Could they charge enough delivery fees to actually build a sustainable business?
How much fees would you need to charge? $4/delivery means having to make a delivery in 15 mins to be able to pay the delivery person minimum wage. Plus Uber’s profit, plus the cost of the car and maintenance expenses + tickets, accidents, etc,
It’s hard to see how a monopoly can also make money, without charging so much that people would rather pick up and restaurants would rather offer their own delivery.
Now, I mean, would it be a good business that was used by 80% of the population multiple times per week? No. As you point out, it's intractably expensive. But there's nothing wrong with a business that sells a relatively expensive luxury, and it's not sooo expensive to have a meal delivered that only a tiny fraction of the population would ever use it.
Nowadays, I see restaurants charging easily $5-10 above their in-person list price on delivery apps, and some have left entirely now that normalcy has returned and they don’t have to put up with it.
During the pandemic, there was certainly more pressure on the restaurants. After it, the restaurants may get a better deal -- none of that is a particular reason not to comply with the service, it's just one to negotiate more of the costs onto the end user instead of the restaurant.
If they're not, in a world where some mix of users and restaurants get charged the true costs of delivery service, then you're left with a service that gets people to order things for you, which is basically just Postmates, and they're also not doing hot.
It seems clear to me that there is plenty of demand to justify the service. Doordash's revenue was about $5B last year (I believe that's revenue and not GTV, which is probably 5x that). Doordash also only has about 50% of the market. Even if you believe that some of that demand is illusory, brought about by subsidized prices, that still seems like there's a pretty straightforward business there if you can charge a sort of "ordinary business profit."
And, again, there's been delivery food businesses since time immemorial, it would be weird if we thought that there was no kind of business here. Pizza companies used to be more or less the only ones because pizza delivered so well that pizza restaurants could absorb the fixed cost of entire delivery employees, but a food delivery app lets you pay for just part of a delivery-person.
It seems pretty straightforwardly the case to me that the problem in food delivery apps has never been that the fundamental business makes sense, the problem has been that from the very beginning there have been a large number of companies ferociously competing in the space, with nothing to differentiate them, which has squeezed margins to nothing.
Pizza delivery works because there is only one place you need to go to pick up the food that needs to be delivered, and there is a very high volume of food to be delivered. There's no additional traveling cost to flit between restaurants, most of which don't churn out food at high production rates like a pizzeria.
App delivery drivers spend a lot of their time not traveling directly to customers, or waiting around for food to be ready for them to deliver.
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> Even if you believe that some of that demand is illusory, brought about by subsidized prices, that still seems like there's a pretty straightforward business there if you can charge a sort of "ordinary business profit."
This remains to be seen. MoviePass was never able to successfully both retain customers and raise prices, streaming services are starting to see the same issues. The premium over pickup is often $10-20 already, if it increases anymore that probably starts having a negative exponential effect on market size. (How many people are willing to pay $30? $50? over pickup?)
Restaurant margins are already thin. So they hike the prices to pay UberEats and co. their share.
Also, bigger margin doesn't always mean less effort to cook. It might depending on labor costs and the cost of goods (gravy mix is more expensive than the ingredients, but takes a bit more time to prepare) and you might also wind up needing consistency: Waffle House (a chain restaurant) probably wants its gravy to taste the same in two different cities, and it doesn't matter so much if it takes away a bit of margin.
At that point, though, you're not gigging out delivery people. You're just hiring short-term couriers to move stuff to people from the central kitchens. This is, basically, the model that big city Chinese restaurants and pizza places had anyway before the apps muscled in by swamping them with superior SEO.
There's also a lot of cuisines that simply don't travel well and these Doordash/uber eats business are indifferent. Pizzas travel well, Chinese travels well. Sushi kind of does too assuming you can be quick. But ramen? French fries? Lots of stuff just isn't meant for it.
Amazon won online retail, and changed online retail behavior, by getting rid of shipping fees. The price you see on the product is the price you pay (sans sales tax, but at least in the USA no one is used to seeing tax included).
you actually mean "by hiding shipping fees in an annual subscription model carefully tuned to deal with real world customer ordering behavior".
Non-Prime customers still see shipping fees for everything.
IIUC, 30% is the top end, with rates ranging from 10-30%.
That said, many (most?) restaurants that aren't high-end (which won't be preparing orders for delivery anyway) have gross margins of at most 10-15%.
The cut that DoorDash, GrubHub, etc. take has driven many lower cost restaurants (a number of which had provided their own delivery and been in business for decades) where I live (NYC) out of business over the past 10 years.
The only choice for these folks is to raise prices enough to cover the extra costs, often killing their business (note that GrubHub requires restaurants to charge the same on their site as on their in-house menu, not sure about other services).
The result is fewer independent low-mid priced restaurants. And that's a loss to any community.
A company starts a web site and sets pricing on their service at a very low rate, while subsidizing it's financial loss with investment money at a loss. The company gradually increases costs and pricing over time for suppliers, employees, and on users until it finds a sweet spot in hopes that no one will notice, while also protecting itself carefully with PR and legal moves and careful management of overhead costs for operations... Most often the company manages minimal customer support, insurance, lawyers, a web site, marketing teams, and an office of public affairs, and that's the primary focus.
Often times, ownership frequently funnels profit out through selling shares, and though executive pay, until eventually the company succeeds or fails miserably.
These are not commendable business ventures like the press would have you believe, they're time sharing schemes that victimize almost everyone who invests in them, and they undermine vital services that would normally be regulated like the taxi cab industry, which was doing quite well before Uber came in and scorched it to ashes.
Many cities gave ride share companies huge subsidies and concessions to operate, few of which benefits they've passed on to drivers and riders, and surge pricing is about as scandalous and opportunistic as monopolizing a river then selling the water to the villages it used to lead to. I wouldn't be surprised if these companies are also pushing campaigns and lobbies against individual car ownership as well through employees, and brigading in places like reddit, because that only furthers their death grip on monopoly status.
The corporate world is wildly toxic these days, I'm skeptical of everything companies tell me because everyone is opportunistically dictating prices and terms, and they've abandoned customer service and all of the principles the present at orientation behind the scenes.
How Uber is a $50bn business is beyond me
- they have never made a profit - they’re unlikely to ever make a profit unlikely to ever reduce costs enough - they need to reduce expensive headcount rather than squeeze drivers and restaurants - the early money sole out at a profit while passing their losses onto new punters via IPO
If it was a small team of good engineers, designers humbly building a product, then keeping it attractive to investment would've been a lot easier.
Now as you said, there's so much competition, it's not really sustainable at it's current size.
Automation could be disruptive here…someday in the form of food delivery land and/or air drones. It really is the same with ride share: it just isn’t economical considering how much human labor is worth, self driving vehicles are more than likely required to make it economical enough to be ubiquitous.
It works great "inhouse". They tend to know all their regular customers and area and know exactly how to get there, where to park, which bell to press etc. They will also know if there is bad traffic or an accident closing a major road and adjust wait times and order frequency accordingly.
The person that runs the delivery joint can also wait until he knows his/her driver will be making his way back, and only start cooking then, so the next order doesn't get cold waiting for a pickup.
It all goes to shit when you put a tech platform which has absolutely no real interaction with the kitchen and outsource the riders entirely, with virtually no quality control and no local knowledge. Plus they also want to take 30-50% commission for the privilege.
Ubers margins are comically bad. Uber Eats did $13bn of revenue and they made $30m of EBITDA - 0.2%. The credit card networks are probably making 10x the money that Uber on each order. And that EBITDA will be with them pulling out all the stops now they have realised they need to get profitable fast.
>They will also know if there is bad traffic or an accident closing a major road and adjust wait times and order frequency accordingly.
irrelevant in the age of GPS navigation with live traffic (ie. google maps)
>where to park, which bell to press etc.
while I don't doubt delivery drivers accrue such knowledge over time, I doubt that the turnover is low enough for this to actually make a difference. It's certainly not enough to make such a service unviable.
>The person that runs the delivery joint can also wait until he knows his/her driver will be making his way back, and only start cooking then, so the next order doesn't get cold waiting for a pickup.
This doesn't seem very hard to do. Restaurants can let the delivery platform know how long each dish to prepare, and the delivery platform can tell them ahead of time when to prepare the food (after factoring in driver availability and distance).
This is one of the reasons uber eats often delivers horrendously cold food (with no refund option these days). If you got cold food from a local joint with inhouse delivery they'd usually refund or redeliver for free, because they know it was their fault. They can't offer that through these platforms as it is rarely their fault and even if it was they don't get an option to interface with the customer like that.
On the final point - firstly, it's not as simple as that as not 100% of orders are coming through uber eats, so they don't really know exactly how busy the kitchen is. Secondly, uber was so desperate to grow market share they would push kitchens to take orders regardless of capacity to serve them. The only option AFIAK was to shut off Uber orders entirely, there was no "take 4 orders per 30 minutes max" option (maybe they have added that now).
The confused phone calls I get from delivery drivers just about every time I order begs to differ.
And that's assuming they bother to call rather than just leaving my order with the basement apartment or one of my neighbors or in the same address only on Northeast [name] street 8 blocks away rather than Northwest [name] street.
These drivers churn so much they never learn their way out of routine dumb mistakes like that.
Meanwhile, you are hungry and tired and you just spent $50 on $30 worth of takeout. You really really want someone to care about your dinner as much as you do. But next week when you're hungry and tired again, won't you roll the dice again and hope they get it right this time?
If I lived in a Chinese Puzzle Box I would have to get used to people wanting help to open it. Because they don't actually give a damn about the puzzle box. They just want to drive straight there.
That's not true where I live (obviously, YMMV). Granted, I live in a very urban area (NYC) and most deliveries are done on bicycle, as the distances are shorter and it's much faster for the delivery folks.
Most restaurants near me have had delivery services for decades. Depending on the restaurant, they might have dedicated delivery folks, but others would just send a busboy as needed.
In fact, the big problem used to be all the restaurants leaving their delivery menus in building lobbies or even slipping them under the doors of non-customers.
Now the problem is that many of these restaurants are going out of business because the fees on the "delivery" apps eat up their entire gross profit margins.
Absolutely. Which is why I qualified my statement with "YMMV."
That said, I think one aspect is broadly applicable: Most low to mid-price restaurants (not chain restaurants) operate on pretty thin margins. And the 12-30% (just for "listing" on their website) can often eat all the profits from the business.
And that doesn't include the "service" fees and delivery charges either. Making the whole enterprise a bad deal for everyone except the UberEats/DoorDash/GrubHub/etc.
Edit: Fixed typo.
Does that make it a bad deal for the consumer? Maybe, but lots of people seem to be willing to pay the premium for the experience and convenience of ordering through the app.
Locally I've seen plenty of restaurants have different prices on UberEats than online.
I'm talking about service fees to the customer, not the restaurant. The restaurant is already paying 12-30% on every single order. That includes phone orders via the fake websites these services set up with a VOIP number (not the restaurants' own numbers) that forwards to the restaurant.
As for upping the menu prices, IIUC, these services (GrubHub definitely, the others I'm sure do the same) require restaurants to charge the same prices as their eat-in menu.
You're welcome to disagree as to whether or not it's a good or bad deal for anyone, but I've seen (and had it confirmed by several former restaurant owners) restaurants go out of business because they, can't make a profit via the delivery services. Even ones that had been doing just fine for decades.
>Locally I've seen plenty of restaurants have different prices on UberEats than online.
Fair enough. I wouldn't use UberAnything even if it was free, so I wouldn't know. But I am certain about GrubHub/Seamless.
I expect you're still "unconvinced." Which is no skin off my nose. I'm loathe to tell anyone what to think, do or say, as it's neither my business nor my concern.
It's cheaper and more convenient to pick the food up myself.
but
> Plus they also want to take 30-50% commission for the privilege.
If food delivery works great in house then why do restaurants pay Uber so much? I'd wager employing drivers is impractical for a lot of restaurants.
Uber, Doordash, etc get away with charging such premiums not because delivery is so costly but because they've made themselves into a new phone book. Hungry customers open the app to look for a restaurant, and the restaurant wants to be listed there.
However that's not really a win for the restaurant. It might not increase their business, just stop them from losing it. If the app didn't exist at all, those customers would find them another, less convenient way. But because the app exists, the customers stopped using those ways.
Doordash would offer a restaurant before partnering with them by calling in the orders so they could have sales numbers to pitch to the restaurant owner when they want to take the 30%.
All this seems to mean in practice is I get a crappy Uber Eats delivery but have to order it through the McDonalds app, which is somehow even worse than Uber Eats.
I've just looked at the McDonalds app, and it says my local McDonalds is 24/7 and lets me order to collect from there. I know for a fact that it's shut right now, and the official store locator also says it's shut.
I stick to Deliveroo and Just Eat where possible because their apps and service tend to be pretty decent.
But pizza and chinese delivery was a thing in the US long before delivery apps were a thing. Clearly it was practical at some small scale in the US. I don't see any reason why it can't be expanded to other restaurants (eg. by sharing delivery drivers so a restaurant doesn't have to have an entire FTE on payroll).
it scaled pretty well, I would just take 3-4 orders per-ride depending on distance ended up with a decent chunk of change just from the weekends, and there was a decent amount of downtime and socializing waiting for pizzas to be cooked
with the gig stuff drivers are shuttleing between multiple resturants non-stop in ill-defined areas to random customers and probably walking away with less cash it's a stupid system
What on earth are you talking about. Pizza and Chinese restaurants have been profitably delivering food for decades.
The UberEats model in particular may be unprofitable, but there are absolutely profitable models that have existed for far longer than I’ve been alive.
Uber gets away with charging one side of the market 30% of food prices and charging the other side of the market a delivery fee, a service fee and a tip. This typically comes out to 50% of food costs if you use an average tip.
Wow, no, it's a 2-sided market problem (drivers and customers) that's incredibly difficult to reproduce.
And then there's brand synergy, economies of scale with regulatory issues etc..
Regular taxis are 'easy to reproduce'.
Food delivery is hard because there actually isn't any margin. It's all VC money paying for everything.
Other options do exist - things like Gett in the U.K. for example, not sure how profitable they are either though and some large taxi companies have their own apps too
"Economies of scale" isn't a magical spell. There has to be a function by which a large companies turns its scale into an economy. Walmart and Costco both negotiate much more attractive deals with their suppliers than their competitors can, because they can place larger orders with those suppliers, due to their scale. Because Uber connects one rider with one driver (or one meal-eater with one driver for Eats), its ability to create a useful economy of scale is sharply limited.
Uber has some mild advantages against an up-and-coming rival in terms of constancy of demand, but since drivers will happily turn on multiple gig services at a time, that's not a very big deal for it. Things like Uber Pool are an attempt to turn its scale into an economy, but (predictably) not enough people actually want a ride service that puts them in close proximity with strangers and also takes a vastly unknown amount of time to finish the ride to make Uber Pool a major differentiator. Things like Uber's car loans problem comes face to face with the fact that there it's competing against other, larger entities that have better scale (like, you know, actual banks).
I noticed that in the past, you'd get the pool discount even if you travelled by yourself. They've changed the terms to "up to 30% discount if someone rides with you".
As a customer, the benefit of using Uber was that they would absorb the risks, spreading it out across millions of customers. Now, I have to individually wear the risk of a pool trip not having multiple customers, while simultaneously being enormously disadvantaged in my ability to estimate the chances of other people joining. Uber has billions of times more information at hand for their estimates than me as an individual.
When I saw this change, I realised that it's a sign of the beginning of the end...
I mean, it's not like Uber is buying cars in bulk at a discount smaller operators can't match, or anything like that.
And it's not like they're running a lean technology operation, with just 50 engineers globally, to get economies of scale on tech expenses.
The only economies of scale Uber has on their side is marketing.
An Uber driver can only drive one passenger at a time (put aside pool, which requires a price discount to get people to use it). So the number of drivers required to serve N passengers simultaneously is N. Costs scale linearly with rides per hour.
UPS has economies of scale because one driver puts 500 packages in a single truck, so the driver's wage is fixed and the revenue increases with the number of packages in the truck.
What? Uber Pool was never big, and I believe is now completed retired. Are you sure you know how Uber works?
> An Uber (or Lyft) driver who is able to make an average five deliveries (whether it be people, food, or parcels is immaterial to this discussion) in 30 minutes versus an ordinary taxi cab driver who is able to make an average three deliveries in 30 minutes would be correctly said to enjoy economies of scale.
This is not economies of scale. This is just more volume. It would be economies of scale if Uber paid their drivers hourly wages, so their cost per ride went down because they did more rides per hour. But they do not, they pay them a cut of the ride.
> See, I made it simple enough so that even an engineer like you could understand it!
I'd love to see your business.