It's doubtful that these services are actually spending 25% of each food order on providing the service. The money goes to expansion, marketing, loss leaders, and other supposedly temporary overhead. They're hoping that when they reach scale and have eliminated competitors, they'll turn a tidy profit, the way Amazon did.
It's not at all clear that they really need to spend that much money on their expansion or that they're doing so ethically, but either way, don't weep at their losses. That's not the reason they're charging so much.
As for the restaurants, they're in a bind. The services that deliverers provide should be much cheaper at scale. They need somebody to do delivery and to take online orders, both of which are a hassle to set up yourself. Not impossible, but you'd expect economies of scale if you're effectively sharing a driver pool and software development cost with all of your competitors.
If your competitor has a delivery service and you don't, you'll lose a lot of business. If you develop it yourself, you pay the overhead. If you buy in to the services, they have a lot of power to set prices where they want.
I don't know why the delivery services aren't forced to undercut each other's prices to get the businesses. Customers don't seem to care which service they use; they have all of the apps anyway.
If you have nobody using your delivery service, you can't maintain deliver-ers. You're running a three sided marketplace in which you need to have both minimum wages and work for your delivery folks, enough orders for the restaurant to bother, and enough restaurants and ok enough prices for the consumer.
That's why it's expensive. That's why you need marketing who doesn't just take out a facebook ad but literally visits and calls restaurants, IT teams to literally teach the basics to restaurants, and an ops team who can assist your delivery folks when a restaurant runs out of onion rings or accidentally slips an allergen into an order. All of that adds up real fast because you need all of those services running at all the times the business is running.
Nobody is going to order from a delivery service that only gives you two options. Nobody is going to deliver for a service that only gives you two or three delivery runs a night.
> economies of scale if you're effectively sharing a driver pool and software development cost with all of your competitors.
The software is so cheap as to be fungible here. It's the drivers who have geographical restrictions, dynamic shifts (gig economy) and also the freedom to not take orders. If you're a runner and you know Chik-fil-a has horrendous lines all the time, you may just never want to run those orders - and in the gig economy, that's a viable choice for you. The delivery service still has to handle those cases (pay more on them, offer incentives, argue with the restaurant for a way to get orders to drivers more easily, etc).
> I don't know why the delivery services aren't forced to undercut each other's prices to get the businesses.
Delivery services don't generally struggle to get customers, they struggle to get and keep drivers.
> Delivery services don't generally struggle to get customers, they struggle to get and keep drivers.
You might be missing a step there though. They struggle to get and keep drivers at a price that consumers are willing to pay, which is obviously tightly related to the problem of getting customers.
If they paid $100/hr, they'd have more drivers than they knew what to do with. They only struggle with getting drivers because of the economics of the customer.
I think these things are a bit difficult to regulate though as how can the next Grubhub or whoever raise the cash to scale a competitor if you start down this road. I say on things like this let the market decide but force them to be clear about costs per order being +30% including delivery costs.
That's solving a problem they themselves created, though.
People were able to find restaurants and place take-out orders before these apps existed. It's just harder now because these apps have spent big on SEO and marketing to push them down the search result list.
It's not at all clear that they really need to spend that much money on their expansion or that they're doing so ethically, but either way, don't weep at their losses. That's not the reason they're charging so much.
As for the restaurants, they're in a bind. The services that deliverers provide should be much cheaper at scale. They need somebody to do delivery and to take online orders, both of which are a hassle to set up yourself. Not impossible, but you'd expect economies of scale if you're effectively sharing a driver pool and software development cost with all of your competitors.
If your competitor has a delivery service and you don't, you'll lose a lot of business. If you develop it yourself, you pay the overhead. If you buy in to the services, they have a lot of power to set prices where they want.
I don't know why the delivery services aren't forced to undercut each other's prices to get the businesses. Customers don't seem to care which service they use; they have all of the apps anyway.