ago earned roughly $20/hr after gas and car expenses, half in hourly wages @ state minimum and the other half in tips + $1/delivery payment. They also took about 3 deliveries an hour when fully utilized, which wasn't for 100% of their shift. The wait time got used productively, combination of answering phones, making pizzas, or at worst folding boxes.
This combination means that you're employing people at a significnatly-above-minimum-wage level, but their excess time waiting for deliveries gets paid at minimum wage and used to do customer service. And in the worst case when things are so absolutely slammed that there is no downtime, well, that's when you have to let phones ring (or answer briefly with "thank you for calling, our wait time is currently two hours, would you like to place an order?"). Plus these drivers know the store and the area well and from that alone should be significantly more competent at resolving issues - often enough someone calling in about their order will end up talking to the person who just tried and failed to make the delivery.
With Postmates and the like, though, the time spent waiting for a delivery has no useful work to fill the time. It's also not paid, but the gig has to justify itself economically, which means that drivers have to make up for it through increased per-delivery payments.
Basically, the difference is that store-employed drivers can do useful work while waiting to engage in deliveries, while app drivers can't. This is a very significant efficiency gain.
Corona changed tipping completely. Tips are now done through the platform if at all and no longer in cash to the delivery person reducing the chance that the money actually ends up where it is supposed to go.
I never had any problem getting my credit card tips as a store-employed driver. The apps have done some of that kind of bullshit, but at the end of my shift at the store I'd get paid my credit card tips in cash. Only difference is that credit card tips got added to total pay for payroll tax withholding, while cash tips relied on your own record-keeping for tax reporting purposes.
What about in countries where tipping is not normal? I live in the UK and lots of small family-run fish and chip shops and takeaways offer delivery, along with the bigger chains like Dominos.
Like the person you responded to said, employees working for those stores can do useful work when they aren’t delivering. Here the Domino’s are delivered by bicyclists and those people are doing work for the store when they’re waiting for deliveries. That work justifies them being paid a wage. For Postmates et al., those drivers aren’t doing anything useful during their downtime. They have nothing to sweep or dishes to clean etc. Postmates et al need to pay them enough to make it worthwhile for them, which gets passed onto the customers.
Personally, I’ve ordered a ton of food delivery lately from places I’ve wanted to try but never found time to go. But, I don’t order from them more than once, so those businesses aren’t making a customer out of me.
Yes but they said 50% of their income comes from tips and a $1 delivery fee.
I assume tips are generally more than $1 (I may be wrong).
Maybe it’s just not productive to compare different countries’ eating habits in the end, but it seems to me GP is saying that tips make up a meaningful proportion of delivery drivers’ income.
My bad, I misunderstood, but I’m not sure how tips are relevant.
It seems like the GP(?, the first poster in this chain) was saying that delivery works for places like Domino’s which hires and pays their own couriers a standard wage. That wage is already accounted for in Domino’s pricing, and since that employee has to show up to work even when there aren’t deliveries they can be put to work. Thus, there are no additional costs to Domino’s as everything is presumably priced taking this into account.
When you outsource your delivery, the company being hired takes a cut. That company (Postmates etc) need to use this cut to pay their couriers. Postmates can only ask for so much before the store just says no, it’s not worth it. Those couriers need to be paid enough that it’s worth it for them to keep delivering. So, Postmates scales up to make up for it in bulk by taking losses by offering deals. Those deals don’t last forever, and customers like me only order because of the deals will just go away.
Yes, tips will be higher then $1. But thats only germane as a way of the deliverer receiving an average income thats higher than the minimum wage. In locales without prevalent tipping Im going to guess thats made up for with a higher wage or work piece pricing. From the competitive business side the real difference is in higher worker productivity & efficiency for the vertically integrated shop.
Tips averaged between $3 and $4 per run, and I got 3 runs an hour at peak. That's more than half if you add all that up, but not all time is peak time, so it averaged closer to 50/50. Plus I subtracted out fuel and car costs from the delivery side of things to net stuff out.
Our office is next to a managed kitchen,which cooks for 6-10 different restaurants,who mainly operate online only,via Deliveroo and etc.The service is very popular,so the road is always packed with scooter riders. However, the downtime seems to be substantial for the riders. These are the ones things I'd be going out and observing if I was someone with tons of money to invest in those companies.
I'm making two points here, and it's worth separating out.
First is pure utilization. App drivers get paid while on the road and while idle, store drivers get paid hourly while on the clock and usually have some useful work to do. The average pay of road & idle time has to be worth the driver's while, and the store driver has more valuable work they can do, so the economics make more sense.
Second is the largely tip-driven pay differential while on the road vs in the store. 3 deliveries an hour at my store, more at places that trade off service times for throughput. Average of $3-4 per run, with a tendency for higher tips for customers further from the store. (Funny example: there was this one house at the exact furthest corner of the store's delivery area. They were extremely nice and tipped like $7. These facts are not coincidental.) But this basically becomes a cross subsidy of in-store work by tips, and there was a decent chunk of tension between drivers and management over this. Usually it took the form of "do your assigned side work and then you can go home", and since doing dishes was the "bad" pay of the shift, this disincentivized malingering too.
As far as I can tell for non-tipping countries, drivers tend to use employer-provided vehicles and fuel, so it turns into a more straightforward hourly job and loses a good chunk of the piece-work and quality incentives.
The difference between delivery people that work for the restaurant and those that don't are VAST. The first is invested (for a number of reasons) in getting the food to you quickly and in good condition. The latter group simply doesn't, and the restaurant gets blamed for it.
You raise an interesting point. Maybe with uber the goal is to integrate delivery work force with ride work force to improve utilization of drivers/deliverers. Horizontal, but complimentary.
In many markets they are different vehicles, scooters/(e)bikes for food delivery, cars for passenger transport.
Even in markets where cars are used a lot for food delivery; I can't see it really working very well. It's hard enough trying to schedule food delivery drivers being in the right place at the right time (often waiting a while for food to be ready if the order got delayed in the kitchen). Trying to then piece together humans going places in between seems virtually impossible.
However, if you allow yourself to simplify the problem, it seems there is really no physical difference from a food delivery and a ride. Pick up at one location, drop off at another--maybe with extra time required to get out of the car. In both cases, there is a limited allowable waiting threshold.
So if you can merge those work forces, you could attain higher utilization. The main problem I see though is that both sectors surge at roughly the same times, so it isn't quite as complimentary as you might initially hope.
Also, in the vertical model, the profit is shared with two parties -- the restaurant and delivery agent. In the horizontal model, there is an extra party which needs to be paid -- Postmate/Uber/DoorDash/etc. Presumably, the app experience makes it worth to pay more for the delivery, to pay this third party, but that has not yet been the case.
Also, once one party owns the relationship (e.g., the app), they can try and take more and more from the other parties while putting more burden/risk on the other parties.
You're assuming that domino's makes a profit on food delivery rather than breaking even on it.
But domino's also makes the food, so if they break even on the deliver, that's fine, they made money on the food. Scaling the delivery part of the business also scales the food part.
If you aren't making the food, you have to make money on the delivery alone because scaling your delivery service scales someone else's food business. You're essentially competing with your suppliers (restaurants with their own delivery), and they don't need to make money on the product. That's a hard position to be in.
I think Domino's margins blow typical restaurant margins out of the water. I don't have hard numbers, but worked a variety of delivery jobs from 2010-2014. Domino's was the only place with the attitude that their food was worth pennies to produce.
Most places didn't offer discounts to their employees, not even for food that was mistakenly made and had to be trashed. Domino's was the only one that would just allow employees to make themselves a pizza for lunch or to take home for dinner (but no feta cheese, we had limited quantities of that).
Call and complain about any Domino's order, even over the dumbest thing, and they're supposed to give you a credit for a new order. It was drilled into my head as an employee. If someone complains, give them something free, and they're pretty much guaranteed to order from Domino's again in the future more times than they would if you had never made a mistake.
Also an individual driver could do far more deliveries than an app-based delivery worker can. The routing software they used at the time was really good, and would group 2 nearby orders for one trip by a delivery driver. There was never any waiting unless there were no orders at all. From what I hear with my friends who work UberEats/GrubHub, a lot of time is wasted at the restaurant waiting for the food to finish. McDonalds (at least in my area) is a big offender, marking orders as ready for pickup when they haven't even started making them yet. Having all food coming from a single storefront, and being able to take multiple deliveries at once is a big deal.
As for why places like Pizza Hut and Burger King can't do it as well, I guess it comes down to the tech and management. When Burger King tried offering first-party delivery services it was a massive shit show. I worked there for a bit, as they were the only store paying drivers 100% of the delivery fee. It ended up being a terrible deal because I would average 1-2 deliveries per hour during the lunch and dinner "rush", while a great day at Domino's could have me doing 10 per hour. Pizza Hut wasn't as terrible as when BK attempted it, but I feel like it only worked because they have a limited menu and not because they're actually competent.
I delivered for Pizza Hut a dozen+ years ago. The store I was at only did delivery and take out. We didn't have routing software, but it was really easy to divvy up and group orders looking at a map. I'm sure it would be more difficult if your software wasn't great, volumes weren't high enough, or just not having the vertical integration.
Also, with vertical integration drivers can help cut, box, and confirm orders so staff can focus on other things--or not depending on how busy they are.
I worked Sunday afternoons just me and a manager. I would share responsibilities of cooking, prep, and delivering, they would cover the phone lines, prep, and cook as needed. It would normally be quiet, but we might randomly get a large youth group or party order while also prepping for Sunday evening football rush. The fungibility of labor seemed better than the burstability of delivery, at least in that case.
A cheap pizza from Aldi is £1. A regular pizza with some toppings and maybe meat is £2-3 in most supermarkets. Could be £4 in higher end supermarkets.
You see where this is going. Pizzas are worth nothing, supermarkets are making money on these (it's not allowed to sell an item at a loss in Europe). Domino produces for £1-2 and sell for £10-20.
The accepted number in the restaurant industry is that food cost must be less than 30% of the listed price. Pizzas are pushing this to an extreme by selling for double digits while they're so cheap.
You can't really compare a cheap frozen pizza to a chain pizza. They are bigger, for one.
I've read before that a Hot-n-Ready from Little Caeser's is sold for $5.55 but costs $3.50 in just ingredients. They don't make any money on those.
The breadsticks that they sell for $3.99, the cup of marinara for $1.99, the $13 veggie pizza and the $15 supreme pizza is where the money is made. Do you think there's an extra $10 in toppings on those supreme pizzas? Don't forget the bottles of soda..
That was the price for fresh, not frozen, and they're not small. Smaller than the large £20 pizza from the chain, sure, but not necessarily smaller than the £10-15 one.
The link is talking about a $11 pizza, that was briefly on sale for $5 (and still making a profit). It's not a $5 pizza.
Routing optimization only really works at massive scale, otherwise waiting times are just getting too long. Chain's like Dominos or Pizza Hut have the advantage of a single source, all managed by the same company, using the same tools, systems an processes. Companies like Uber Eat or Deliveroo are using multiple small sources (restaurants) to deliver multiple small destinations with small order numbers. Can work, once everythig is automated as ch as possible (near impossible without an operating system for small restaurants) and at huge scale (locally, within normal delivery driver's ops radius). All despite competition. Without taking expenses like marketing and so on into account. Not sure how these companies are going to make money.
This is an extremely accurate description of Dominos operations. Very few,if any,can replicate it,unless they also sell products that cost a small fraction of the end price. At least in the UK, their tech is years ahead of any other pizza join, including their biggest competitors.
They'll need to survive for 10 years losing billions annually if that is their goal. And it will take them years to scale up automated rides/food delivery even after it becomes available.
Both probably. I read an interesting article about restaurants renting in industrial areas with no dining room only doing take out. People will always want to eat somewhere nice / fun but certain franchises I could see making the switch
Domino's is built to deliver pizzas. They have streamlined the process of an order being placed, prepped, and handed off to delivery to try to make each step of the process as efficient as possible.
Do "horizontal" delivery companies have similar integration and benefit from similar efficiency?
In an ideal delivery situation, you want two things to be true: first, delivery people should be constantly moving. Second, orders should be handed off to a delivery person as soon as they are finished.
Is this achievable when delivery people are routed to new pick-up locations for each delivery? You want your delivery person to arrive at the restaurant right as the meal is finished -- if they arrive early, your delivery person is idle and your costs go up; if they arrive late, the food is cold and your customers are dissatisfied.
Restaurants with successful delivery components can solve this by tweaking their number of delivery people and their service areas in response to their busy-ness, so that they always have delivery people returning to pick up more food with an appropriate frequency. Have horizontal delivery companies solved these problems, either through integration with the restaurants or through some sort of big data magic?
Additionally "idle" doesn't mean quite the same thing to the vertically-integrated driver as it does to the horizontally-integrated driver. A Domino's driver who arrives at the restaurant before the pizza is ready is still a Domino's employee. The Uber driver who arrives before the McDonald's order is ready is just a dude in the lobby.
I suppose the argument goes: if anyone can approach that optimality, it's a company with a large fleet of repurposable drivers.
Being able to dispatch to a driver in motion depends on having a suitable driver available.
I'm still doubtful it can ever work, for the reasons people mentioned above. But the realistic game is that Uber becomes the new Yelp and strongarms restaurants for a share of their profit, in return for customer access / promotion. (Which I have pretty strong feelings about as an ethical business model, but that's just my opinion...)
Uber and the like already take a share of the profit, last time I chatted to a restaurant owner while waiting to pick up some food I'd ordered even Just Eat, who don't even provide delivery services, take a 15% cut of the order value. Uber/Delivery I believe are taking 20-30% of the order value, which given the margins on takeout food feels like its leaving basically nothing on the table for the actual restaurant.
Other way I see it working out is Uber gets so optimized that they can have a driver double dip with a delivery and passengers going on the same route.
Part of it I think is that Dominos only does delivery, and their product holds up well in delivery. It comes out of the oven very hot, and with an insulated bag, it can sit for a little while and still be good. If you deliver something like Thai food, it doesn't come out as hot, and there are hotter and cooler parts of the food. This doesn't taste great if it takes 20 minutes to get from the kitchen to you.
That, plus the volume, allows Dominos to send out drivers with multiple pizzas. They can calculate an optimal traveling salesman route from the store to all of the customers in the run, and then the driver comes back to the store to do it again. Also, the whole organization is built around the drivers not waiting around. Restaurants will often not have the order when the driver arrives, and they have to mess around with payment, etc for every order.
All of that makes driver productivity much greater and so the delivery cost per order is much less.
Add costs to the other points mentioned in comments.
A pizza is made for £1-2 and sold for £10-20. The margin is incredible and more than enough to pay staff and deliverers.
I personally never order pizza delivery because it's a total ripoff. Don't want to pay £20 for a pizza (or two on promotion). This is a party delivery service as far as I am concerned, only used when there are friends over (big dollars for the company for a single delivery).
The business model of Uber and Just Eat by comparison is to attempt to deliver Noodles for £10 (one meal for a lazy millennial or a couple who doesn't want to cook). It doesn't work.
I can order Chinese From halfway across the city for the same price as delivery by Dominos. The closest Dominos is 5 minute walk away. The next is a 5 minute drive. The Chinese food is 25 minutes away.
@ThrustVectoring has an excellent answer, but to add one more bit:
When you have your own delivery staff, you are planning your costs and setting your prices with all that built in. When a third party is handling deliveries (in a very non-integrated manner), it's a lot harder to consider the delivery cost as a part of the business, because the cost is being borne by a third party who is charging you an arbitrary amount that may not actually reflect delivery costs.
Since the third-party delivery companies usually take a cut for their services, restaurant owners can't plan that way. They do have choices: they can raise prices overall or they can charge more per-item for delivery orders (if the delivery platform allows it). If they do this, the restaurant owners will be fine; they'll offset any loss to the delivery company with an increase in prices (as long as this doesn't hurt non-delivery business).
The problem lies with the third-party delivery companies. They have drivers who are sitting idle during their downtime, so they have to pay them more per-delivery, essentially paying them to sit around. They have a ton of cheap VC money behind them, and VC's seem to care more about market share than profits, so they are incentivized to do deliveries at a lower price than what it actually costs. So it's no surprise that we see things like revenue of $50M on expenses of $100M. It's a race to the bottom, fueled by someone else's money. All the delivery companies must charge well below cost in order to be competitive. At some point (hopefully) people will stop investing in these companies. At that point, we'll see the final consolidated state of things, and we'll see delivery fees go up dramatically, or service quality go down quite a bit, or both.
It worked as a vertical before technology allowed it to work as a horizontal.
Now it is just a value proposition. Dominos can still make it work because the delivery is bundled with incredibly cheap to produce food. Horizontals do work and aren't going away but right now there's many players making the bet that future market position is more important than current revenue so its not making great money today.
If I buy from Domino's I pay the fixed price for my pizza + delivery fee + tip for the driver.
If I buy food from $local_restaurant via $delivery_service I pay original cost of food + whatever the food deliver service adds to the cost of the food + the delivery services fee + tip to the restaurant + tip to the driver.
I think you could say something about optimization here. When I was in college, I briefly worked as a delivery boy, and I'd often make 2-3 deliveries per trip.
Perhaps we’ll look back and say “food delivery was the pet food of the 2020 startup boom/bust.”
I think these businesses are awful and probably unethical, but from the outside it would surprise me if a single winner could not make this business model work, once they had so much of the market that delivery schedules could reach high utilisation.
The issue is mostly limited by requirements to get food there quickly.
If we knew what we wanted ahead of time, scheduling delivery ahead of time would make it easy... since you could use a delivery route (to deliver 2-3 items nearby).
A single winner may be able to make it work since you can do 1-2 pickups and deliver to two nearby homes.
> Driver needs to wait for the second meal to be prepared,
That's the rub right there.
If you're the winner in the market, can send info to a restaurant to keep your food hot (or even hotter than normal) and can schedule it perfectly it will work.
Once you spend a couple of billions into the infrastructure to make it happen, you can totally make a couple of hundred thousands worth of profit - 2020 Startups.
I'm not sure what exactly you think restaurants can do with that request. A small subset of places will have a heat lamp, but that still doesn't really preserve quality, just heat.
"This food will be ready to collect at 17:35 and 45 seconds, and if it isn't, we wont be paying you".
Restaurants would soon figure out how to use a couple of timers to get every order done on time.
There could also be a deeper integration to ensure that, for example, there are no more than 3 orders worth of fries being cooked at once, or no more than 2 pickups per minute scheduled, to avoid overloading that part of the kitchen.
Have you ever worked in a restaurant? What you're describing would be a massive undertaking to manage with just a single corporate partner, much less with a collection of independent and small chain restaurants.
If you force restaurants to optimize everything for timing, you'll end up delivering food on par with McDonalds.
And if it turns out customers are willing to pay restaurant prices for McDonalds quality delivery, then McDonalds themselves will start a delivery service to compete with you.
Yep, I recently stopped using Doordash for this reason exactly.
My driver picked up my meal (from about 10 blocks away), then proceeded to drive downtown to pick up another meal, then to the other side of town to deliver it, then finally back to me.
My food arrived almost 2 hours after I ordered it, cold, soggy, and leaking in the bag.
Yeah, that's why the churn of food-delivery companies isn't going to end unless external factors cut off the flow of investment. It's conceivable that one winner could be massively profitable, at enormous scale, with all the efficiencies of a significant proportion of the population being bought-in and everything from schedules to menus to delivery vehicles optimised to make the service effective. (Here is your daily PrimeMeal, valued PrimeCitizen). Until then everyone is making huge losses with ad-hoc restaurant collection.
I don't think that could be made to work for impulse, on-demand ordering ("I've just decided I want food as soon as possible, and my stomach/brain seems to think $dish sounds good"), which in my experience is the bulk of it. People don't plan out what they're going to eat when ordering restaurant food as much, they just do it when they're ready.
Imo Netflix is much worst in that regard. At least in this case, you can hope to won a capital attrition war and become the really big player. But for Netflix, it's literally a never ending spring in a hamster wheel. You have users that can almost instantly leave your platform if you don't have interesting content, so you need to perpetually use whatever money subscriptions generate to produce even more content, even more quickly as you get more users with varied tastes. If you slack on content, you get less subscription money.
Considering that a large part of the culture defining movies/franchises/series IP is also not owned by Netflix, they can't really hope to just end up outcompeting everyone else down the line. Think about it: food delivery is pretty generic, you don't really see the difference apart from cost. So if let's say Uber manages to bring down costs, outrun the current big competitors, and use that dominant position to keep prices lower than future newcomers, odds are customers will just keep using Uber.
But in Netflix's case, people will still want disney movies or HBO series. That means there's no real hope for a profitable market dominating position down the line, so they will need to perpetually produce a very expensive product just to pay off the cost of other expensive product. If Netflix starts to lose subscribers, it still has very fixed costs (content acquisition & debt service for already made content) whereas Uber or Doordash have most of their operational costs directly tied to demand. No orders only means loss of revenue, but no additional losses.
Netflix just seems like a very weird and very... risky investment and much more so than the already very shaky business of food delivery. But I always assume the markets see something I don't, so maybe I'm totally wrong!
I think you've got it backward. Uber is precisely like NetFlix and they don't have the Disney franchise (restaurants).
I started ordering on Uber Eats when they got the restaurant few blocks away that is good. Then they got another restaurant across the city, that's the only one to do some specialty food I love.
I only order from a couple places. All my friends only order from a couple places. Discussing what to order at parties goes like: this or this or that (each person's favorite or good enough restaurant).
Last month Uber added £5 delivery fee. Quit Uber and started the Deliveroo app. Everybody's got multiple apps on their phones. Couldn't care less about the app as long as it delivers the food.
Yes, most content producers have the same problem but few have to maintain the pace Netflix needs to keep users subscribed to a unlimited platform.
Disney has a very strong and very culturally defining position. They are also more diversified and generate cashflow from multiple sources. Disney+ is also mostly content that has already been "paid for" by either box office sales or licensed merchandise.For example, selling Star Wars toys is very profitable and makes the movies even more profitable. The box office sales usually also more than pay for their production costs.
Netflix does not have any other source of revenue, is totally dependant on month to month subscriptions and has to compete with decades of already made and paid for content that it's competitors can and will often chose not to license to Netflix.
To finance that huge catalog they basically took a mortgage on all of their future subscription revenue. Disney can afford to lose all of it's disney+ subscribers as long it's movies are still watched and its parks still visited. It can lose a revenue stream and still be alive
As for HBO, it's owned by ATT and usually has "premium" content. ATT can also afford a few bad years for HBO but the same would be a death sentence for Netflix. I guess my point is that netflix has almost no room for error, it bet everything on never not growing.
What's really going to be interesting for Netflix and for food delivery apps is what will happen once the lockdowns end and when we get back to normal. Will people still have things left to watch that appeals to them after so much free time? Will food delivery stay popular?
Netflix and the traditional studios are almost opposites in how they make money from content. Netflix has profitable streaming that subsidizes content creation. Disney/HBO have profitable content creation (with risk mitigated by other business divisions) and that subsidizes streaming.
So with production/sports halted by COVID for everyone, and streaming rising, Disney is getting hit by a perfect storm, while Netflix managed to catch some breathing room.
Traditional film production companies seem much more like the model you're accusing Netflix of. Gotta keep churning out films and hoping you make money in box office. Then the value of the goods approaches zero very quickly.
i think this round of delivery startups were mostly driven by concentrated capital desperate for return (plus not enough diversity of thought to recognize unconventional but interesting bets), because anyone who remembers webvan knows that the economics of last-mile logistics hasn't changed substantially with faster/ubiquitous computing and mobile.
mobile does increase availability slightly and reduces friction a little, but those weren't the core problems that needed solving to make a successful business in the space. even uber's outsourcing of capital costs wasn't a major problem that needed solving to unlock the market.
you can't beat last-mile logistics by throwing more marketing at it.
I saw someone online saying how they didn't get their ranch with their pizza, so they called up customer service and eventually got a whole new pizza out of the deal.
I understand it sucks to not get your ranch, but come on...
I mentioned this in a comment above, but I worked at Domino's and this was 100% encouraged. My manager hammered it into my head that a mistake was just an opportunity to gain a more loyal customer. If someone called with a complaint, we would credit you for a whole new pizza. Drink and dessert too if we really F'd up.
The reason being people will actually stop ordering Domino's if they're upset at a mistake in an order. Even something as silly as not getting ranch dip you paid $0.50 for. Making it up to them with a free item way more valuable than the mistake almost made the customer feel guilty. After using their free pizza credit, a customer was almost guaranteed to order Domino's again within 2 weeks, and would generally order twice as often as they normally would for the rest of the year or longer.
My very first delivery ever, I opened up the heatbag and their whole order slid out and fell onto the floor outside their front door. Maybe still one of my most embarrassing moments ever, I was sure I was going to get fired. When I told my manager about it, he said "This is going to be more powerful than a hundred TV commercials"
Oh, and they have all your orders and previous free credits saved in the computer system that handles orders, tied to both address and phone number (or online account). So if you tried taking advantage of this thing they would just permanently ban you from ordering from our store. This only happened once or twice in my couple years there.
It makes sense. I would definitely order again and again from a place that gave me assurances that they would handle any mistakes.
I got an Indian meal delivered without the rice I ordered. I rang up and they apologized and refunded me straight away... but I still didn't have the rice so the meal I intended on having was ruined. I probably will never order from them again (there's plenty of other Indian food places near me)
I ordered a vegetarian meal from a place I wanted to try. They delivered it, the item had a big green VEGGIE sticker on it, but taking a bite my mouth was filled with meat.
The only recourse I had was to use the app’s help feature and mark it as “incorrect dietary restrictions” and select which item in the order was wrong.
Deliveroo instantly gave me credit for it, which isn’t a refund but I’d use the credit sooner or later so not a big deal.
But now the problem is that I have a neat filled burrito that I can’t eat. I’ve once again accidentally ate meat through no error on my part, so my entire meal is ruined because my mood is ruined. There was a desert I could eat, but that’s it. I ended up waiting 30 minutes for a delicious meal only to end up with just a desert and now I have to spend time to cook my own meal.
If the restaurant would have delivered me another meal then I’d probably still consider ordering from them again, but with the way the app is set up, that I got a measly €10 credit for one part of the meal (still had to pay for delivery, the dessert that I didn’t eat, and a tip cause it was raining). This just meant I’ll never give that restaurant another chance.
I had a few friends in customer support. This happened all the time.
If you spend too long going back and forth with a customer, the salary-based calculation of what it costs the company doesn’t make sense. So you give it to them free. But then it’s not like you have any margins that those come out of.
It turns out that human beings are often inclined not to lie for selfish gain, and there is often a certain degree of social pressure not to lie for selfish gain.
In my experience, it depends what the size of the gain is and/or which environment you are in.
Certain countries I've been to, it's perfectly normal to assume the opposing party is lying for selfish gain, and in return you expect it and act accordingly. In these places, there are no stores with return policies that will just take a customer's word for it.
Certain places have a higher trust society, and that allows some stores to be able to offer returns for refunds leniently...as long as the proportion of scammers stays low. However, even in these "high trust" places, I see that while people are hesitate to lie for selfish gain in small transactions, there is plenty of unscrupulous behavior in large transactions concealed by plausible deniability, aka white collar crime. A lot of it is in the form of you scratch my back, I'll scratch yours with someone else's money. There's almost no way to prove it unless it happened to be written down or recorded on audio/video.
To restate: “It will be used by a minority” — yes, we agree on this.
I absolutely feel social pressure when I’m alone on the phone with some faceless customer service employee. If you do not, that’s your choice, but it’s not universal.
Generally people trying to scam customer service out of a free pizza doesn't seem to happen at scale at least based on my experience in the food industry.
Folks who demand free food do it regardless of if it can be done or not and most everyone else just shrugs their shoulders and doesn't want to talk to anyone about their experience.
Most people know that they can harass customer support to do ridiculous things, but they don’t act on it. Maybe because they don’t think it’s an honest way to act, or maybe they don’t think it’s worth their time to harass customer support over something like free pizza.
Businesses are free to, and often do, ban highly unprofitable customers. Compensated product only makes business sense if its value is less than expected future margins plus the risk cost of the reputational hit to the company.
Every traditional delivery place will already do this, call Dominos and make up some way they got your pizza wrong and they'll send a new one. The benefit from gaming the system isn't worth it for most people.
Papa John’s is kinda unique in that they game themselves quite often and use
it to their advantage. I will order pizza and have zero problem with the delivery or order and I’ll get one of those “we’re sorry” postcards. It’s just a better than average coupon and since they expire quickly there’s pressure to use it.
I’m kinda surprised (and happy) that all these delivery startups haven’t figured out that bs customer service can be a way to make money.
These delivery companies running at a loss are valued almost entirely based on growth in MAUs. Giving a customer a free pizza may be worth it if it keeps them on the platform, considering how much it costs to aquire a new customer.
Perhaps because of this Doordash has been aggressively cutting their refund policies. If an item is not delivered you don't get a full refund and often don't even get a refund for the item price + tax on said item.
Not been the case for me unfortunately, even after escalating. Ordered some stuff and everything but the condiments were destroyed on delivery. Couldn't get a full refund.
well from the customer view (i think i have been this person a few times).. i dont exist to keep your company afloat. I trusted you to do what you said, and i gave you my money. and you didnt do what you said you would do.
Dear Company,
if you cant do your job you shouldnt exist
Kinda surprised this isn't higher up, I also assumed the path to a more sustainable model is to have a set of ghost kitchens making food of different types exclusively serving Deliveroo/Glovo/UberEats customers.
Most of the food I've gotten from ghost kitchens has been pretty okay, but it's still way too expensive, especially if you're a good tipper.
I'm a well paid software engineer, so I can afford to pay like $20 surcharge on laziness, but it doesn't really make sense.
The ghost kitchen burger isn't thaaaat much better than fast food and 2-3x the price. The ghost kitchen burrito is actually worse than the local Mexican street food, just will be delivered to me door.
To be honest, this seems perfect. Your description of this business fits pretty well with the rest of Uber's business aka "burning investor money to never make a profit".
I have never worked in the food delivery industry (tech or otherwise), so I'm not in a position to make any assertions about it. From my limited vantage point, it seems that churn becomes less of a factor when you acquire and absorb/digest your competitors. Maybe that's the play here....buy the competition and then push the margins upward by (A) granting fewer introductory discounts, and (B) pushing on vendors to fork over more of their own margin.
Isn't it reasonable to think that once you have enough density, the business starts making a lot of sense (e.g., collecting (in the same car) multiple orders simultaneously from the same restaurant -- and delivering multiple orders on the same car to the same building/neighborhood)
I imagine you'd need a local hub/exchange for it to really work. I do question whether the model works outside urban settings though.
It is not impossible to achieve profitability. Seamless (what used to be every Wall Street Banker's go-to service) was profitable for a long while. Granted, they didn't have the same level of competition we see today.
I was looking for a comment mentioning Seamless. This is the best counter example. Note that these guys bootstrapped correctly from the start; as you mentioned, group buys was a great low cost/high margin way to get started.
When all you have is hammers, everything looks like a nail. Interesting to see this engineering folly in the financial space: M&A, no doubt, is a familiar tool among financiers.
- Create robots capable of handling pickup and delivery automatically - a very hard technical problem that were far from solving
- Manufacture these robots at scale
- Purchase and deploy these robots at scale
The timeline for all of these things together is years, even decades into the future. Even if you get the tech down, creating factories that can churn out hundreds of thousands of these robots will take years (see Tesla's example - and that's for tech we already understand, like cars). It will also require massive amounts of cash to buy and deploy all these robots.
Robot-led delivery isn't happening for a long time.
Regulatory and security nightmare. Having thousands of drones zipping around a city at the same time is going to open up the doors for some bad actors. It will take one lunatic with a homemade bomb and everything will be grounded.
That is probably not so easy: you'd still have to pay for the car (if it retails for $100k, that is a lot of deliveries to make before eating that cost), and it will depreciate over time. And you still have to pay for gas (electricity?), insurance, maintenance, etc.
Not to mention solving the issue of the physical exchange with the customer.
I worked in a food delivery company of the Just Eat group ~5 years ago, for 1.5 years. They take a comission of ~12% of the order price just by providing the platform to place orders. The technology is simple, then you have a sales team to acquire restaurants as partners and a customer service team to support when orders get lost or to update the menus.
Yes, there can be cut-throat competition in a market where a lot of money is sunk into marketing and the business is operating at a loss. But there are also consolidated markets where one platform captures >80% of all online orders and generates endless profits.
Just because a few VC-backed companies burn their many millions in a short time doesn't mean that there aren't large and very profitable food delivery services.
I think it will make sense when cities will have a better infrastructure for targeted deliveries. I'm thinking routes for drones and clear delivery spots.
Would not be surprised 30y from now most homes won't have kitchen anymore. You'll have an access where a drone can come in an deliver whatever you ordered.
I do not look forward to that kind of future. As someone who has worked in food preparation, meals are usually quite unhealthy because they are designed to taste great. I can’t imagine eating delivered meals daily is good for your long term health. You would be surprised that seemingly healthy food, when made at a restaurant, is often anything but.
> Would not be surprised 30y from now most homes won't have kitchen anymore. You'll have an access where a drone can come in an deliver whatever you ordered.
I suspect you vastly underestimate how cheap and time effective cooking at home can be. My girlfriend and I just mealprepped 8 meals for $30. Took 15min of active work.
The whole week we both get a healthy balanced meal that takes 2min to prepare.
No delivery company can compete with that. Drones or no drones.
Edit to answer questions below:
We don’t mind eating 4 identical lunches. Saves you thinking about it. We use dinners and snacks for variety. This week it’s a pork roast with string beans and fingerling potatoes. Put potatoes in a baking pan, stick roast on a rack above the taters, stick in oven for 45min. Cook the beans in water.
About 15min of active prep time, another 5min to portion it out, 5min to stick dishes in dishwasher. Watch netflix or hangout while food cooks itself.
Not OP but baked chicken, slow cooked pork shoulder and rice or another grain probably takes about 15 minutes of active work (cook time obviously is longer). Throw some corn or green with that combo and you've got a pretty healthy and balanced set of meals. Make larger portions, buy some re-usable takeout trays and you're on your meal prep jouney. The biggest annoyance with meal prepping is redundancy in your meals but if you're okay with repetition you'll be fine.
I personally air on the side of making large portion of a meat, say chicken, and just making different variations with that pre-cooked meat through out the week. Shouldn't take more than 10 minutes a night with pre-cooked chicken to do something like chicken and pasta, chicken quesadilla, chicken salad, chicken on top of salad, chicken sandwich etc. Unless you're making a multi dish or complicated meal cooking really doesn't take that long.
Last thing, I love doing sous vide and it takes actual prep time down a lot. I'll throw a steak in when I go to work, turn it on while I'm not home and it will be done when I get back; sear it for a minute and it is good to go.
Get a bag of Atlantic Salmon from Whole Foods, season 6 fillets, wrap them in foil and throw them in an air fryer for 12 minutes. Boom, done!
In the meantime, you can microwave some frozen jasmine rice, veggies, or a mix of both. You can make baked sweet potatoes on the same air fryer though those take ~30 mins until they're nice and soft.
Not OP either, but i make heavy use of my rice cooker. Turns out that puy lentils cook interchangeably with white rice. So, either rice or lentils or a combination, plus water, half a stock cube, olive oil, herbs and spices, maybe some chorizo, maybe some kale or other vegetable, sometimes half a tin of ratatouille, or anything else you fancy which will cook in 15 minutes of simmering. Add, stir, push button, wait, eat.
I could make this in bulk and freeze it, but there's no point, because it's so quick to make.
Meals made this way aren't the most exciting thing, but they're as tasty as you can be bothered to make them, are reasonably healthy, and extremely easy.
Mostly, I suspect, the secret is volume. At small scales like a single household for a handful of meals, prep time scales sublinearly with number of servings, because of setup/teardown time, and if you have some experience that can extend to not-identical meals made from similar components.
What's Postmates moat? Having never used it, I don't necessarily see the 2.6b$ value in a smaller delivery app that is only really used in some areas of the US. Though I'm sure there is something I'm missing and 2.6b$ is probably less expensive than the cost of pricing Postmates out of the market especially considering it's an all stocks deal. It's just that delivery seems to be easily scalable and easy to just dump money in to gain users (free delivery / delivery fees are much stronger factors than brand loyalty in my experience) so why acquire relatively minor players?
What's also interesting is that Postmates seems to have raised around 700m$, so chances are it's investors are probably the first to make an actual realized profit from food delivery ;).
I use Grubhub most of the time, and I’ve found the thing that keeps me on the platform is 1) The $10 monthly credit on American Express Gold cards and 2) The 2% cash back from the Rakuten portal, which stacks with the 4x points from the Amex card.
Of course, a lot of restaurants end up increasing their prices on Grubhub to make up for their fees, and rightly so (I phone in using the number listed on Apple Maps). I still don’t understand how anyone expects these food delivery apps to be profitable. I’m also 95-99% certain once we feel safe dining at a restaurant again we wouldn’t be using these apps anymore.
Exactly,those are amazing perks but they make for very expensive moat. As long as they need to bribe their users to stay with different financial incentives they will keep being glorified VC money redistribution schemes. My guess is that we will see a shift towards profitability when either cash dries out (which would mean Uber wins, they have deeper pockets and cashflow from ride sharing) or restaurants start to shift towards delivery optimized structures that would bring down delivery times and increase margins. I wouldn't bet on market domination from any player yet considering Just Eat's recent moves and deep pockets.
A little off topic, but wow it always amazes me how good credit card rewards are in the US.
I agree that it makes for an expensive moat. It really doesn’t seem viable to sustain a business like this.
Unless, ghost/cloud kitchens become a thing and these app platforms start building or partnering with these kitchens. Then they have full vertical integration where they can set prices.
Yeah, it’s tricky with how to find just a phone number for the business. Luckily a lot of businesses have a website (that looks like a simple Squarespace/Wix template) that list a phone number or direct you where to order online.
A lot of restaurants use Chownow, which seems great since there’s no commission paid, but you lose out on being discovered online on Grubhub/Postmates/etc.
> 1) The $10 monthly credit on American Express Gold cards
But the annual fee is $250, how is it worth it? At best if you use the $100 airline credit, which is now hard to "hack", and max out $10/mo on Grubhub, you're still paying $30 for the privilege...
Amex has customer service at least an order of magnitude better than any Visa/MC licensee I’ve dealt with; that’s really what you’re paying for. If something goes wrong with a purchase, they’ll tend to make it right without asking many questions/filling any forms. Lost cards can be next-day’s without charge. They have actual physical offices in non-US nations that can advance you local currency and provide you a new card (among other things) should your wallet be stolen while traveling.
Having utilized card services and customer support heavily for almost two decades with a number of card co’s made me very much an Amex partisan.
The only payment service I’ve had fraud trouble with is PayPal. Their customer service is the worst. I recently bought something through PayPal, and it was amazing to see how hard a fraudulent seller could take their system.
> Earn 4X Points at U.S. supermarkets on up to $25,000 per calendar year in purchases.
> Earn 4X Points on restaurants including takeout and delivery
> Book a room through American Express Travel that's part of the Hotel Collection, stay two consecutive nights and get a $100 hotel credit to spend on qualifying dining, spa, and resort activities.
I wasn't able to utilize these benefits efficiently since the The Blue Cash Everyday® Card has 3X points @ Supermarkets has no annual fee and I have another card for restaurants.
I suppose if you max out all the categories it's not a bad card if it's all you have.
Aside from what the peer comments say here, the point multipliers end up offsetting the costs of the annual fee. You’re right that the airline credit is harder to redeem now, but in my case I was luckily able to redeem it all by February.
Also, Chase Sapphire Reserve has the $60/year credit to DoorDash. Seems like we’re just redeeming a bunch of VC money.
Wow, I had no idea Chase added that perk, and I just started using DashPash this month! I switched from my Amex to the Chase card just now, you just saved me a bunch of money, thank you!
> I’m also 95-99% certain once we feel safe dining at a restaurant again we wouldn’t be using these apps anymore.
at least here in NYC, we've been using delivery apps for over a decade. I wouldn't expect usage to drop below pre-COVID numbers once (and really, we should be saying if) things go back to normal.
Of all the services I've tried in this space, only Postmates lets you request items from businesses they aren't partnered with. This was a huge win once when I needed groceries delivered quickly.
They all do this now, to one degree or another. [1] [2]
The economics are even worse (because they don't get a cut from the restaurant), so these types of orders are either very high fee for the consumer, a loss leader, or both.
I've heard that on Postmates you can use the write-in functionality to order from a business that isn't on their platform at all (you order from a nearby business and in the write-in field tell the Postmate to go across the street, etc). I'm not sure if many of the other services provide a way to do that.
So they can go to the restaurant and order for you? That's interesting. I can't imagine it being very efficient or very fast though, how do they manage to not lose tens of minutes per order on non partnered restaurants/stores?
You can also order non-food items on Postmates (e.g. stuff from Home Depot).
Also anecdotally, the probability of an order actually arriving and being correct seems to be higher on Postmates. Perhaps the drivers there are more motivated to do a good job.
They don't have a moat. They are one of many similar players in the same space, which are interchangeable both to their workers and their customers, and they can only compete on price.
Drivers often work for several of these companies at the same time, and customers will use whichever one is cheapest at the time they feel like placing an order.
At the moment, with so many similar companies in the space, I don't see how any of them could become profitable, especially while being engaged in a race to the bottom on prices (because price is all that customers actually care about; the experience of a guy in a car bringing stuff to your door is pretty much the same with all of these companies).
> because price is all that customers actually care about
Customers actually care about service, too, but the two-sided-market-drivers-aa-contractors models doesn’t really leave the parts of service that would matter in the hands of the delivery matchmaker, so it's true that all they have is price, not because it's all customers care about but because it's all the firm has any kind of control over, by design.
The service is the same with all of these companies. Someone brings a bag of stuff to your door. In my experience they are all about as fast each other.
They could let customers pay a N% (say 10%) premium for a ...better-rated delivery courier? I'd be curious to see how that'd A/B test. Probably would fail, but nonetheless prove a point if there's any 'service' component that is possible to compete on.
I believe Uber eats is currently doing that. Recently I noticed an option to pay $1.50 extra for "Priority delivery" which may be a combination of what you mention as well as modifying the delivery algorithm in your favor.
Network effects are the moat here, much like for ride hailing apps. More drivers signed up on the app means that the service times for customers are improved, and more customers using the app means less waiting time and dead mileage for drivers.
There isn't much of a network effect at all once you hit a certain, relatively small, size which is why national ride-hailing businesses keep pushing the big ones out of their respective markets, and why there already are quite a lot of them competing profits away.
There's an illusion of network effects due to the investors willingness to burn their own money. Otherwise, like the actual transportation industry it's just a low margin business with tons of competition.
Meaningful network effects don't just make your company marginally better as you get bigger, that's true for virtually any business. It has to be shown that the size actually makes you run away with it instead of just leveling off.
The same is true in the fintech industry with all these much hyped neo-banks running on debt. Internationally they all tend to lose to local competitors because knowing your market and getting the details right is more important than scale.
A few things undermine the networking effect: drivers working for multiple delivery/ridesharing companies, and customers using multiple delivery companies.
If Postmates went of out business tomorrow the drivers would just shift to Doordash and Grubhub and Instacart and the others. There is zero moat.
I wouldn't call it network effects. All competitors are predominantly sharing the same network of customers and drivers. Sure, some are loyal to one service but I'm guessing a majority of people will try to get the best deal. If the network participants essentially select for lowest margin service with low switching costs, there is no moat. All services, in theory, should gain efficiency from network scale at same rate.
But that's the thing though, that's a very small advantage when it comes to a cutthroat sector like food delivery imo. I know I just use whatever app has free delivery or 25% off at that particular moment since it's almost frictionless to switch between apps. Even using different messaging apps is much harder.
That applies to all delivery apps and access to capital is really the only determining factor of success in that industry, but Postmates was also lacking in that regard.
I am bullish on this as a recent shareholder. We are now in the consolidation phase of delivery service where fewer companies mean less competition, more efficiency and better economics.
This is where Dara’s strength is. He has a history of great dealmaking and acquisitions. I expect Uber to thrive as the industry consolidates.
A more cynical take on this might be that it's hard to actually turn a sustainable profit in this market unless you have monopolistic pricing power, and hence, consolidation. Less of "the strong get stronger" and more of "the unprofitable become few enough to become profitable"
> A more cynical take on this might be that it's hard to actually turn a sustainable profit in this market unless you have monopolistic pricing power,
I'm not convinced even a sole provider would have pricing power in anything but a vastly smaller market than currently exists: food delivery doesn't compete with only other food delivery, but also with “drive there yourself takeout” and “cook (or at least heat up) food at home”, which limits the scope of pricing power.
I'd like to provide an personal take on this - this will be a bad deal until Uber can be a super app doing 100x more things than it's doing today. So maybe never.
Why? Because exactly in China there was consolidation of food delivery apps into like 3 or 4 of them from 100+. But all of them are still burning lots of money from investors, except one - Meituan-Dianpin which built on this super app (first think of it as uber+yelp+groupon+tripadvisor+more) handling all kinds of life needs from food to labor service. Yet this super app barely started making profits recently after grabbing so much aspects of daily life, while its food delivery unit is still burning money, though contributing to the profiting units like ads.
The American equivalent would be Google, as for myself and many others the Google maps reviews have long replaced yelp/groupon/tripadvisor, as it perhaps surprisingly tends to have the most accurate information about local businesses. But Google does not get into delivery because in America, the math doesn't work.
When I was in HK, I used foodpanda, it was super cheap, I think $10HK. Deliveryman shows up on a scooter, and has at least one other persons food with him. The density supports it. American cities are built somewhat differently where most middle-class people don't live very close to most of the restaurants they wish to order food from.
I think it has much more to do with the terrible math involved with doing delivery in such spread out regions. There being a super-app that does everything does not matter.
Also in America food takes much longer to be ready than in Asia. I don't know why but it does add up.
I'm not sure where you're located, but the Jump bikes in Seattle are now operated by Lime (even though you still rent them in the Uber app for some reason).
This is the same model that Uber at large is following with the taxi service. The underlying premise is that if Uber can just get a monopoly they’ll finally stop losing a billion dollars every month.
I doubt that Uber will be allowed to monopolize this industry. And if they did, I doubt that customers would be willing to pay the premium.
I doubt the validity of the food delivery model anywhere but the most dense urban areas. And in those areas competition is fierce and regulators are quick to pounce.
Just because Amazon lost money for a decade doesn’t mean every single company will follow that same trajectory.
This merger might trigger an antitrust case. Although people who order stuff might have lower fees through economies of scale, restaurants and drivers could be negatively impacted (more of a monosopy). At some point we need to start considering gig workers as part of antitrust considerations.
Anti trust seems weak. 3rd and distant 4th place merging. Even weaker right now than T-mobile Sprint. Where other things like spectrum and infrastructure were big. They are one company now.
I am awaiting a Steve Jobs-like re-entry of Travis Kalanick back into Uber when Uber purchases CloudKitchens to complete its kitchen-to-door vertical integration. It's all very hypothetical, but I give it a 1% chance of happening.
Sure Travis has flaws and has slipped up a number of times, but his heart is generally in the right place. Here’s a fantastic insight into his character: https://youtu.be/9VIlkPeY9Rk (2017)
The future of Uber is clearly diversification. Drivers doing everything. I absolutely love that I can order food from distant restaurants because they have driver routes programmed to cover large distances and a business model that supports longer wait times for the customer in exchange for cheaper prices, wider restaurant selection, and of course more customers served. The local establishments can't compete with the 1 driver to 1/2/3 customer(s) model.
I'd say the future of Uber is perfecting their crown jewels first.
I'm a huge fan of the business model, but the app crashes, the customer service is non-existent, payments get rejected inexplicably and when you reach customer service they respond "I'm sorry you are having difficultly logging in."
I couldnt make it worse if I tried. Every rule of SWE-UX is violated. Got a problem? No code, no incident ID, you need to call a number with no context and re-contextualize. No follow-thru, nothing.
What I find interesting about the food delivery business is that there's clearly a market for this but nobody's happy.
- Restaurants (rightly) complain that the drivers provide a poor service. For example, pizza delivered cold because the drivers have no heat bags. I've even heard of a pizza box mounted vertically on a delivery bicycle.
- Customers are unhappy because food can be delivered cold through no fault of the restaurant. To save money, multiple deliveries can be scheduled at once. You can see this as your assigned driver drives passed the restaurant when your food is ready, clearly they're on another delivery. They come back 20 minutes later and turn what should be a 10-15 minute delivery (from the time the order is ready) to a 45 minute disaster;
- And drivers don't seem happy, complaining about low pay.
Yet... people want food delivered. Is this really just a case of people not willing to pay what the service truly costs? If so, no consolidation will help. I imagine fairly small delivery areas is really the only thing that can be economical.
I foresee a future where the entirety of listings on food delivery apps will be ghost restaurants - those whose menu and processes are optimized for delivery.
Many high street brick-and-mortar restaurants will shut, but those that remain will likely make being "not available on any food delivery app" a unique selling proposition.
Kalanick's next startup is basically this concept: CloudKitchens. At this point, it might be more of a risky real estate play than anything (to get these ghost kitchens set up in major cities with many hungry would-be customers).
Centralizing the restaurants seems key to profitability. The current format is too costly.
You're suggesting that the act of eating out, or walking for takeout is going to stop for a sufficient percentage of the population that regular restaurants are going to disappear?
That people are going to pay a premium to have their food always delivered and that people actually want to be in their homes / offices all the time, rather than get out of their current place to go and do something?
Well as an extreme example: I can picture myself subsisting on Soylent every day, ordering from a ghost restaurant every other day, then visiting a restaurant for social fuel once a week.
I don't have a kitchen.
With the time saved I reckon people will find something else to do outside instead of eating.
That's not a good example to bring up, especially if you take into account the recent layoffs and their current operations.
In Estonia they still seem to be doing a sort of a limited trial where they only deliver to a small area of one part of the town. The robots are too slow and get ignored by traffic all the time since their programming is very conservative. They try to avoid accidents but at the cost of delivery times.
> Is this really just a case of people not willing to pay what the service truly costs?
I think so. If a driver spends an hour on delivery, they have to make $15 in NYC or ~$8 elsewhere (USA) to be worth their time. For a single person, that can be the price of the whole meal again.
I've run into this when seeing the fees reflected on a final checkout page, and decided to cook for myself instead.
A single person isn’t really an efficient use for delivery. When I’m ordering for four people it’s $80+ so paying $20 for delivery is totally fine. And most places I order from are <10min drive.
Maybe it's due to my childhood, but even as someone who could easily afford a $25+ meal, it would hurt me emotionally to pay that much for delivery. Very few restaurants even offer a meal worth $25 in the first place (compared to what I can make at home), even in SF/NYC/London, and on top of that you don't know how long the driver is going to take, what kind of measures they are taking to keep it warm, and/or if they tamper with the food.
I'm guessing you don't know how much your time is worth. Suppose you wanted a nice meal for a friend you spontaneously invited over. You’ll go to the grocery store, cook, clean. Not only have you spent say two or more hours for a meal. If you paid yourself minimum wage, you wouldn't break even no matter how cheap the ingredients.
Frugality is a useful mentality, but it’s important to account for the economic value of time, energy, focus, and happiness. If you try billing yourself for your chores at your normal wage, your behavior will change.
We always have lots of food in the house as we cook on an ongoing basis, someone or even a few people coming over won’t make us go to the grocery store.
And my family prefers home cooked food not because of frugality, but because it’s much healthier and tastier. We can usually make a convoluted meal with at most 3 man hours (split amongst 2 or 3 people), including cleanup. But it will taste thousands of time better, and I will be able to trust the ingredients and quality more.
I’ve actually calculated that we spend more on ingredients and labor than going out to eat, but no normal takeout restaurant offers what we can make at home (it’s not affordable for most people to buy that quality food when you account for overhead and profit margins).
Although I do understand the convenience of ordering out if you live in a cramped apartment in downtown SF/NYC/other big city. But once you have the facility to cook, the marginal cost is tiny.
Still surprising that they have managed a ~3x exit. They were raising money at a 1.3b$ valuation as recently as 2018 and to me it seems like Postmates is further behind it's competition in terms of growth and market share than it was 2 years ago.
Oh, yeah that's an embarassing lapsus.To my defense,it seems like most of the equity is owned by investors and not founders, so the average return of the 900m$ is probably still around 3x~. It also seems like they have never been valued higher than the price Uber paid for them so odds are few investors got really burnt regardless of when they invested.
This is one of those cases where the pandemic saved a company. A few companies like post area and this “uncooked food by mail” companies got saved big time.
What do you mean by execution? As a user, I've used them all, and like Uber Eats overall UX the best. But I suspect you were talking more about business operations?
If I was an investor, I would be worried that the CEO with no operations or technology experience is also the COO and CTO, is the one leading the operations and technology integration.
The Indian "dabbawala" maybe is where it has to go: some kind of standardized service where one driver can deliver to many people in a single traveling-salesman minimized trip. The packaging is designed to keep the food warm for a long time to allow this. But this probably only works for pre-arranged food delivery, not call for food now.
Rich romans did have kitchens, poor people could not afford one and instead made food in their appartment room or bought food from streetvendors or takeout food from thermopolia.
There was likely no demand for food delivery as poor people couldnt afford it and rich people had slaves to make their food.
The only difference between Postmates and Uber Eats is that Postmates customers overwhelmingly tip the delivery driver. The Postmates app and systems is horrifically engineered. Uber Eats is an exceptionally better system.
Lack of SSR != An engineering horror. Crawlers can handle these pages effortlessly these days. So long as the client-side performance is good, SSR isn't very important.
In aggregate it's all a horror, given how easy it is to add SSR with Next.js. I know, I work on crawlers and scrapers professionally, and it's wayy easier, if you want a robot to scrape you, to have a site with SSR disabled. It's just generally faster and and a better experience for the user, and cheap to add.
As an aside, Stripe IIRC seems to use half-SSR, half client-side fetching really interestingly to fetch data below-the-fold after load, for even faster load times. That there is excellent engineering.
Are you talking primarily about the customer-facing apps?
I wouldn't go so far as to call the Uber Eats driver app an "exceptionally better system", it mostly works (modulo some annoying bugs that keep reappearing every few updates) but it's painfully obvious that they don't bother to do any serious QA on it. [They should send Dara out to be a driver for a few days, he'd love it!]
It's been an M&A company for years now. Just look at its portfolio of ownerships in competing local leaders like Didi, Yandex and Grab. It's a perfect food delivery ride hailing super app investment fund!
How is that different? You could just rephrase what you said to say:
Uber purchased non-trivial shareholder positions in their global competitors.
For example the case in Russia was a quite literally a merger. Uber and Yandex made a joint venture, which operates in Russia and some former eastern bloc countries.
But surprisingly enough, both have similar revenue. And I guess Uber didn't want a bidding war over GrubHub after the very generous Just Eats bid (7.3b$). The difference between Uber's original bid and Just Eat's is almost the entire price they paid for Postmates.
Grubhub is mostly big in NYC. Doordash has the most marketshare at around 45% and good coverage in the US. Postmates and Uber Eats were battling for 3rd place. Postmates seems to have more restaurants on board along with branching out into drinks and convenience stores, and I believe general shopping in certain regions.
Just bases on recent numbers. How is it Uber and Postmates were battling for 3rd? And 1st and 2nd are close? Seems like Grubhub and Uber Eats are close now. With Doordash and Postmates both far apart.
Clearly private industry has run out of profitable investments. Better to shift spending to public investments (science, education, err, the current public health emergency) than to waste more money on delivery boondoggles.
Unfortunately the recent trend of tearing down public statues probably doesn’t instill confidence that these kinds of corporate investments will be properly protected.
A statue isn't an investment these days unless it drives tourism. Statues of Confederate soldiers put up 70 years at the end of the Civil War were good investments at the time, because placing far cheaper signage displaying direct messages to black people from the local authorities would be seen as distasteful or possibly illegal (depending on the phrasing of the message.) A sudden unexplained affection for Nathan Bedford Forrest was a clear message, and cheap to maintain after an initial outlay.
If it takes 155 years or so for people to decide they don't like that investment, I'd probably call that a sound investment. You could even put money into things that tend to be quite nice for people. Schools come to mind. Libraries. I'm spitballing.
Unless the plan is to build monuments to current day prison wardens. Depends how bad-faith the argument is, I suppose.
Not that it takes away from your point, but they're mostly not 155 years old. Most of the statues were put up during the Jim Crow era and during the Civil Rights movement of the '60s. You can see a graph on the Wikipedia page.
For insider background info: Postmates had to do a "pay for play" at one point, wiping out investors who wouldn't put more money into the company because it was so desperate for cash.
The company also was shopped around for years by Frank Quattrone, who runs the "most" successful M&A advisory business - QATALYST. They didn't get anywhere with a deal, this was led by a different bank after they were fired.
Firstly, sorry about your friend. This is a huge issue with big companies where they will spend $1M on McKinsey to figure out why the company is unproductive when -- if they had just spent that $1M on bonuses they would have achieved productivity.
Same with M&A -- at poorly run companies, internal ops will be starved of budget, execs wonder why, and they do M&A to improve things.
It all has to do with poor governance and bad executive incentives.
(Side note, they are not paying cash here, they are paying with inflated sock.)
Weird that people keep saying that food delivery can't be profitable when Grubhub has already been profitable and only became unprofitable due to the Doordash/Uber Eats price user acquisition wars. It's the same thing that happened in ride-hailing, which already proved to be profitable.
Isn’t this effectively just a “public roll up,” combining market caps to ultimately lift the valuation and multiple for shareholders? There’s a reason it was all-stock. Not a penny to be found.
The part that's frustrating is that, prior to all these companies, most of the same restaurants I order from had free delivery, but you had to call in, no nice mobile app to go along with ordering, payments, showing the driver on the map, etc.
Now, you do get all that nice UX convenience, but you pay extra for it.
I feel like in the end, the issue here is that those companies are just a bit of a useless middleman, not providing enough added value.
This feels like another grasp at straws, and one that may backfire quicker than expected based on my experience on the ground.
In NYC I've recently noticed that the pandemic has created a much larger focus on delivery and takeout margins, and these platforms are actually losing good restaurants. I for one am happy based on who I see picking them up though: ChowNow.
Right now, my 3 most common orders (and more I'm seeing daily) are all on ChowNow. Their model is a flat rate[1], not per delivery, and offer basically a self hosted (but in reality hosted), well designed, simple platform. Payment/address details are shared across restaurants so it's a similar feel to a Grubhub/Seamless/Postmates. They have their own search I just may start using[2], a lot of places around me are on it.
I got a postcard in one of my orders telling me prices were cheaper (no middleman tax) on their website (using ChowNow) and a 10% off code too. Another texted me. Worked great, was smooth, and my orders arrived consistently sooner too. Since then I actually think to check direct websites of places I find on Grubhub and found another few using it. Cheaper and quicker for me in all cases so far.
I think they may have cracked the code, because delivery is never going to be the profitable aspect no matter how much you could theoretically leverage Uber's cars or some nebulous eventuality of self-driving. But if your ordering system is all in one, it simplifies things dramatically for restaurants. Pickup, delivery, and in person all on the same system and no middleman fees per transaction. Someone mentioned Domino's, and it seems very close to Domino's as a service to some extent. As far as I can tell, the restaurants handle delivery themselves which seems more sustainable too. I am 0% affiliated with them but they seem to be the favorites of my favorite restaurants + a good and sustainable model.
I'm wondering if other cities are seeing the same adoption. I think this could take the delivery world by storm and make this acquisition look even worse, quick.
PS: I always felt like Postmates and Uber Eats were so interchangeable as is - high overlap of restaurants, nearly the same UI, and same very high fees even compared to other services. The only advantage either had was maybe offering a few more restaurants by doing menu scrape style things earlier and with some big chains before they got in on the delivery game, and that edge is gone now especially. I would expect the pandemic and this shift to motivate Postmates to exit, but I just don't see why Uber would want to realistically buy it. Seems like a play for market share in a market that doesn't work, and a low market share at that.
Their website is just their logo. I'm assuming that's because they aren't offering service in the country I live in, but I'd expect them to at least say that? As it stands, I don't know if the page is broken, if my ad-blocker has screwed it up, or if they're just not offering me service...
I worked at LivingSocial in 2012/2013. We used to joke that “we lose money on every transaction but make it up in scale.”
Takeout and Delivery was one of the last bets the company made. Basically food delivery. The customer service load is huge, the services aren’t really differentiated, and you have to both pay the driver enough for it to be worth it and keep prices low for the consumer to think it’s worth it.
Attracting customers on either side of the market means spending money to undercut your competition. As soon as you stop giving free delivery promotions or introductory no-fee periods for restaurants, they can instantly churn with little to no pain. Not to mention reaching small restaurants is incredibly time consuming. They’re not all just hanging out online. They’re running a business. They take a lot of expensive (human) outreach.
Margins are terrible, if they’re ever positive. It’s just a bad business.
And yet people keep trying. None of these companies have made a net dollar. But it’s a simple enough pitch and a common enough use-case that investors think, “yeah, that makes sense!”
But it doesn’t. It just doesn’t.