4 ms·

I don't see how delivering somebody else's food can be profitable, or even how they can guarantee that the food is edible as a middleman. Maybe somebody can ex

I don't see how delivering somebody else's food can be profitable, or even how they can guarantee that the food is edible as a middleman. Maybe somebody can explain what the business model is here. It sounds like the founders get to play big shot for a couple years while they bleed their VCs.

danieltillett 11y ago
The business model is called the "greater fool". The surprising thing is that when you have the sort of terms that VCs can insert it is actually a great model.
ryporter 11y ago
It's a straightforward and logical business model. Restaurants want a way to deliver food to their customers. They provide this service, and are compensated for it. They ensure that the food is edible by working with restaurants that customers already dine-in at. Sure, they can't guarantee that the food is edible, but no delivery service can guarantee anything about the product that they are delivering. They have to rely on the reputation of the sender. The problem is instead that this is too common of a business model. There doesn't appear to be anything particularly innovative about what DoorDash is doing, and they don't appear to be executing very well. It's not a fundamentally flawed business; it's just a uninspiring one that was probably overvalued.
- kotach 11y ago
  It would be innovative if they had some super fast on-line optimization of delivery routes. Optimized routes would allow them to chain several pickups from restaurants with a chain of deliveries. Given the fact that the optimization is global they would have the advantage of doing global optimization over each restaurant doing it locally. Therefore they could charge less for deliveries while paying their workers the same. Unfortunately, a google search of the founders tells us they haven't got the slightest clue how to do that. What the investors can hope is that this money will allow them to find people that can make the extra effort to rise the business above all of the similar ones.
- vegabook 11y ago
  Deliveroo, Hungry House, Deliverance, Just Eat. That's the (well entrenched) competitive landscape in London alone. And I doubt those are sucking in numbers like 127m of funding (at god knows what valuation). These guys at doordash must have one helluva good pitch.
  - gaius 11y ago
    Deliverance long pre-dates the others; I'll wager it'll still be standing when the dust settles.
  - laurentb 11y ago
    Deliveroo raised $100M (~£66M) back in November '15, that's $27m short but still. source: http://uk.businessinsider.com/london-startup-deliveroo-has-raised-100-million-for-its-restaurant-delivery-service-2015-11 http://uk.businessinsider.com/london-startup-deliveroo-has-r...
    - vegabook 11y ago
      Fair enough, at valuation of more than 1billion GBP so double that of doordash.
  - mattmanser 11y ago
    Doordash and Deliveroo's business model is different from hungry house or just eat. And to echo what laurentb said, Dilveroo is not only recently funded but also only just expanding into other big UK cities. Like deliveroo recently went live in Nottingham (May 2015) and they have only fairly good restaurants who did not previously do delivery on their books. Just Eat and HH added a centralised online booking service to existing takeaways. Dilveroo and Doordash aim to deliver restaurant quality food, it's a new market segment.
    - deleted 11y ago
      [deleted]
nxzero 11y ago
Companies that have partnered with DoorDash pay delivery fees and service charges for access to DoorDash's platform. For nonpartner merchants, consumers get a markup. Drivers get flat rate delivery bonus and tips.
seanmcdirmid 11y ago
What? We use delivery services all the time here in Beijing. It is quite reasonable and affordable. You don't really have to worry about the food, but the costs in the west would concern me (people and electric bikes are cheap in China, and they don't need insurance....).
marincounty 11y ago
I know this absolute jerk that's making a good living doing it. What the secret? He subtly changes the resturant prices--the customers don't have a clue. When caught(one time), he claimed it was a mistake in the publication. Workers/Drivers? There's a lot of desperate people in this sharing economy. (Some do sample the food though.) Since I really can't stand the dude, I'll spill everything I know. Lunch is a hard sell. I don't know why? Delivering dinner is where it's at. People eat a lot! It's a good business for anyone. This guy started when he moved from the east coast to the west coast. On the east coast, they have had this service before computers. Just printed menus, and phones. Supposedly, it a common service in NY? This guy is so successful, even without technology, he never bothered to revamp for Internet use. It's still just a 10 page booklet, with the scanned restaurant menus, with fluctualting prices. It all depends on his mood. Of course, restaurants always get the lowered, agreed upon price. So, it's a good business model. I never thought people would pay so much for delivered food, but they do. I did learn something from this guy, if you bend the rules, and work hard, you can make pretty much any business work.
shalmanese 11y ago
There's going to be one company that wins the delivery space (probably the one with the name that rhymes with Hans Gruber), It simply makes too much sense for there to be an AWS of logistics. But there's going to be a lot of M&A along the way and a lot of these companies seem to be building themselves as acquisition targets instead of independant businesses. Just like every tech giant has to have a music streaming service, a phone OS and an intelligent assistant, they'll pretty soon all have to have a food delivery and virtual laundry service too. So the downside is pretty derisked as long as you can stay as one of the top 3 or 4 candidates in your vertical and you don't burn too much cash before Daddy Warbucks takes you under their wing. Plus, it was not a priori impossible that the company that wins the logistics-as-a-service space might come from food delivery instead of people delivery. Food complains a lot less, it's way more bursty and it benefits from economies of scale in way more attractive ways than people. As long as the food delivery startups remain valued at around the billion dollar mark, it's a 50:1 cheap bet that food might be a more attractive pivot point in the land grab than people.
joshmn 11y ago
Menu markups, discounts based on volume, sponsored listings, 1099s for drivers, delivery fees upwards of $10. The business model isn't as bad as you'd think. For newcomers in this space, the major issue (that could very well thwart any innovation) is fraudulent orders.
- danieltillett 11y ago
  All of these (other than 1099) require you can establish a monopoly in a delivery area. Given the low barriers to entry and the extreme locality of such a service it is very hard to establish and defend a monopoly in this niche.
  - joshmn 11y ago
    You're not wrong. I'm wondering if certain providers ever try to push an exclusivity agreement. Seems dumb to do from a restaurant's prospective, as I'm sure they see all these products as "the delivery app". But they're different to me: I won't order from DoorDash because I can't be confident my food will be hot — they do multiple deliveries per run, as opposed to an exclusive run.
    - danieltillett 11y ago
      Putting a third party between you and your customers when you are selling a highly perishable product in a highly competitive market is crazy risky. One area I have thought might work is if these food delivery services act as the seller and take responsibility for quality. You could have a DoorDash sell the food and outsource the production to the restaurants. The customer would not know where the meal came from and any quality issues would be on the DoorDash services plate (sorry for the pun).
50CNT 11y ago
It works perfectly well in China. You can get eleme, sherpa, baidu waimai, and a dozen other services to pick up food for you, sometimes even from one person home kitchens. Payment happens either over Wechat Pay or Zhifubao, which are app based payment systems, or in cash, and I think you pay a small premium for delivery, on the order of a couple of RMB (~1USD). It's pretty amazing actually that they solved two "tech startup" problems that are investor graveyards in the states, namely food delivery and digital payment apps. They do operate on pretty tight margins though, and its a competitive space.
- semil 11y ago
  Are they losing money?
- danieltillett 11y ago
  Are these businesses making the sort of margins that can return the level of profits that the VC industry demands?
ac29 11y ago
> I don't see how delivering somebody else's food can be profitable DoorDash marks up menu prices 15-25% or so, charges $5-6 for delivery, and an implied tip to the driver ensures they don't have to pay drivers much (the last point is speculation, but I suspect its true). A $25 pizza costs over $40 to get delivered from 5 miles away after all that. That is what is ultimately unsustainable about the business -- if they can't turn a profit with ~40% service fees, they are doomed.

danieltillett 11y ago

The business model is called the "greater fool". The surprising thing is that when you have the sort of terms that VCs can insert it is actually a great model.

ryporter 11y ago

It's a straightforward and logical business model. Restaurants want a way to deliver food to their customers. They provide this service, and are compensated for it. They ensure that the food is edible by working with restaurants that customers already dine-in at. Sure, they can't guarantee that the food is edible, but no delivery service can guarantee anything about the product that they are delivering. They have to rely on the reputation of the sender. The problem is instead that this is too common of a business model. There doesn't appear to be anything particularly innovative about what DoorDash is doing, and they don't appear to be executing very well. It's not a fundamentally flawed business; it's just a uninspiring one that was probably overvalued.

kotach 11y ago
It would be innovative if they had some super fast on-line optimization of delivery routes. Optimized routes would allow them to chain several pickups from restaurants with a chain of deliveries. Given the fact that the optimization is global they would have the advantage of doing global optimization over each restaurant doing it locally. Therefore they could charge less for deliveries while paying their workers the same. Unfortunately, a google search of the founders tells us they haven't got the slightest clue how to do that. What the investors can hope is that this money will allow them to find people that can make the extra effort to rise the business above all of the similar ones.
vegabook 11y ago
Deliveroo, Hungry House, Deliverance, Just Eat. That's the (well entrenched) competitive landscape in London alone. And I doubt those are sucking in numbers like 127m of funding (at god knows what valuation). These guys at doordash must have one helluva good pitch.
- gaius 11y ago
  Deliverance long pre-dates the others; I'll wager it'll still be standing when the dust settles.
- laurentb 11y ago
  Deliveroo raised $100M (~£66M) back in November '15, that's $27m short but still. source: http://uk.businessinsider.com/london-startup-deliveroo-has-raised-100-million-for-its-restaurant-delivery-service-2015-11 http://uk.businessinsider.com/london-startup-deliveroo-has-r...
  - vegabook 11y ago
    Fair enough, at valuation of more than 1billion GBP so double that of doordash.
- mattmanser 11y ago
  Doordash and Deliveroo's business model is different from hungry house or just eat. And to echo what laurentb said, Dilveroo is not only recently funded but also only just expanding into other big UK cities. Like deliveroo recently went live in Nottingham (May 2015) and they have only fairly good restaurants who did not previously do delivery on their books. Just Eat and HH added a centralised online booking service to existing takeaways. Dilveroo and Doordash aim to deliver restaurant quality food, it's a new market segment.
  - deleted 11y ago
    [deleted]

nxzero 11y ago

Companies that have partnered with DoorDash pay delivery fees and service charges for access to DoorDash's platform. For nonpartner merchants, consumers get a markup. Drivers get flat rate delivery bonus and tips.

seanmcdirmid 11y ago

What? We use delivery services all the time here in Beijing. It is quite reasonable and affordable. You don't really have to worry about the food, but the costs in the west would concern me (people and electric bikes are cheap in China, and they don't need insurance....).

marincounty 11y ago

I know this absolute jerk that's making a good living doing it. What the secret? He subtly changes the resturant prices--the customers don't have a clue. When caught(one time), he claimed it was a mistake in the publication. Workers/Drivers? There's a lot of desperate people in this sharing economy. (Some do sample the food though.) Since I really can't stand the dude, I'll spill everything I know. Lunch is a hard sell. I don't know why? Delivering dinner is where it's at. People eat a lot! It's a good business for anyone. This guy started when he moved from the east coast to the west coast. On the east coast, they have had this service before computers. Just printed menus, and phones. Supposedly, it a common service in NY? This guy is so successful, even without technology, he never bothered to revamp for Internet use. It's still just a 10 page booklet, with the scanned restaurant menus, with fluctualting prices. It all depends on his mood. Of course, restaurants always get the lowered, agreed upon price. So, it's a good business model. I never thought people would pay so much for delivered food, but they do. I did learn something from this guy, if you bend the rules, and work hard, you can make pretty much any business work.

shalmanese 11y ago

There's going to be one company that wins the delivery space (probably the one with the name that rhymes with Hans Gruber), It simply makes too much sense for there to be an AWS of logistics. But there's going to be a lot of M&A along the way and a lot of these companies seem to be building themselves as acquisition targets instead of independant businesses. Just like every tech giant has to have a music streaming service, a phone OS and an intelligent assistant, they'll pretty soon all have to have a food delivery and virtual laundry service too. So the downside is pretty derisked as long as you can stay as one of the top 3 or 4 candidates in your vertical and you don't burn too much cash before Daddy Warbucks takes you under their wing. Plus, it was not a priori impossible that the company that wins the logistics-as-a-service space might come from food delivery instead of people delivery. Food complains a lot less, it's way more bursty and it benefits from economies of scale in way more attractive ways than people. As long as the food delivery startups remain valued at around the billion dollar mark, it's a 50:1 cheap bet that food might be a more attractive pivot point in the land grab than people.

joshmn 11y ago

Menu markups, discounts based on volume, sponsored listings, 1099s for drivers, delivery fees upwards of $10. The business model isn't as bad as you'd think. For newcomers in this space, the major issue (that could very well thwart any innovation) is fraudulent orders.

danieltillett 11y ago
All of these (other than 1099) require you can establish a monopoly in a delivery area. Given the low barriers to entry and the extreme locality of such a service it is very hard to establish and defend a monopoly in this niche.
- joshmn 11y ago
  You're not wrong. I'm wondering if certain providers ever try to push an exclusivity agreement. Seems dumb to do from a restaurant's prospective, as I'm sure they see all these products as "the delivery app". But they're different to me: I won't order from DoorDash because I can't be confident my food will be hot — they do multiple deliveries per run, as opposed to an exclusive run.
  - danieltillett 11y ago
    Putting a third party between you and your customers when you are selling a highly perishable product in a highly competitive market is crazy risky. One area I have thought might work is if these food delivery services act as the seller and take responsibility for quality. You could have a DoorDash sell the food and outsource the production to the restaurants. The customer would not know where the meal came from and any quality issues would be on the DoorDash services plate (sorry for the pun).

50CNT 11y ago

It works perfectly well in China. You can get eleme, sherpa, baidu waimai, and a dozen other services to pick up food for you, sometimes even from one person home kitchens. Payment happens either over Wechat Pay or Zhifubao, which are app based payment systems, or in cash, and I think you pay a small premium for delivery, on the order of a couple of RMB (~1USD). It's pretty amazing actually that they solved two "tech startup" problems that are investor graveyards in the states, namely food delivery and digital payment apps. They do operate on pretty tight margins though, and its a competitive space.

semil 11y ago
Are they losing money?
danieltillett 11y ago
Are these businesses making the sort of margins that can return the level of profits that the VC industry demands?

ac29 11y ago

> I don't see how delivering somebody else's food can be profitable DoorDash marks up menu prices 15-25% or so, charges $5-6 for delivery, and an implied tip to the driver ensures they don't have to pay drivers much (the last point is speculation, but I suspect its true). A $25 pizza costs over $40 to get delivered from 5 miles away after all that. That is what is ultimately unsustainable about the business -- if they can't turn a profit with ~40% service fees, they are doomed.