Food delivery worked for decades when it was done by the restaurant itself so worst-case scenario we wouldn't lose much as these companies go bankrupt and we go back to restaurant-provided delivery.
In fact, with all their tech and economies of scale, I'm surprised food delivery services are doing worse in terms of per-unit profitability than the low-tech restaurant-provided ones despite already charging excessive fees.
I guess the reason is that the various venture capital firms poisoned their own well by subsidizing the services and competing at below-cost pricing.
You're right, and that's why I'm genuinely confused by what's going on. Restaurant delivery used to be a healthy market that didn't need to eat up external capital. Now we have a situation where:
- Restaurants say they are paying too much.
- Delivery companies are losing money.
- Customers are paying fees to the sites in addition to the delivery cost we used to pay.
It's not the same though, because the costs are reduced by two things at places like Pizza joints and Chinese restaurants. First, every trip by a driver would include multiple deliveries, which is very rare with Uber Eats style delivery. Secondly all of the drivers would wait and drive back to a single restaurant, eliminating the time needed for a driver to drive to the restaurant from their spot.
Not to mention that crazy high costs of developing, running and maintaining slick apps that work for all restaurants, restaurant and customer acquisition, and tech support. Those costs have to be made up somehow.
A single or unified marketplace and a convenient paying process can easily capture the whole market, especially if the fees are shown to be artificially small or even zero.
Requiring market places to advertise the actual fee (i.e. anything that doesn't go to the restaurant directly) would probably help here: I might be willing to pay a 5% extra for the convenience, but at 30% I might think twice. It would both improve competitions between marketplaces and marketplace vs direct order.
Of course I'm sure that companies will do anything to game it (for example shifting costs to restaurants to fees not directly connected to the orders themselves).
In NYC I'm guessing most restaurants paid illegal immigrants in cash to deliver for them. Not sure about elsewhere. That lowers the cost a lot versus having a legitimate delivery business with legal workers and taxes.
- VCs continue to pour money into the delivery companies
... that is all that is required for this to continue. If that stops, presumably a whole bunch of these firms will fail and that will be the end of that.
I didn't miss that, but usually the VC money ends up in someone's pocket. I'm thinking of all the meal kits and rides I got for next to nothing thanks to VCs and win-the-market-at-all-costs strategies.
With food delivery, it feels like everyone is getting screwed.
To be fair, in the case of Uber, at least in London there's always someone paid to stand near the metro stations distributing Uber Eats vouchers.
Of course, Uber's objective is to acquire you as a customer and not give you free food, so it's limited to new accounts only and presumably they check credit card and phone numbers to prevent multiple accounts being created.
However, if you try hard enough, you can indeed take advantage of it and automate the process assuming you have a good source of phone numbers and non-fraudulent credit card numbers.
My only theory on what the VCs are thinking is something like: "eventually, efficiencies in delivery costs will occur, perhaps due to the number of participants shrinking allowing better driver routing or new technology coming available (drones, automated delivery vehicles, who knows) - at that time, the dominant players will become massively profitable".
But I don't really get it.
To be clear, the people doing well out of this are the delivery customers who are receiving a subsidy from all other participants.
At least in my part of the US, restaurant-provided delivery was only available from a tiny subset of the restaurants currently delivered from by the third-party services. If a cap has an effect of removing the third-party services, I'm not sure why things wouldn't return to the earlier state of limited restaurant choice.
If I recall food delivery wasn't the only duty a delivery driver had. Between deliveries drivers were working in front of house, in the kitchen, food prep, and cleaning. They were employees with a scheduled shift and not contractors trying to gig on it.
The restaurant I regular order it's family run and either the father or son will deliver to us.
What we have now is a lot of abstracter layers of services, payment processors, workers, cloud computing, and VC. All these layers add a cost in an industry that can't afford the overhead. Unlike software and services, restaurants are high capital, high labor intensive businesses with low margins.
On the other hand, with a delivery service where the driver delivers for multiple restaurants, the downtime of the driver can be reduced to near-zero, so I don't think that is the problem.
I'm just reading more that this business model was never going to work the way it is right now given the thin margins in restaurants and the cost of delivery drivers.
With automation, it might change the economics. I think that's what everyone's betting on. I think the Ubers and all are just trying their damndest to not completely drown until driver automation reaches a certain stage. They obviously can't openly say that because there would be revolts from their drivers.
>They obviously can't openly say that because there would be revolts from their drivers.
Uber at least has been quite explicit about that. It's somewhere between delusional and what's known in the vernacular as "lying" but investors who are either naive or are cynically bought into the greater fool theory lap it up.
Delivery specifically can work in dense areas but it mostly relies on local kids or family members working for peanuts and can't really pay for overpriced SV engineers or VC yachts.
Are any of these food delivery companies even making money? What will capping their fees do except make them lose even more?