5 ms·

I feel like this business model (which I like) is too reliant on the health of the gig-delivery ecosystem, which I get the feeling is propped up by VC money sub

I feel like this business model (which I like) is too reliant on the health of the gig-delivery ecosystem, which I get the feeling is propped up by VC money subsidizing delivery costs. Once the funding dries up and the deliveries stop flowing as easily, these types of kitchens might be in danger.

xyzzy_plugh 7y ago
I agree with you, but there are entire industries thriving propped up on subsidies. I am curious if this will really work long them, but I'm actually somewhat optimistic that there will be enough momentum to keep the industry around until its successor arrives.
sigstoat 7y ago
seems like convenience stores could be a reasonable distribution channel. japan does that, i believe? and US stores usually have similarly produced (but less tasty) food.
shaneprrlt 7y ago
Forgive my ignorance, but I thought I heard somewhere along the line that Uber actually makes money on Eats, am I mistaken? Also as a separate point, I worked for an on-demand food startup, and I remember our founders talking about a local entrepreneur they knew who rented a single commissary, was operating white labeled brands on the delivery platforms, and was highly profitable. Almost makes me think the delivery platforms could have a Shopify-type effect for traditional restaurateurs and it will be interesting to see the business models that unfold as a result.
- jersey 7y ago
  " As of July [2017], UberEats was profitable in 27 of the 108 cities where it operated. Uber declined to reveal the service’s revenue." https://www.nytimes.com/2017/09/23/technology/ubereats-food-delivery.html?_r=2 https://www.nytimes.com/2017/09/23/technology/ubereats-food-...
  - larnmar 7y ago
    Without knowing the details of their business, it seems likely that Uber is happy to lose money to get a decent foothold in a market, and then slowly change priorities from growth to profitability. I noticed today that the people who used to hand out $20 off your first Uber Eats coupons in my town are now down to $15... presumably part of this process.
- pbreit 7y ago
  Eats is very unprofitable. In Q3 Eats EBITDA was negative $315m while Rides was positive $630m.
alex-wallish 7y ago
A successful cloud kitchen will be operating many restaurants from a single location, ideally with enough demand to justify full-time deliveries from that single location. This cuts out the need for the gig worker. Instead of having to have people distributed around a city so that they can pick up food from location A and deliver it to location B, location A is now fixed and you can have a single driver, or drivers delivering from that specific cloud kitchen.
- barbecue_sauce 7y ago
  It really never occurred to me that they would employ their own delivery drivers in today's economy, but I guess if local pizzerias can do it, why not other restaurants with significant volume?
  - ashleylovesfood 7y ago
    Pizza delivery = the OG cloud kitchen. They revolutionalized delivery.
    - seltzered_ 7y ago
      You might like the story of Pizzaoki operating as a delivery-only brand of another restaurant in Oakland: https://www.berkeleyside.com/2019/02/11/dj-steve-aoki-quietly-opens-a-pizza-restaurant-in-oakland https://www.berkeleyside.com/2019/02/11/dj-steve-aoki-quietl...
- novok 7y ago
  So like a food court in a mall.
ashleylovesfood 7y ago
I think this is a valid point. The thing that makes it a bit different from traditional gig workers is that food prep requires formal training (food handling/safety, knife skills, time/temp, etc.). Your point about VC money propping it up is right on. We saw this happen with box/meal kit companies that couldn't achieve realistic unit economics in the food supply chain and instead were paying for customer acquisition in the form of free meals. Most have folded but some are still dying on the vine.
CydeWeys 7y ago
Food delivery has been a profitable industry for decades, and there always have been restaurants that do a majority of delivery business. This is just an optimization of that. I don't think it's particularly tied to the gig economy.
- Nextgrid 7y ago
  The difference is that conventional food delivery is a restaurant hiring teenagers to deliver and pays them cash. There's basically zero initial investment involved other than a couple of bikes and the owner makes a profit off every delivery. Doordash & co have raised millions of investor money which not only do they have to pay back but also provide unrealistic returns, which isn't really possible with such a physical service where expenses and profits scale mostly linearly (see WeWork which promised tech-company-style returns despite being a physical business and how it all ended).
  - trynewideas 7y ago
    Speaking of WeWork, the biggest investor behind REEF, one of the cloud kitchen vendors expanding in 2019? SoftBank. https://www.bizjournals.com/southflorida/news/2019/06/26/how-this-softank-backed-startup-could-transform.html https://www.bizjournals.com/southflorida/news/2019/06/26/how...
  - CydeWeys 7y ago
    I'm not defending Doordash here, I'm just saying that the general concept of running a space optimized for cooking food for delivery is solid, could easily be profitable, and mostly already exists in the form of existing restaurants that are optimized for delivery (like pizza places that don't even have tables). I live in Manhattan and the amount of food being ordered in every day is unreal. Shockingly even the Taco Bell near me does more volume in delivery than in eat-in or to-go -- and they don't even run any delivery services themselves! It's all third party!

xyzzy_plugh 7y ago

I agree with you, but there are entire industries thriving propped up on subsidies. I am curious if this will really work long them, but I'm actually somewhat optimistic that there will be enough momentum to keep the industry around until its successor arrives.

sigstoat 7y ago

seems like convenience stores could be a reasonable distribution channel. japan does that, i believe? and US stores usually have similarly produced (but less tasty) food.

shaneprrlt 7y ago

Forgive my ignorance, but I thought I heard somewhere along the line that Uber actually makes money on Eats, am I mistaken? Also as a separate point, I worked for an on-demand food startup, and I remember our founders talking about a local entrepreneur they knew who rented a single commissary, was operating white labeled brands on the delivery platforms, and was highly profitable. Almost makes me think the delivery platforms could have a Shopify-type effect for traditional restaurateurs and it will be interesting to see the business models that unfold as a result.

jersey 7y ago
" As of July [2017], UberEats was profitable in 27 of the 108 cities where it operated. Uber declined to reveal the service’s revenue." https://www.nytimes.com/2017/09/23/technology/ubereats-food-delivery.html?_r=2 https://www.nytimes.com/2017/09/23/technology/ubereats-food-...
- larnmar 7y ago
  Without knowing the details of their business, it seems likely that Uber is happy to lose money to get a decent foothold in a market, and then slowly change priorities from growth to profitability. I noticed today that the people who used to hand out $20 off your first Uber Eats coupons in my town are now down to $15... presumably part of this process.
pbreit 7y ago
Eats is very unprofitable. In Q3 Eats EBITDA was negative $315m while Rides was positive $630m.

alex-wallish 7y ago

A successful cloud kitchen will be operating many restaurants from a single location, ideally with enough demand to justify full-time deliveries from that single location. This cuts out the need for the gig worker. Instead of having to have people distributed around a city so that they can pick up food from location A and deliver it to location B, location A is now fixed and you can have a single driver, or drivers delivering from that specific cloud kitchen.

barbecue_sauce 7y ago
It really never occurred to me that they would employ their own delivery drivers in today's economy, but I guess if local pizzerias can do it, why not other restaurants with significant volume?
- ashleylovesfood 7y ago
  Pizza delivery = the OG cloud kitchen. They revolutionalized delivery.
  - seltzered_ 7y ago
    You might like the story of Pizzaoki operating as a delivery-only brand of another restaurant in Oakland: https://www.berkeleyside.com/2019/02/11/dj-steve-aoki-quietly-opens-a-pizza-restaurant-in-oakland https://www.berkeleyside.com/2019/02/11/dj-steve-aoki-quietl...
novok 7y ago
So like a food court in a mall.

ashleylovesfood 7y ago

I think this is a valid point. The thing that makes it a bit different from traditional gig workers is that food prep requires formal training (food handling/safety, knife skills, time/temp, etc.). Your point about VC money propping it up is right on. We saw this happen with box/meal kit companies that couldn't achieve realistic unit economics in the food supply chain and instead were paying for customer acquisition in the form of free meals. Most have folded but some are still dying on the vine.

CydeWeys 7y ago

Food delivery has been a profitable industry for decades, and there always have been restaurants that do a majority of delivery business. This is just an optimization of that. I don't think it's particularly tied to the gig economy.

Nextgrid 7y ago
The difference is that conventional food delivery is a restaurant hiring teenagers to deliver and pays them cash. There's basically zero initial investment involved other than a couple of bikes and the owner makes a profit off every delivery. Doordash & co have raised millions of investor money which not only do they have to pay back but also provide unrealistic returns, which isn't really possible with such a physical service where expenses and profits scale mostly linearly (see WeWork which promised tech-company-style returns despite being a physical business and how it all ended).
- trynewideas 7y ago
  Speaking of WeWork, the biggest investor behind REEF, one of the cloud kitchen vendors expanding in 2019? SoftBank. https://www.bizjournals.com/southflorida/news/2019/06/26/how-this-softank-backed-startup-could-transform.html https://www.bizjournals.com/southflorida/news/2019/06/26/how...
- CydeWeys 7y ago
  I'm not defending Doordash here, I'm just saying that the general concept of running a space optimized for cooking food for delivery is solid, could easily be profitable, and mostly already exists in the form of existing restaurants that are optimized for delivery (like pizza places that don't even have tables). I live in Manhattan and the amount of food being ordered in every day is unreal. Shockingly even the Taco Bell near me does more volume in delivery than in eat-in or to-go -- and they don't even run any delivery services themselves! It's all third party!