The basic concept of food delivery existed long before tech and VC and was viable.

The only reason these companies can't turn a profit is because all those microservices, ads and "engagement" don't come for free.

Food delivery existed before platforms, but only where it made sense. You could order something like a pizza, where the marginal cost and effort required to make another meal was low, and the sales volume was high enough to justify using paid employees for delivery. Service area was also chosen by the restaurant itself to ensure that they would not spend too much time on a single delivery.

In the end, it's pretty simple. How many deliveries does a single person make in an hour, including idle time? Is someone paying enough for that? And does the kitchen have enough spare capacity for that?

There were also 3rd party services that would deliver from most anywhere, but they were expensive (they made actual net profit on each delivery).

> Food delivery existed before platforms, but only where it made sense.

This article is about NYC, where food delivery was ubiquitous long before DoorDash. In fact, Seamless in 2010 was a better experience than Doordash is in 2023, when you consider the absurd markup on Doordash.

Doordash struggled to enter the NYC market for a while because it was trying to compete with an established product, yet using a higher price point. It was only with massive amounts of VC funding that they were able to get a foothold.

>The basic concept of food delivery existed long before tech and VC and was viable.

In limited markets, for specific types of food, and for pretty crappy wages for the delivery people. (And, yes, for mostly pretty low tech approaches.)

These companies have spent a ton of money to convince lawmakers and consumers that they are not in the food delivery (or taxi) business. The whole plan was to not have to deal with these pesky regulations.

> The only reason these companies can't turn a profit is because

is because their business model is unviable and unsustainable

In NYC, before Seamless and the like, restaurants just offered free delivery when you called over the phone. It was just part of the deal; didn't have to be profitable on its own (the business it brought was enough). Restaurants evidently did fine back then.

Seamless et al are really just siphoning money out of restaurants’ pockets because you cannot, these days, be the only restaurant who still makes people call over the phone.

That's a somewhat outdated narrative to still be parroting.

Uber just got included into the SP 500. One of the pre-requisites for that is being profitable on a GAAP basis.

Which if I recall correctly they are only profitable due to a one time revenue boost right of something like hundreds of millions ?

And that one time "revenue" boost was that a company they own they are asserting is now valued more than last year. And they are calling that "revenue".

No, it's operating profit.

I took a look at a fool article. If you exclude the unrealized return from an investment they made, their profit are in the single digit millions. Not really confidence inspiring, but maybe I am wrong and that they could indeed make their business sustainable.

"could indeed make"? What's not sustainable about that level of profit? And aren't they still spending a lot on expansion?

It implies that their margin is really low. We're talking about revenues in hundred of millions and they're only able to make single digit millions.

Next quarter, their margin might entirely be wiped out by a slight downturn in business. If they could increase their margin and make profit consistently, then I'll change my mind.

Is a particularly big percentage of their costs fixed? Because that affects the math a lot. If we consider a generic slightly-profitable company facing a 25% revenue drop, there's a huge gulf between a world where costs drop 10% and a world where costs drop 22%.

I mean, Enron was in the S&P 500, too.

> That's a somewhat outdated narrative to still be parroting.

It's not. Most of those "innovators" are still posting losses in the hundreds of millions

> Uber just got included into the SP 500. One of the pre-requisites for that is being profitable on a GAAP basis.

Because you can somehow lose a billion dollars a year for 10 years, become a publicly traded company with a steatement "we don't even know if we'll ever turn a profit", still continue operating at a huge loss for several years, write off 6 billion in losses, and finally become profitable enough to be included in S&P.

Any any other, sane world, Uber would be gone after two years of losing a billion dollars a year. Not crawl into S&P after 10 years of unsustainable losses.

I don’t have much dog in this fight, but it seems as if Uber’s losses were self-evidently sustainable.

> it seems as if Uber’s losses were self-evidently sustainable.

With the unlimited free investor money. Same goes for the rest of "amazing starup innovators" of recent years (e.g. YCombinator's startups). The flow of money has now stopped/slowed, and we now see mass layoffs and a wave of bankrupcies.

Losing a billion dollars a year for 10 years is not a sustainable business. But somehow it has become the norm in IT.

>One of the pre-requisites for that is being profitable on a GAAP basis.

Uber lost money for 22 straight quarters, then made money for the last two. Bit optimistic to think it's smooth sailing from here, in my opinion. I enjoy Uber, the product, but they are middle manning a couple of low margin industries. Hard to imagine it being a multi-hundred-billion dollar company.

Not sure why you got downvoted, its true. These platforms are all a race to the bottom to capture market share and then jack up of prices to recover lost revenue. Overall, it ends up being a terrible experience for the customer and the driver/deliverer.

Because it’s not true anymore, and complaining about high prices for a service that is just moving up market kind of ignores the reality that a business can make fewer sales if its margins on the remaining sales are sufficiently high, which is exactly what has happened.

In other words, delivery apps went through the “burn vc money” phase already, and are now focusing on profitability, and successfully so.

I just opened the DoorDash app. A ton of fast food ads/offers

I have not eaten fast food in like 10 years, and never had it delivered.

Not really up market imo.

Food delivery products and companies are definitely not moving up market. Valuations have plummeted and many are still struggling to turn a profit despite layoffs and cutbacks.

I'm curious; what do you think "moving up market" means? Does it mean "becoming a company that has a higher market cap and/or is more profitable" or does it mean, "Targeting a wealthier customer"?

Because what you've listed would suggest you believe it means the former, which isn't accurate (it's the latter). Maybe I misunderstand, though.

> a race to the bottom to capture market share

That is the real problem, not that the concept of food delivery is unprofitable by itself.

Not sure where you folks live but all the major ordering apps present in Toronto have been excellent in the suburbs. I was fully satisfied at least 9 out of 10 times.

And even the most expensive, ubereats is only, at most, a 20% surcharge compared to the in-restaurant price plus tip, for a $50 order.

I live near Mountain View, California and its probably sampling bias but i would swear that for the entirety of pandemic there were complaints about food delivery missteps and prices on my Nextdoor neighborhood.

This is a good post. Do you have any thoughts about why this works in Toronto? What is different from other cities? And do workers make living wages?

I think food delivery at scale is unprofitable, at this point the technology in those apps doesn’t really have a moat. The next logical big step is to have drones delivering the stuff, and at that point you have this massive amount of tech and research to get food 2 miles down the street…it seems pretty counterproductive.

How does the customer have a terrible experience? I order delivery more often than is reasonable across many different platforms and I usually have a perfectly fine experience.

Because I put it a 9$ burrito in the cart and somehow at checkout the price ends up being 25$ before tip. The only way I use those apps is if I have really good incentives/discounts…so maybe I am not the target market, happy to eat in or not order at all. I have not had any problems with the delivery people, they are always super nice.

I've never really gotten this. We can speculate about the intelligence of VCs, but I assume most of them know a bit of basic math. I wonder if perhaps they are so deep into a bubble of wealth and privilege that to them, spending $50 for a (cold by the time it arrives) burger seemed reasonable. Perhaps they thought that once everyone could experience this for an amount of money they find trifling, it would catch on?

I've used these services a time or two just to see what the fuss is about and I don't get it myself.

The VCs are hoping to hype the product enough in the early stage to achieve a lucrative exit, and do that 10% of the time(or whatever). What happens with the product once the company is public is not of their concern.

>I've used these services a time or two just to see what the fuss is about and I don't get it myself.

It's similar to fast food itself. convenient and cheap. these days the latter is falling off the wayside (again, just like modern fast food). It was invaluable during a pandemic to help encourage social distancing, but even if it was still cheap it was bound to fall off a bit (probably not to pre-pandemic levels, but no longer record customers).

>I wonder if perhaps they are so deep into a bubble of wealth and privilege that to them, spending $50 for a (cold by the time it arrives) burger seemed reasonable.

As others have mentioned, it's more a matter that VC's aren't necessarily looking to be the next big tech company. Many are looking for a profitable IPO and then move on to the next company. Lots of problems with enabling that model to begin with, but that's a whole other bucket of worms.

> convenient and cheap

But it’s neither of those things, assuming you believe (as I do) that receiving food that should be hot but is cold isn’t convenient.

These services are very popular. Just look at DoorDash's explosive growth. It's not only out-of-touch VCs that like ordering food.

A lot of Americans can't "reasonably" spend $25+ on a single delivery meal but do anyway, probably quite often on 25% APR credit cards

They work kind of OK in dense expensive cities like SF or NYC where people don't drive as much. Less so in other sparse areas where driving and picking up or even eating out is less of a hassle. I think you're using $50 as hyperbole; more realistically, a $20 takeout becomes $30 with delivery, and a lot of people seem to be OK with that.

I mean I think it can be, given that there's a $20-$30 markup per order, but it definitely requires some particular circumstances.

The bigger thing is that if you're thinking of Lean manufacturing principles or Theory of Constraints, where the goal is to get the noise out of the system, you would never maximize a business the way that Uber Eats and Doordash are. It'd instead be something like the following pipe dream:

- We sell "pizza delivery as a service" to businesses who want it -- at first we're trying to partner with Target and Walmart, etc. Our value proposition to them is "hey Amazon is eating you alive, how about we help you offer ultra-rapid delivery and the people you're working with basically become fellow trusted Target employees?" (Of course, we'd be happy to double-dip -- ideally we'd convince Amazon that we're a cheaper way to reach their customers than their own delivery drivers. But that's a really hard sell.)

- The company rents delivery people from us per day, we provide the delivery network. If you need to "burst" we can provide extra folks to augment at a premium. Ideally someday we'll get some lucrative Amazon contract where the Amazon warehouse, but to start with we're doing laundry delivery and other odd jobs. The company maintains their brand; we're just a courier service. You don't go to the FedEx website to order something, you select FedEx at the end with "how would you like this to come to you."

- On the side, we do sell a service of "we will give you a new pickup/delivery portal web site that works with our delivery service" to smaller businesses so that they can get started with us.

- We are a courier service but we only operate in cities where we can sufficiently average out the volumes needed. Amazon, UPS, FedEx can be the kings of the countryside, that's fine.

- The company, assuming food, sends their delivery-person right when the food is cooked, they are our employee and package it to our standards and bring it straight out to our delivery hub. In general they will not be going to the final address. We use this as a process buffer to maximize our throughput for the people actually driving to the home addresses, we can make sure that certain people get to know neighborhood X better, etc.

- The shipping price should come in two tiers, give people a generous shipping discount for advance orders where we can have more opportunity to batch and optimize.

- Because the company pays us (and the user pays them for "shipping"), under no circumstance does the user tip; that workflow is just too indirect to sustain tipping.

- Which means we have to do a 180 on how we treat the delivery folks; ideally they'd be full-time employees and we'd proactively unionize them.

That last bit sounds like suicide but really there's a ton of noise in terms of all of this "well the question of who are our delivery people is fraught, they can drop off the map at any time" and it's like, no, I want to be able to say at the central hub, "here's the route you're about to follow, review it while you wait 2 more minutes for Tina to arrive with order 6AF12B, that's your third one, we've got the motor running for you and you know these streets better than anybody," and under no circumstance is that person saying "eh, I have a party I want to go check out, I'm just going to go with these 2 orders and leave Tina in the lurch." And, we can sell it to city-goers as "this is the ethical way to deliver, the union makes sure that we maintain the cars and that we pay as well as we can."

And the rest of it is making the profit back up in volume.