This whole industry is yet another example of “fake markets” that were created by just massively subsidizing something with VC cash.
Food delivery is hardly a new idea. By basically just having VC’s pay for everyone’s food delivery you can create this great market and app ecosystem that people use. Is this a remotely sustainable business model that could stand on its own? That appears very unlikely at scale.
Hyper-local collaboration between restaurants in delivery that kicks out the app company “middle man” could become a thing. I’ve already seen this sort of thing work well in local markets that basically out-competed Uber etc by just getting their act together and hiring a few developers to build a basic app.
Subsidized not only by VCs, but also by gig economy workers who genuinely don’t understand how little they’re being paid because their liabilities are complicated and often hidden/deferred.
This seems to happen a lot especially with food service startups, because of how price-sensitive that market is. Selling anything below cost or undercutting the competition by even a little bit in that industry will give you exponential growth for as long as you can sustain it, but the instant you want to turn a profit the market will turn their back on you and go somewhere else.
Ehh, but it's nothing new in the realm of food delivery (not saying that's -right-, mind you.)
Pizza delivery drivers have been getting the same bad deal for a long time. Most teenagers/young adults who take a delivery job have no idea that they require additional coverage on their vehicle and are one accident away from a lot of financial hardship.
You just see/hear about it much more now because rather than a small business offering the bad deal it's a (multi)national company. VC is just providing a way to scale the pain's visibility up.
Thing is, for a teenager / college student, it made sense as a side job. Bang around in a shitty car, make friends you work with, get a discount on pizza for yourself, get tips under the table with no tax, and enjoy that phase in your life.
With these services, it's like as though people somehow expect gig-work - already much less certain than being an employed drivers - to be a career. License and insurance requirements, PPE, and the sheer scale of the middleman operation involved in running a huge app like this - it's nuts to think that it could be done for the same price as the conventional delivery model.
And don't forget, your parents are still subsidizing your insurance... and those tickets don't show up on your record for at least 6 months, if you go to court!
Sure... until an accident happens, you find out that your insurance didn't cover the (undeclared) use for business purposes, and you're liable for somebody's million-dollar medical bills.
Not sure where you're from but if you're uninsured and cause an accident in France you're basically fucked. If you injure (yourself or someone else) or destroy public/private property you will have to cover it yourself. Many people end up paying hundred of euros per months for decades if not for their entire life.
In the US, we often has uninsured driver coverage. If the other driver has no insurance, our own insurance will cover us and then go after the other driver. But if they have no assets they are probably not worth going after as court cases cost money.
That sounds absolutely crazy. Nordic country. You may have to pay damages, but it would not be hundreds of euros for decades, that's just entirely unreasonable.
In Sweden that would be a real possibility if you do not have adequate insurance. Say that you cause 200 000 kr in property damage by wrecking someones car beyond repair. The owner or their insurance company can claim that money from you, and if you cannot pay in cash you are now in high interest dept where The Enforcement Authority (Kronofogden) can take money straight from you account on a monthly basis to pay off said debt. If you are a low wage earner you might never pay it off.
For any serious accident there will be an investigation to determine is the driver was meeting the insurance conditions. (did he have a valid license, did he take drugs/alcohol, was he on his phone, was the vehicle modified, &c.)
You would bet money that the insurance would cover it instead of finding a way out of it? What makes you so sure about that? There are examples of homeowner's insurance not covering issues caused by renting on AirBnB, so I would be surprised if motor vehicle insurance was any different.
Ex pizza-delivery driver checking in. I made about $15/hr (incl tips) delivering for dominos in 2007. I drove a $2000 truck and didn't much care about coverage on it. It was the best summer job I ever had.
If you have nothing, it's highly unlikely you're going to get sued. People who sue always look for the party with the most money, and try to shift the blame to them.
That's what I made around year 2000. Though I delivered 'Better Pizza, with Better Ingredients'!
Gas was $1/gallon and we got 70¢ per delivery. I asked a friend about 2008 or so, when gas had gotten up to almost $5/gallon briefly (part of the cause of the Great Recession, I'd imagine), and he said they were still getting 70¢ per run. That sucks.
Also, only 1/10 orders used credit cards, so nobody paid taxes on tips - all cash. By 2008, I'm guessing it was 1/3 using credit, and now, with apps, it's probably 9/10 using cards.
But yeah, it was a sweet gig if you weren't the social / beautiful type to be a successful waiter or waitress / bartender. It paid more and was way more fun than making $6-$8 / hour at McDonalds or Target.
What crushed us was when dominos implemented the "delivery fee". As drivers we only got ~1/4 of the ~$2 fee per run, but customers began treating it as though it was a tip.
I think there's more than just visibility: the pizza driver at least has a fixed rate which doesn't change all of the time and there isn't a third party hiding part of the billing. Most of the gig apps try to obscure their share of the money, especially from the customer and driver, and anything which has the concept of surge pricing can add noise which makes it harder to understand the impact of changes.
Former pizza delivery person (long time ago). Pizza works better economically because it transports better (stays hot longer) and has higher volume. I used to load up 5+ deliveries for the same small area of town. The dispatchers were hopefully good at grouping deliveries.
> but also by gig economy workers who genuinely don’t understand how little they’re being paid because their liabilities are complicated and often hidden/deferred.
After talking to several gig economy workers, and many of them understand in very concrete terms that they are trading the value their vehicle for cash now. It's a logical short-term choice when they have bills that need to be paid today, and have a vehicle they can stretch out for a few years.
The line between being unprofitable and selling at a loss can be very blurry. What one might call "selling at a loss" another might consider "making upfront investments for ensuring and sustaining long term success".
In one option, there’s high turnover (bad for customers, employees, and restaurants) leading to restaurants not signing up with future food delivery companies due to being burned in the past. In the other option, there’s a heathy competition leading to customers paying realistic prices (an undistorted market) and giving delivery workers and restaurants more stability.
It's not anti-competitive if you're a relatively small player or trying to build a market.
Comparison: when a new restaurant opens, it's very common to hand out coupons in the neighborhood for discounts or free meals. Those free meals will be sold at a loss, with the goal of building a customer base. Think of it as marketing.
EOD, "anti-competitive" is evaluated on the outcome -- does the success of the company running the discounts make the market more or less competitive if they succeed? If a company is already the dominant player in a market, it's anti-competitive to price dump to keep new entrants out.
But if the company is new and trying to disrupt established players (or trying to create a market where one didn't exist), it's very hard to argue that there's less competition due to their success.
> EOD, "anti-competitive" is evaluated on the outcome -- does the success of the company running the discounts make the market more or less competitive if they succeed?
This doesn't seem right. If they are price dumping then it will immediately affect the competition. No need to wait for an outcome or interpretation.
> Comparison: when a new restaurant opens, it's very common to hand out coupons in the neighborhood for discounts or free meals.
I'd say this is only acceptable because it is small scale (only few restaurants fit in a neighborhood) and the amount of money isn't endless like it (often) is with VC money. The short duration makes it possible for the competition to overcome the negative effects.
The problem with VC money is that all too often it is used to destroy competition and build monopolies.
It is ignorant of reality to expect a surfeit of recent antitrust cases, as those sort of cases are only made in the most egregious of violations, and long after the damage has been done. Such as around 1999, when the several states and the US Federal DOJ brought suit against Microsoft. Microsoft had been pulling anti-competitive moves for decades before, killing alternative operating systems like BEOS or OS2. The most recent related suit was brought up against the NFL for conspiring to violate the Sherman Act, but that was 10 years ago.
Microsoft - not a VC funded company.
NFL - government sanctioned monopoly, also not a VC funded company
Now, as to OS/2, people say "poor IBM", but IBM was the monopolist boogeyman in the 70's and 80's. BEOS simply wasn't good enough. Apple OS's and Linux did and continue to do quite well.
The DOJ went after Microsoft for giving away Explorer for free, which is what every browser maker does now, and has for 20 years. How that's bad for consumers I have no idea. As for Netscape, I switched from Netscape to Explorer because Netscape crashed constantly. That was hardly anti-competitive behavior on Microsoft's part, it was bad engineering on Netscape's.
Yes, I know IE crashed too, but nowhere near as often as Netscape.
I also give away the Digital Mars C and C++ compilers, the D compiler, and the source code to all of it. Is that anti-competitive too? How about all the other free software I use every day? Should the DOJ go after their creators, too?
>This whole industry is yet another example of “fake markets” that were created by just massively subsidizing something with VC cash.
How do you reconcile this narrative with the fact that Grubhub turned a net profit every available year until 2019 per their SEC filings. [1] All told, they only took about 85 million between founding in 2004 and IPO in 2014, and they were already net profitable when they took the last 50.[2]
Most people railing against "fake markets" haven't considered the fact. Grubhub has long been profitable, same with Seamless. People still think that their uber rides are being subsidized on every ride, but uber now makes profit on every ride (at least in the us, not sure about abroad).
For some reason, theres this streak on HN of people that think that VC's are just complete idiots, and are completely just pissing away money.
The whole “Uber makes a profit on the ride” stat is broadly just creative accounting that counts the revenue and ignores most of the costs including the huge back office operation to build and support the app, marketing, admin, etc etc.
Yes it’s good that they charge the customer more than they pay the driver, but that doesn’t translate into a “profitable transaction” from a business standpoint. If it takes $X millions in engineering costs to build and maintain an app required for that ride to have occurred then one needs to prorate that cost across each ride as a cost and so on. There are lots of examples of these creative “our transactions are profitable” claims like WeWork’s much ridiculed “Community Adjusted EBITDA” metric.
The fancier your metrics need to be to show you are “profitable” the bigger the red flag should be that all is not well in Oz.
I personally don't have the data to support or refute the "fake market" claim. I would point out however that it is not enough to be cash-flow positive for individual transactions. Sure Uber now makes money on every ride, is the business as a whole poised to make money? Will that be stable in light of likely regulations?
Like I said, I don't know. I don't think the questions can be dismissed just by assuming that VCs know what they are doing.
Edit: I went and looked at GrubHubs 2019 Q4 results [1]. They operated at a $30M loss. Most of the expenses were "operations" related. I'm not sure if that includes engineering, but I guess it doesn't.
That is why I said until 2019 in the parent thread. I suspect losses in 2019 were related to increased competition from UBER EATs, Ect.
Net income for prior years were:
Which bags were the public left holding? There have been a lot of very easy wins for investors picking up VC-backed companies in the public market. If all you did is just spray around some diversification at prominent tech IPOs, you've done extraordinarily well over time.
The OP is calling this a 'fake market'. That is inaccurate in that of course a certain number of people will pay for food to be delivered. Pizza delivery has been a thing for a long time.
Grubhub has taken a profitable share of the market which makes sense.
Some people believe that new entrants are using private funding to subsidize the price of delivery to gain market share. By doing so, they are expanding the market beyond what the economics of the market support.
Those new entrants would argue that they are doing so because once they lock in customers and restaurants, they can raise their prices or lower their costs and turn a profit.
Where this all ends up is an interesting thought exercise , but it certainly isn't an easy question to answer.
I totally agree with your assessment.
Given that, it really makes me wonder how UBER and their ilk skirt predatory pricing laws. UBER is running a loss, tanking the profit of grubhub, and now considering buying it out.
The pizza delivery operation is typically part of the pizza chain, and not outsourced to a third party that takes a hefty fee from the restaurant and the customer.
Easier to pay a kid $7.50 per hour to drive around than to pay $12 per order to a third-party.
> not outsourced to a third party that takes a hefty fee from the restaurant and the customer.
I delivered pizza for years before and during college. Looking back, I sometimes think the drivers were the ones who were subsidizing the big chains.
This was very early 2000s. I was paid about $6/hour and $0.70 per delivery plus tips which averaged $2 per delivery @ 3 deliveries per hour, 90% tax free as credit cards weren't used much then. I would walk home with $14 / hour, after taxes, which seemed like a great deal back then when the only other option for an introverted average looking guy who wasn't gonna make it as a waiter / bartender would have been $12/hour working awful data entry jobs or $8/hour doing retail.
It helped that gas was $1/gallon then, though within the next 8 years it would rise to almost $5/gallon.
But in those few years, I put on tons of miles of the worst kind of stop-and-go driving. I had a relatively decent 5 year old Honda, but after 4 years of delivering pies, it needed replacing. So essentially, I thought I was making $14/hour in a pretty cool job (driving around, listening to CDs, eating free pizza), but I'm guessing it was more like $10/hour after accounting for the wear and tear on my car.
I'd imagine most Uber, Lyft, Grub Hub, etc. drivers are all gonna see similar costs of doing business when they tally up their profits & losses over the lifetime of their car.
Have you seen the bills restaurants are getting from Grubhub and the numbers on the restaurant side?
The shadow restaurants opening up to serve these markets that massively lower the quality of the food in shared terrible kitchens (most not zoned for that and with little to no safety equipment) but using the restaurant name anyway?
It's the whole thing end-to-end that is unsustainable.
> The shadow restaurants opening up to serve these markets that massively lower the quality of the food in shared terrible kitchens (most not zoned for that and with little to no safety equipment) but using the restaurant name anyway?
Or as a recruiter recently pitched it to me, Travis Kalanicks next billion dollar opportunity!
Grubhub's profits come directly out of local restaurateurs' pockets. It's easy to be profitable when you get to set your fees and have platform lock-in.
> It's easy to be profitable when you get to set your fees and have platform lock-in.
That's exactly the VC playbook isn't it? Subsidize the market until you achieve lock-in, then stop the subsidies.
Now the market has nowhere else to go but to pay almost whatever you want. A restaurant can't afford to not be on GrubHub. A diner doesn't even consider non-grubhub options due to habit.
I'm really replying just because I wanted to say: Swizec Teller!
But, yeah, you're right. The problem is, the harder you squeeze a lemon, the less juice is left in it. And in times like this, they're squeezing harder and they've nearly squozen their whole supply.
> The problem is, the harder you squeeze a lemon, the less juice is left in it
An apt definition of a number of the world's current issues, unfortunately. I've never heard it described that way before but I really like how simple the imagery is to grasp, thank you!
This. Most restaurants are lucky to make 10-15% profit on each order and these "services" are charging the restaurant 20%, plus other fees like credit card processing fees etc. My wife runs a restaurant and she has used all the major delivery services, including GrubHub and they take a huge cut. It's not sustainable and it's driving small restaurants out of business. They also don't manage their drivers well at all. We've had drivers show up 2-3 hours late to pick up an order, with angry customers calling asking where their food is the whole nine yards. The bottom line is they can't justify the huge cut they are taking from every order, they are simply not providing a good service. And of course when there are issues customers call the restaurant, there's no way to get ahold of anyone at GrubHub. Any smart restaurant owners are going to bail on these guys and hire their own drivers as quickly as they can.
How is that margin any different than what they would pay to the front of the house? Is the only difference that people don’t order alcohol via GrubHub which is the only way restaurants actually make money?
Yes partly alcohol, but also the front of the house is cheap to run. In the old, old days you only had to pay waiters $2.13/hour and they made the rest off of tips. Now it's like $8/hour in our state (Colorado) but that's still nothing, when you consider how many tables (and entrees per table) a single waiter can take during a busy hour, far less than 20% of each entree for sure. The problem is demographics are changing. Our restaurant 20 years ago did like 10-20% takeout and delivery, the rest was all dine in. Now it's closer to 50-60% takeout and delivery for us, so companies like GrubHub are eating up a lot of restaurant profits. People just don't eat out like they used too. It's not just us, there have been a ton of articles the last couple of years complaining about these companies, this first one says GrubHub takes 30% (yikes):
When I mentioned GrubHub and DoorDash to my wife when I say this article posted, I got a 30 minute rant about how much she hates them. She couldn't even give me a fixed fee she paid from these companies, she started listing off different fees and charges, but she said it was more than 20% per order. These companies have absolutely shot themselves in the foot with how they have treated their customers. What a lot of people really want is to be able to order online or through an app, that's the value these companies provide. For us we already had a WordPress website, so I paid a small fee to install the Woo Restaurant plugin to handle the online menu and ordering. It really wasn't much trouble to setup and it's been way less trouble than any of these middle men, and we get to continue to keep the profits.
This changes the game. Restaurants are forced to price higher; now, customers will have to decide if the higher prices are worth it for the type of food they get and the frequency they get it.
There was a 24hr local place that had things like marinated beef + rice for $30 ubereats total, which is exorbitant compared to my usual $12 meals. But I'd order there 2-4 times a week because of deliciousness, habit and convenience.
> In the old, old days you only had to pay waiters $2.13/hour and they made the rest off of tips.
I guess most of the restaurants I go to in SF don't actually have waiters any more, just runners. None of them are particularly well positioned to take advantage of how we eat food now, either. They are in expensive locations for foot traffic with large dinning rooms and small kitchens when you'd want just the opposite.
That doesnt happen much, theres high competition and theres a race to the bottom to lower the price. For delivery most orders come through grubhub/seamless so a restaurant has the option to make no deliveries or cave in to ubers cut and price the food competitiely on the platform. Lots of small restaurants will probably go belly up. Grubhub sucks the market from under their feet and all the profit from their pocket. It doesnt help that people want free delivery too and the prices low.
Except that local restaurants are already operating on razor thin margins. And when the only surviving restaurants are Perkins and Applebee’s, the delivery services lose a lot of their value proposition.
They have no choice. People used to have a stack of menus form local
deliveries. Nowadays the convenience made ordering food through apps the thing to do. The thin margins that restaurants operate on gets sweeped under grubhub’s and the landlords rugs. This will kill most small food business which rely on deliveries.
I think GrubHub’s partnership and tie-in with Yelp makes this a very apples-to-oranges comparison. Food delivery apps operate with or without the restaurant’s approval and aren’t able to reach into the restaurant’s pocket the way Yelp and GrubHub can (and boy do they).
Also this is anecdotal, but I’m way more likely to place a pickup order through GrubHub than any of the other apps (if they even offer that). I think it might have to do with the Yelp integration, and me associating that experience with in-person dining... so maybe I’m just naturally in a “find a place to physically go to” mode when browsing Yelp?
The takeout side of this business would obviously have no issues being profitable.
"How do you reconcile this narrative with the fact that Grubhub turned a net profit every available year until 2019 per their SEC filings."
Easy. Take away the VC funding and see if anyone wants to try or can manage to start a similar company.
In most cases, these companies are just middlemen. Many folks do not see middlemen as "legitimate" businesses, even though the middlemen make money.
Hosts and parasites can each thrive. However only one can survive on its own. Ideally hosts would prefer to live free of parasites.
It should be expected that some consumers or producers will want to cut out the middlemen. We cannot reasonably expect everyone to appreciate those middlemen for the success they may have in taking a cut (and collecting data on consumer behaviour).
There is one complicating factor, however, which is that Grubhub and similar delivery services were making things very difficult for restaurants, which is already a difficult business. It’s not obvious that in the long run the big food delivery players wouldn’t have simply been the parasite that killed the host. Now, we’ll probably never know, since restaurants will be mostly doomed for at least the next year, taking any value-add businesses along with them.
Apparently Chipotle has white-labeled delivery through their app. You just choose order for delivery in the app and it looks like ordering off Pizza Hut or something. But once the order is placed and you get into tracking, you do see a thing that says it's "Powered By Door Dash."
It will be interesting to see if any of the big chains can force the delivery suppliers to allow multiple integrations, and Chipotle lets the lowest bidder deliver your food. Ultimately I think that's the next step. It doesn't make sense that there's a super special delivery driver who works for Pizza Hut. A better solution is to have multiple delivery providers delivering food and other goods for everyone. I think people would be surprised to find out how much generic delivery work there is to be done. Like every car garage has one or more parts delivery services. And these are mostly people in regular cars delivering your particular car's brake pads from a warehouse to the auto shop. Why can't Uber, or Door Dash, or whatever deliver that too?
Shoot, that's what Amazon does. They got Prime to burn less money by calculating which shipper is the cheapest to get to the destination on time, and ~~proceed to ship it via LaserShip anyway~~ later started using first-party delivery when that became cheaper than dealing with a carrier (although they still ship via UPS in rare cases here).
The advantage to a Pizza Hut driver is they can pick up several deliveries at the same time without waiting. Any app allowing multiple restaurants from a wide area inherently increases delivery costs. There are edge cases where that’s ok, but it’s not a multi billion dollar company at that point.
Pizza places have a dynamic load that is only somewhat predictable. They would greatly benefit from instantaneously dynamic availability of drivers. There's no reason why the Uber/DoorDash/etc driver can't pick up multiple pizza orders from your pizza shop and deliver them without providing service to another company for the duration of that delivery. The benefit is that now that driver doesn't have to come all the way 5 miles back to your pizza shop, because maybe McDonald's a block away has a delivery need. And someone else who just delivered a brake pad to the auto shop next to your pizza shop can pick up the next pizza deliveries.
I think the primary benefit of having your own driver is that you get to put your branding on the car and the driver's uniform. It's not clear to me how much seeing that little "Pizza Hut" car topper impacts sales.
Balancing across multiple restaurants is only useful if they have different peaks during the day. It’s mostly useless when they all share similar profiles as you need to employ more people for the peak load at lower efficiency.
Restaurants can also make use of drivers they directly employ durning downtime to do other stuff like sweep up.
We live in an world where UPS famously saved hundreds of millions of dollars in labor and fuel costs by favoring right hand turns in their routing. Tiny improvements at scale are a real savings both in cost and environmental impact. Not having to return to the same single central hub after each delivery alone would be a massive cost reduction.
Once you start optimizing across large numbers of drivers you end up dispatching the same driver to the same restaurant to do multiple pickups anyway, which then need to be delivered quickly. Outside of peak times having fewer drivers than restaurants seems like a net win, but restaurants can make use of drivers when their not making deliveries. This also means their in the restaurant and thus lowers delivery times.
Believe me I understand why it seems possible, but this is one of those cases where real world data doesn’t fit abstract models very well. One example is during peak times both the restaurant and it’s drivers get overwhelmed so preparation time is increasing. Another example is if their returning to the same location they can easily return empty insulated boxes, but that’s problematic if their doing pickup from 10+ restaurants a shift.
Wouldn't that imply an algorithm weakness in this case? It seems like the wider the network and the more driver's you have the more optimal routes can be given algorithms good enough.
Pickup and delivery is not simply instantaneous events at the end of a route. For example, you need different processes for in house drivers vs 3rd party drivers. Many pizza places benefit from gathering orders into insulated containers for delivery which drivers then pickup an return.
On the other hand someone showing up at potentially hundreds of restaurants is hardly going to know each of their systems very well or be recognized on sight.
I was thinking about that the other day, and it's actually a huge difference in the delivery model when you move from "single pickup point, multiple delivery points" to "multiple pickup and delivery points." The first is pizza, the second is a taxi, even if the taxi "passenger" is your order from Cheesecake Factory.
> I know that there are other companies trying to be a middle man in this way. It’s going to get rid of even more of Door Dash’s profits
And this is the unwritten prelude to how Snowcrash happened and the mob got involved in food delivery. I can already envision Uncle Enzo capitalizing on his new venture.
But seriously. has anyone actually seen or know anyone who has used Caviar? Dorsey sold it to Doordash a while back for nearly half a billion in cash. Aloha is still the standard for POS systems in restaurants, and something called toast has become more an more popular from the restaurants I frequent that are still open and want to be mobile as they can't allow people to come in. It looked like an old Square thing with a card swiper on top. This is there website [1] apparently they've been around since 2012.
Their model is primarily taking a share of credit card transaction fees plus a monthly fee for physical devices. While they’re doing poorly right now without restaurants open, they have a large war chest (raised their series F in February).
Even when PCs were new (we're talking late 80s), and not really networked there were a ton of small businesses that would buy a business system like TakeOutTaxi and make a go at delivering local restaurant food to homes and businesses. You called a dispatch center on the phone, put in your order, and 20-30 minutes, and greasy magic... BIG MAC! These businesses would often do well if the operator/owner/manager was a 10x hustler. I helped a couple of these get started in the late 80s, and they both did well until the hustler slowed down. Two-sided markets are hard, and two-sided hyperlocal markets are uber-difficult.
Exactly. There is a small dev outfit in my second-tier US city that caters to precisely this market and is doing quite well considering many restaurants added this to their website or replaced their website outright. They assume their customer is the average mom-and-pop restaurant and set up their business accordingly.
I am curious why Shopify doesn't lateral into this market. They already have the majority of the infrastructure for retail.
Square's been doing what Shopify hasn't, to be honest. I've seen a half-dozen restaurants who didn't do pickup/delivery before the pandemic who are doing their own delivery now — all have stood up square.site fronts. (Probably helps that a lot of them probably used Square for POS anyway.)
Shopify will wait until a partner builds it on their platform, see if they're successful, then acquire them. They've done it a couple times, they have tons of cash and don't need to take huge risks.
Not only that, but honestly, most taxi companies, at least in my area, will go pick up food, liquor or other things and make deliveries. There's also a couple local delivery services that specialize in just that.
They've been doing well here during the lockdown, especially with liquor deliveries, or so i've heard. Things like uber and just eat aren't really that popular or used here though. Just the few chain restaurants use them.
With taxis you don't share delivery routes. It is inherently more expensive.
Food delivery is not new. The new thing are the web interfaces. Now people don't need to visit shops to learn about new things. People can shop delivered goods all the time. This allows to drive down delivery costs with scale.
Additionally, online shops streamline the ordering process. No person is needed to note down orders.
Additionally, self-driving cars and robots will eliminate the cost of the last mile. Like Uber, whoever owns the market when the robots will go life will rake in huge profits.
Food delivery doesn't necessarily let you share delivery routes, either. If you're paying for groceries, yes. If you're paying for two theoretically freshly-cooked dinners from a local restaurant, you want that food to come directly from the restaurant to you. The difference between ten minutes and forty minutes can substantially affect food quality and customer satisfaction.
As for food delivery robots, I mean, sure, but building a business that only succeeds if other people deliver world-changing technology at scale before you run out of capital seems a wee bit on the risky side.
>Food delivery doesn't necessarily let you share delivery routes, either.
Right, that's my thinking (and anyone is free to steal this idea with my encouragement): there should be a way for someone to commit to some dish, started at some time, and then others can "hook" onto the order for a discount. Then you get economies of scale: it costs a lot less than O(n) to batch it up to n orders.
That's a surplus that can be shared between the tech platform, the restaurant, and the end user.
Similar logic for delivering that same food to people who are close to each other.
> there should be a way for someone to commit to some dish, started at some time, and then others can "hook" onto the order for a discount
This is how Uber Eats already works in Toronto.
There is a section in the app with restaurants that have orders already in progress and with a timer on each one and if you order within that limited time, the delivery fee is $0.
Ritual kind of does what you're describing without the delivery. They're targeting offices. One person orders and the rest of the office is alerted. The first person picks up orders for anyone else that puts an order in within a few minutes.
> With taxis you don't share delivery routes. It is inherently more expensive.
For large parts over here in Germany I don't see route sharing in food delivery as well. Some delivery drivers I can observe via GPS (could be faked, but looks plausible) and many are delivering via bike (Pedelec etc.) or scooter and have limited space to transport also when observing restaurants they often pass a single order ober as well.
This of course can be different in areas with other order frequency and other amount of restaurants offering delivery and other distances. (Don't think many orders go further than 2km here)
It doesn't seem like self driving cars will be viable for the foreseeable future at Uber scale, the problem is just way too hard to generalize across the entire U.S. market and there are dozens of unsolved security and safety issues that I think will keep things cost prohibitive for a while. I think you'll definitely see it on a small scale in certain cities, but it's not coming to suburbia or the boonies any time soon.
One thing I don't understand with these "fake markets" (ride-sharing and food delivery) is what's the end game? It seems like there is no path to profitability.
I think for both of these companies, the path to profitability is eventually cutting out the human aspect for automated delivery. Self-driving cars is a good vision for the business and a very end-result. And for food delivery, I'm seeing more of those robotic carts that contain food driving around sidewalks in the Bay Area.
It's pilot-scale, relies on human labor, and has some obvious problems which would break down immediately at scale. Plus they're annoying to navigate around. But they do exist.
No path to profitability. A path to growth, and a path to publicly traded company, and a path to VC's getting lots of money from that process.
Also a process for new companies to emerge to put the now-struggling attempted-profitable public companies out of business as they seek a business model.
The obvious one is bringing costs down by automating labour, with self-driving cars etc.
There also may be a 'change the world' sort of outcome, where consumers en masse like the product so much that they change their behaviour and lifestyles, even if it eventually turns out that they spend more overall than they might have before - if people stop owning cars, cease cooking at home, taking away revenue from supermarkets and auto manufacturers. Although this doesn't appear to hold up in the first analysis, second-order effects might start to appear - e.g. if consumers change their lifestyles, can you capture the value that they would have invested in owning a kitchen, or a garage and driveway?
This is all very speculative, I'm not claiming Uber etc can achieve this, just that different equilibria are possible - for instance, I gather that in some Chinese cities street food is incredibly good and cheap while density is high enough to make owning good cooking facilities a real pain.
The company may lose money and ultimately fail, but you're still getting paid.
You also get to call yourself an entrepreneur / founder / investor / whatever for your next thing.
The point of these kinds of businesses isn't to build skyscrapers that last 100 years, it's to build a pretty sandcastle, get paid and go do something else when the tide comes in.
Raise the price? For Uber/Lyft the only thing keeping the price low at this point is competition with each other. So as soon as one buys the other they can raise the price. It's not like anyone wants to go back to using a taxi.
They might go back to using black cars. Or they may decide to rent a car, drive themselves, or take public transit (or just not go out). There are a lot of options to Uber/Lyft at 2x price.
>It's not like anyone wants to go back to using a taxi.
To some extent. A city I normally fly into frequently, I usually grab a cab because it's just there even though Lyft is cheaper. If I were more price-sensitive I would probably wait for a Lyft but if pricing were similar, certainly not.
Haven't basically every single taxi company got apps too? Uber raised the bar, but haven't fundamentally changed the market. (The excess supply financed by VC money led to more traffic, but that's it.)
I'm curious as to how a basic app could replace the on demand delivery logistics / handle the volume that a platform like UberEats sends to restaurants ?
Maybe my urban area is different but restaurants here are doing 10+ orders per hour across all delivery channels. The bottleneck becomes the # of delivery couriers available and smartly assigning them to deliveries.
I agree with this. It's seems to me that it's much more than "hiring a few developers to build a basic app."
There's the cost of delivery personnel, and having enough delivery windows to be practical for customers.
It seems to me there are benefits from scale, and a large, aggregated platform that make delivery feasible for many restaurants.
I was going to say that its nice to live in a dense city that always get the latest tech offerings, compared to the suburbs anywhere
but then I remembered how many of the scooter offerings have already disappeared
these food delivery courier services can disappear just as quick, to be replaced by smaller local networks and restuarant specific services just like they used to be
Where I live we have had a local delivery service that coordinated with places that normally deliver, but was still pretty extensive beyond just pizza. It started mostly geared towards late night food for college kids, but has expanded significantly. It was around long before GrubHub, Doordash, Uber Eats, etc. came to our area.
The service is now a part of "LoDel". LoDel seems to run a multitude of delivery services in different locations under different names. I don't know how this business model plays with restaurants, but it seems to be a bit of a halfway house between calling up your local pizza place for delivery or ordering through UberEats and the like.
It seems like another aspect of this is some combination of "aiming at regular customers, being willing/able to scale, educating consumers".
The VC model is like a lot of models. They're aiming for the section of consumers that will give them a 25% cut for picture-delivery to the door.
The opposite scaling model is a truck that delivers soup and vegetables from a central production facility to every house on a street once a week on a schedule flexible enough to keep costs low.
The restaurant model has been selling prepared food at a premium in exchange for the experience (not that they don't have ultra-low margins but they are automatically following a model that doesn't scale).
> This whole industry is yet another example of “fake markets” that were created by just massively subsidizing something with VC cash.
Agreed.
> Hyper-local collaboration between restaurants in delivery that kicks out the app company “middle man” could become a thing. I’ve already seen this sort of thing work well in local markets that basically out-competed Uber etc by just getting their act together and hiring a few developers to build a basic app.
Also agree, and this model also applies to the Food supply. I hope we see a record breaking year in CSA subscriptions and community gardens are overflowing with plants this year. My local one has already had all of its plots taken.
I still don't understand why there is a single global (or rather, country-wide) app for food delivery. Unlike getting cabs, this is hardly something you do when you're away from your home city.
If you had an app that only served, say, NYC, you can reduce burn drastically, not worry about scale issues too much, and run a business that's profitable without screwing over either the restaurant or the delivery person.
This is absolutely a problem that can and should be solved at a local level. As a consumer, you gain nothing by using an app that serves 100+ cities.
I still don't understand the idea of "apps" for everything. There no reason these aren't just web apps which can be accessed by people who don't have phones. Dividing these apps into arbitrary regions seems pointless. And if it's just a web app who cares if I visit fooddeliversite.com/region or fooddeliverysiteforregion.com. The only difference is I have to create an account for each site with the latter which is very inconvenient.
Anecdotal, but I only use food delivery apps when I travel, specifically for business trips. After flights + a long day in a possibly unfamiliar area, I defer to the app.
I admittedly tend to do business travel to cities but TBH, eating out at a nice restaurant is one of the perks of having to travel--not having a probably lousy pizza delivered to my hotel.
But then, I know a lot of people who do room service and I haven't in literally decades.
90% of the time, I agree with you. Expensing nice restaurants I want to try is one of the best perks of business travel.
The other 10% of the time, my flight got delayed and I arrived at my hotel at midnight. I want nothing more than to eat something quick and simple, and get to sleep. That's where room service or a food delivery app comes in, and at a lot of hotels the room service after midnight is a lot worse than a delivery app.
If you live in a gated residential complex, how is the food delivery person supposed to meet you? Same issue. In my experience, you meet them in the lobby.
Service delivered directly to your hotel room door is typically offered by the hotel exclusively.
> If you live in a gated residential complex, how is the food delivery person supposed to meet you? Same issue.
I know some people who just provides the gate code in the delivery instructions that UPS and FedEx uses to open the gate. This is becoming more necessary in my experience because of Amazon using gig workers for delivery.
That only applies to large, sprawling residential communities that have guards. Smaller-scale multi-family housing buildings (that have say, 20 units) with a locked gate at the entrance won't have the type of service you're describing.
The delivery person goes to the reception and either the call you or send the delivery guy to the room. Also works for packages and other things and hotels are used to this.
Huh? Ordering food to a hotel is totally normal, the concierge is not offended by "smelly hot food" and certainly I've never heard of a hotel asking guests not to order food.
There are substantial fixed costs around developing an app that are cheaper when amortized over a larger market. It’s more efficient to write one app to be used globally than 100 apps for 100 different cities.
Also people definitely get food delivered while on vacation or traveling for work. Probably even more often than they do at home since they don’t have access to a kitchen to cook in.
Also brand recognition. Over here pizza.de for a long time was the market leader. You can't beat that name and push it with a national merketing campaign. Wehreve in the country, go to pizza.de.
(Meanwhile deliveryhero / Lieferheld acquired them using VC money (Rocket Internet and others))
I used grubhub pretty exclusively as a consultant who was unfamiliar with my surroundings and too tired/jetlagged after a day of work to find food. The same chain restaurants and hotel food gets old very quickly.
It's very helpful for travel – e.g., I could use Ubereats even while I was in Japan, despite not knowing the language or which apps are good. And I'm much more likely to order delivery while traveling, since I can't cook.
I'm also not really sure what advantages there are to having 100+ local apps as opposed to a few national ones, there genuinely is a lot of infrastructure involved, and it's easier to push back against bad behavior on large companies (e.g. when PostMates was pocketing their drivers' tips.)
In principle you could make the same argument about lots of businesses. There are reasons Blockbuster, Wal-Mart, Target, Starbucks and the like dominated or destroyed their local competitors. The same would most likely happen to a local food delivery business.
>I still don't understand why there is a single global (or rather, country-wide) app for food delivery
uber eats works in a lot of countries. i've ordered food using it on south america, north america and europe all on the same account with the same experience.
It wasn't so long ago that I was calling up restaurants directly for delivery. I don't do that anymore.
There were difficulties ordering over the phone sometimes. People would mishear you. They would be overwhelmed with orders at busy times. A few places had online ordering directly, mitigating these issues.
But some of the most interesting aspects in contrast to the apps is how they charged for delivery. It was common for, say, a pizza place to hire their own driver. But, and maybe this only works in cities, I ordered from some people who seemed to contract out. It seemed like some of those people were making it ok as a standalone business, though you wouldn't necessarily know that the restaurant wasn't employing them directly or that they did deliveries for multiple places.
A lot of places seemed to eat some of the cost of delivery but not raise the menu prices. So they would only let you deliver above a minimum price or order size. And of course you were expected to tip the driver.
But these apps take a hefty fee on top of the posted price, and they have a charge that goes to the courier, and you can tip above that. It seems like added consumer costs are higher than with the old way.
I actually have the opposite experience - if my delivery goes wrong on an app there is nothing I can do. If my local restaurant fucks up I call them and get it sorted. Oh and 'delivery between 8:30-8:35... 8:35-8:40..8:40-8:45...8:45-8:50.... Like jesus, these companies hire *thousandss of software engineers and AI experts and this is what you get? I know the restaurant is more than 10 minutes away and you're telling me my delivery will be here in 3?
I think the biggest value add - from a user perspective only - is as follows:
1.) accessing a local directory of restaurants with their menus
2.) accessing a common user interface experience for ordering
3.) not having to enter credit card info
4.) common portal to receive updates from the restaurant on the delivery
The actual dispatch of the driver and hiring of the driver is not a key component of the user experience and could easily be handled by the restaurant owner.
I feel like Square is uniquely positioned to provide 1-4 given their existing access to restaurants via Square POS and Square websites (Weebly).
I think its more that delivery specifics is a don't care for most end users - other than being able to see where the driver is. Actually the key value-add for the delivery apps is the credit card on file. Typing in 16-digits CCNs and 3 digit CCV and expiration for every restaurant every time you order (and perhaps more importantly, worrying about the safety of doing so) is a huge hurdle.
Yeah; I am asking though because it seems many here seem to say or at least imply that it would be better if restaurants had their own drivers, however I fail to see how it does not have overhead or could be more optimal.
So I suspect it stems from irrational hatred towards middleman services.
Is there enough demand for non-standard food types (I have to imagine more folks get pizza delivered, than say, sushi) for each restaurant to maintain their own group of drivers?
Not saying the end result has to look like uber eats, etc, but there do seem to be efficiencies from having X drivers collectively cover Y restaurants, with X << Y
> just getting their act together and hiring a few developers to build a basic app.
Developing a new app each time sounds like a very expensive way to go. If that allows them to beat Uber then Uber is in trouble in this market. Because the next step is to create a service that any restaurant can join for fixed payment. Even with customization marginal cost for such thing should be quite low, surely lower than everybody building their own apps from scratch and maintaining them over time. And that's pretty much what delivery companies offer? So how developing your own app would be more effective than just using already developed app and adding a couple of menu items to it?
When restaurants where closed some local restaurants started creating food boxes you could order for the weekend with recipes and most of the ingredients based on their menu/style. No app, just send an e-mail and pick up on Friday.
"This whole industry is yet another example of "fake markets" that were created by just massively subsidizing something with VC cash."
To what extent has America (and its followers) been led to believe these types of companies, who always seem to have a non-sensical name, and the narratives they construct ("fake markets") are the future of the American economy. While these middlemen may be a part of the future and play a role, are they receiving a disproportionate amount of attention relative to their true importance.
The reality here is that the VC-backed monstrosities are incapable of showing any price sensitivity because they can massage out local market difference with vast amounts of capital.
Local approaches can work and be sustainable, but they have to be able to charge a price that actually makes sense for the delivery. Right now that simply isn't possible because the VC-funded behemoths are capable of undercutting anything that moves in the space and attempts to be cash-flow positive in any sort of sustainable way.
Their business isn't food delivery but food distribution. The restaurants are paying for a spot on their webpage (some of these companies don't deliver, and charge the same price i.e. Just Eat).
I think this idea does apply to any model where the distribution/search costs are minimal i.e. Uber/Lyft. I think Lyft is a great business btw but their costs are totally wrong (i.e. they don't really need hundreds of software engineers milking the company dry).
> This whole industry is yet another example of “fake markets” that were created by just massively subsidizing something with VC cash.
Yes, we saw this back in the dot com bust when similar delivery companies like Kozmo went under. These companies margins are thin with little room for error or ability to survive recessions.
Some like Instacart may work as a subsidiary of a larger business like Costco with other stable revenue streams, as a value-add. But not independently indefinitely. I hope Instacart, etc. have been searching for a buyer, it may be their only possible exit.
> Hyper-local collaboration between restaurants in delivery that kicks out the app company “middle man” could become a thing. I’ve already seen this sort of thing work well in local markets that basically out-competed Uber etc by just getting their act together and hiring a few developers to build a basic app.
It may be happening in Silicon Valley now. Some food service companies like Coupa Cafe have created their own apps and delivery services to cut out Uber Eats, etc. Not sure if they will merge their apps and delivery services though. Will be interesting to see.
In many places, like Pittsburgh (Wheel Deliver), there was a company that did restaurant delivery for a reasonable fee. Everyone had a stack of takeout menus and you just called up and asked for whatever you wanted. I don’t see what the apps bring to the table except discounts.
>local markets that basically out-competed Uber etc by just getting their act together and hiring a few developers to build a basic app.
There is the sweet spot. A wix/squarespace style service which offers businesses a boilerplate white-label app which they can use to offer delivery to local customers.
Not only that, but in the 50s through the 70s, it was very common for grocery stores to deliver groceries. This is not a new idea by any stretch of the imagination.
The biggest problem with grocery delivery is lack of control. We tried doing in-store pickup but the shopper did not pick a lot of the things we asked for, and the substitutions they made were awful. You're completely at their mercy and they're exhausted and don't want to take the same level of care as you would yourself(I don't blame them).
The grocery store is not designed for the level of efficiency a system like this needs. It's designed to make you walk from one end of the store to the other slowly looking at all the products to gather each individual item on your list. It's great for marketing but terrible for efficiency and for social distancing. As long as the delivery and pickup is done from the same stock the grocery shoppers pick from it'll never be as reliable as just going in yourself.
Grocery delivery is not the same as grocery shoppers. For me, the two largest local grocery chains are offering grocery delivery and/or pickup, which always bypasses the shelves - IIRC one of them has the shelf-stocking people pack the deliveries before they go onto shelves; the other is packing the deliveries in the logistics centres alongside with the stuff that goes to restock the many smaller stores.
Obviously, having someone go to a store just for your purchase and walk along all the isles to pick stuff up is horrendously inefficient.
It's obviously inefficient to send someone to a store to grab stuff, but "giant room with products on shelves" is a pretty efficient setup. They can do some of it in the back room, or a warehouse full of pallets, but to a large extent companies end up building "dark stores" that are almost the same as a normal store, but with no customers allowed in.
To a large extent store chains already have them, that's the (few) logistics/distribution centres out of which they supply the (many) stores. The store shelf is essentially just a short-term cache.
Are the preexisting logistics centers designed around picking up single items off the shelves? I would have expected them to be set up around bigger blocks of product.
The preexisting logistics centers are designed to take a pallet of item X and allocate different amounts of it to different boxes each going to a different smallish shop; doing so in an multi-hour cycle (2-3 times a day?) to ensure that every type of product is distributed along these boxes. During this process they also put part of the product not in "delivery truck going to shop A" but to "delivery truck going to home deliveries". It does need some ripping of bigger blocks of procuct and repackaging to bags, but it happens at the same time as they're ripping even bigger blocks of product for supplying stores and shelves.
But the essential difference is the "push vs pull" - instead of one delivery pulling items from everywhere (which is a new process that grocery chains did not have) you have the supply process pushing items to many delivery targets, which is a process that grocery chains already have and have optimized.
But you run into the same issues mostly because Kroger's delivery service is "just as 3rd-party" as Instacart. It's still an employee going through your store, grabbing stuff off the shelves and delivering them to you. There's basically zero first-party advantage.
Yeah, this is exactly what it was. We used a Kroger store because they had a much better selection than Safeway and in the end didn't really get what we wanted. At the time I had guessed it was because the 3rd-party picker didn't know where some of the items were and didn't have time to go looking for them.
At least the in-house grocers are more familiar with the layout and product offerings. From a process perspective, couldn't supermarkets process the delivery orders during stocking?
Having been warned about Instacart I made a point of doing just that, only to have the grocery store run the order through them anyway. The whole experience felt fraudulent, from the bait-and-switch between service providers to the bait-and-switch from carefully chosen sale items to expensive and inappropriate "substitutes". Reportedly at least Instacart proper has a feedback mechanism. With the white labeled service you're out of luck.
If Instacart was able to pivot to full end to end food delivery with their own distribution chain it could have long term viability. Their current model of just having people shop in normal stores is problematic for many reasons, not the least of which because normal stores are BY DESIGN slow and inefficient for picking up a list of items.
Instacart had early advantage because full scale grocery delivery infrastructure was broadly in its infancy but if and when the likes of Amazon, Wal-Mart and others go full scale on their own offerings then structurally it would seem impossible for Instacart to compete with that.
> when the likes of Amazon, Wal-Mart and others go full scale on their own offerings then structurally it would seem impossible for Instacart to compete
I agree completely. I signed up to be a shopper with Instacart, and the experience was awful. To get work, there was a 'first come, first serve' queue I had to check at a specific time several times a week. Not great, I thought, but okay, we'll see how it goes.
Well, apparently people had set up bots or something, because all the orders worth taking were scooped up in less than a minute when the appointed time arrived. I couldn't even read the screen fast enough to see what was there before it was gone. I walked away in disgust immediately and never considered working with them again.
But Walmart and Amazon/Whole Foods are doing the same thing but just having their own pickers in their store. Until my Kroger delivery comes from the warehouse and not the the actual store Instacart will be fine.
Amazon Fresh might be a real competitor but it seems like they're running into the same problems as grocery stores.
yea I like this idea... tech should be empowering people to cut out the middle man, not create services that rob them with 30% cuts of the profits on delivery
Not only is all the VC subsidization questionable, but Doordash, Caviar, Uber Eats, etc. all strike me as just the shallow veneer of a delivery service. It's just about the leakiest abstraction of any major product that I can think of.
You have the restaurant, which is physically optimized for in-person meals. Take-out on its own is already fairly clunky at many sit-down restaurants, there's no waiting area, pick up counter, no easy way to pick up at the curb, etc. Pickup is clearly not the focus of those physical spaces.
Then you have the integration between the app and the restaurant. This is the one thing about the entire flow that is actually integrated in a meaningful way, but still it's only at the single point in time of placing the order. If anything goes wrong, if there's a delay in preparing the food, or anything is sold out, or if they end up giving you the wrong person's order, there's always a runaround of whether you should talk to the delivery support or the restaurant itself. Seeing as at least something goes wrong with probably 1 in every 3 or 4 orders I do, this loss is a probably a really big deal for profitability as I am always getting refunded for something that was missing or went wrong or getting a $10 credit for an unexpected 3 hour delay.
And then you have the delivery handoff itself. I suspect this mostly works well in the suburbs, but living in an apartment building this is yet another opportunity for things to go wrong. I would prefer not to have to come downstairs outside the building to pick it up when I'm paying ~$20 for this delivery to my door, but very often the delivery people complain they can't find the building (it's clearly marked on google maps), or that there's no parking (I live in a very dense area, why are all these apps so car-centered in their delivery crew? Why can't I request someone on a bike that wouldn't have this problem?).
Basically, delivery could be done very efficiently, and profitably if we made some bigger changes. There should clearly be specific restaurants, maybe even some that have no seats at all and are just a pickup kitchen, that are optimized for efficient pick-up and marked as such. Cities need to change their street design to accomodate how many more deliveries are happening today, vs when these streets were designed many years ago (this is not just a problem for food, look how many rideshares drop people off in the middle of the road because there's no space to pull over to a curb, or how many Amazon or UPS trucks block streets and bike lanes because there are no dedicated 5-minute stopping zones).
It reminds me of Marc Andreeson's recent "It's time to build" essay. Our whole world is structured around how things used to work 40 years ago, and nothing significant can ever be changed. So we have to have these crazy, expensive hacks like Doordash to try to shoehorn in new services that people want, instead of making deeper adaptations as residents' needs and preferences change.
Since this week Uber Eats is charging a 10% service fee and distance depending delivery free. That's roughly 25% of my food order. It's getting expensive.
Luckily, I found out the restaurant does delivery by itself too and then it's free instead of the £7 I got charged by Uber so next time :)
Food delivery is hardly a new idea. By basically just having VC’s pay for everyone’s food delivery you can create this great market and app ecosystem that people use. Is this a remotely sustainable business model that could stand on its own? That appears very unlikely at scale.
Hyper-local collaboration between restaurants in delivery that kicks out the app company “middle man” could become a thing. I’ve already seen this sort of thing work well in local markets that basically out-competed Uber etc by just getting their act together and hiring a few developers to build a basic app.