6 ms·

Maybe food delivery services isn't solvable using the Silicon Valley method -- use insane amounts of rich people's money to subsidize product hyper-growth to on

Maybe food delivery services isn't solvable using the Silicon Valley method -- use insane amounts of rich people's money to subsidize product hyper-growth to only later monopolize said market to re-coop earlier losses. If these businesses would grow more sustainably (i.e. slower), they wouldn't need such large sums of money to operate. They wouldn't over hire at sales / marketing / engineering / design / operations/ literally every role. In turn, they would be forced to set rates that can cover their actual costs while being a good business deal for restaurants, as they'd have to be around long enough for the delivery company to have any real growth. There should be economies of scale wrt. a centralized delivery platform that services all kinds of restaurants. The fact that, say, Dominos has been offering delivery for _decades_ means that it's absolutely possible to have a sustainable national food delivery business on $8 medium pizza deals and $4 delivery charges. The tech delivery companies are just plain greedy: I surmise it's their quest for "f u" money that kills their business model right off the bat.

thebean11 6y ago
Are you sure Dominos actually profits on the delivery itself, or do they just offer it at/below cost to sell more pizzas?
- bthater 6y ago
  Delivery is profitable for dominos. But the real money, well that is in garlic bread.
  - nerfhammer 6y ago
    all restaurant business is just a ploy to get people to buy soda
    - godzillabrennus 6y ago
      Alcohol and coffee are also helpful.
    - Mikeb85 6y ago
      No, it's not. The most you can charge for a soda is $3 around here. Even if you make 95% profit ($2.85), pretty much every single food item will make far more profit. A $12 salad will net you $9, a $15 dollar pasta will probably net you $12, a $40 steak will net you $20, and so on. Gross profit matters far more than profit margin. Also the best way to be profitable is to increase sales relative to fixed costs, rather than trying to squeeze every dime out of limited sales.
- tonyarkles 6y ago
  Dominos is arguably quite a bit larger than the mom & pop restaurant I did delivery for, but... for us it was break-even or a very tiny loss. I don't remember exactly the number, but delivery was $5; $5 charged to the customer, $5 paid to the driver. I think it was waived for large orders (>$100?), but those were pretty rare. Tips were all for the driver as well. On a good night, you could make $20-30/hr; on a holiday night (New Year's Eve was my favourite), it'd be more like $40-$50 once you factor in the tips. Was it overall a living wage as a sole source of income? No, not at all. There was usually only a small window every day when people actually wanted delivery. Was it good money for the number of hours worked? Sixteen year-old me sure thought so!
kahnjw 6y ago
I'd counter that Pizza hut has a key logistical advantage of vertical integration. A delivery service is a very different business than a restaurant chain that does its own delivery. I agree that GrubHub, Doordash, and to some extent Uber seem bloated when considering the sum total of the markets they play in. That doesn't mean these business models aren't sustainable, though. Some companies allocate resources to a few areas that turn into profit centers, some don't. The ones that don't will be sold off or parted out. And the cycle will continue. I'd wager that one of these companies will survive and turn out to be a profitable, healthy business in the next few years. The rest will probably be sold off or slowly downsized. More broadly, to your criticism of SV's investment strategy, resource allocation is a hard problem. If you want to direct large sums of capital at certain business verticals, do you want to grow slowly and steadily over a 20+ year period only to find that the economics don't work, or do you want to fail fast with some extra waste in the middle? Failing fast has some upside to it, though I understand why I consistently hear this criticism on this site. It feels like the last decade has seen the pendulum swing towards fast money and back a little. I don't think were as far off from a healthy middle ground as some might argue.
- kahnjw 6y ago
  Correction: Dominos not Pizza Hut.
- Apocryphon 6y ago
  > If you want to direct large sums of capital at certain business verticals, do you want to grow slowly and steadily over a 20+ year period only to find that the economics don't work, or do you want to fail fast with some extra waste in the middle? Maybe we'll eventually learn that artificially forcing business models to run at accelerated rates creates self-fulfilling prophecies of "fail fast."
  - kahnjw 6y ago
    Except for dozens of counter examples that make up for literally multiple trillions of dollars in market capitalization.
pj_mukh 6y ago
The traditional silicon valley approach would be to fund new ways of doing delivery. And behind the most click-worthy headlines, that is what is happening! [1]. [1] https://techcrunch.com/2020/04/09/starship-technologies-is-sending-its-autonomous-robots-to-more-cities-as-demand-for-contactless-delivery-rises/ https://techcrunch.com/2020/04/09/starship-technologies-is-s...
SilasX 6y ago
>Maybe food delivery services isn't solvable using the Silicon Valley method -- use insane amounts of rich people's money to subsidize product hyper-growth to only later monopolize said market to re-coop earlier losses. I tend to agree, and also because I don't think food delivery can be easily decoupled from the preparation (for ready-to-eat orders). I mean, restaurants have done it profitably for ages, but whenever one of these SV companies tries it, I hear all kinds of stories about how, unless everything goes right, the whole process becomes tedious an frustrating. Like, the order's wrong, and it has to restart through Uber's whole system. And the runners can't look inside to verify the order because (legitimate) health regulations. And it just ends with an unsatisfied customer who has some credit on the app. But I do think there is a way to SV-ize food delivery, like if they could get economies of scale to work for food delivery. Imagine this: A restaurant knows at least one customer needs their dish to start prep at 5:30pm. The website indicates they're starting one then anyway, so you get a discount for ordering the same food to start at the same time. Meals can be batched easily -- it costs them much less than N times to scale up the order to N servings or customers. Ditto for (in urban areas) delivering to the same building or block. If they only have to stop once, they can offer a discount to anyone ordering the same thing in the same building. This is exactly the kind of thing where it pays to be a broad platform that everyone's on, and has kinds of monopoly profits, and provides legit consumer value. (Disclaimer: I registered a domain name suitable for this kind of service but haven't otherwise advanced it.)
- slfnflctd 6y ago
  > runners can't look inside to verify the order I was an Uber/Lyft driver, and I tried delivery a couple times way back before covid-19. One pickup was 5 identical, unlabeled containers, two of which were special orders. Having worked in restaurants before, there was no way in hell I wasn't going to visually check them (also I don't recall this being prohibited before). Turns out, one was wrong-- so the other 4 got cold while that one was re-made and I sat for 20 minutes. All told, it took me 45 minutes to bring mostly cold food to an unhappy person and I made about $4. Not. Sustainable. It sounds like you have some good ideas and are thinking in the right direction, though. Streamlining your whole operation to minimize the possibility of errors and reduce wait times is one of the most important things to focus on in my book. Give people fewer choices.
pembrook 6y ago
In reality, there is no choice between: A) Silicon Valley-style hyper growth or B) Slow and steady growth Choice B is not actually an option if you want to change human behavior and actually benefit from economies of scale. This is because of the nature of competition and the power of habit. If it takes you 20 years to go national, then competitors will have cemented themselves in each region you try to operate. And because humans are creatures of habit, it will be ridiculously expensive to get them to change their behavior even if you offer a comparatively better service.
- AlexandrB 6y ago
  > Choice B is not actually an option if you want to change human behavior and actually benefit from economies of scale. But there's little or no economies of scale in the delivery business. A citywide delivery service would be equally efficient whether operated by a local company or a multinational. The local company may even have an advantage in terms of knowing their customers better. The only economy of scale I see is access to cheap VC capital.
2OEH8eoCRo0 6y ago
I think it's not solvable with human delivery workers. Hopefully someone tries to do it with robots when we get there.
strken 6y ago
Dominos is famous for charging more for delivery than for takeaway. Their "$4 delivery" is no more accurate to the true cost of delivering a pizza than the "delivery fee" of their competitors.
puranjay 6y ago
I also don't think that food delivery is something that needs to happen at a global scale. The market is local enough that you can have one player for every city or region that can grow organically, charge lower rates, and be beneficial for everyone involved.
Lammy 6y ago
The Bay Area’s dual refusal of housing and transportation made the delivery apps necessary in the first place, so I agree it may not be a great place to look for a solution. If housing and retail space were more abundant there would be more options within my immediate area, and if transportation were better my “area” would be even larger than it is now with what’s comfortable to reach on foot.

thebean11 6y ago

Are you sure Dominos actually profits on the delivery itself, or do they just offer it at/below cost to sell more pizzas?

bthater 6y ago
Delivery is profitable for dominos. But the real money, well that is in garlic bread.
- nerfhammer 6y ago
  all restaurant business is just a ploy to get people to buy soda
  - godzillabrennus 6y ago
    Alcohol and coffee are also helpful.
  - Mikeb85 6y ago
    No, it's not. The most you can charge for a soda is $3 around here. Even if you make 95% profit ($2.85), pretty much every single food item will make far more profit. A $12 salad will net you $9, a $15 dollar pasta will probably net you $12, a $40 steak will net you $20, and so on. Gross profit matters far more than profit margin. Also the best way to be profitable is to increase sales relative to fixed costs, rather than trying to squeeze every dime out of limited sales.
tonyarkles 6y ago
Dominos is arguably quite a bit larger than the mom & pop restaurant I did delivery for, but... for us it was break-even or a very tiny loss. I don't remember exactly the number, but delivery was $5; $5 charged to the customer, $5 paid to the driver. I think it was waived for large orders (>$100?), but those were pretty rare. Tips were all for the driver as well. On a good night, you could make $20-30/hr; on a holiday night (New Year's Eve was my favourite), it'd be more like $40-$50 once you factor in the tips. Was it overall a living wage as a sole source of income? No, not at all. There was usually only a small window every day when people actually wanted delivery. Was it good money for the number of hours worked? Sixteen year-old me sure thought so!

kahnjw 6y ago

I'd counter that Pizza hut has a key logistical advantage of vertical integration. A delivery service is a very different business than a restaurant chain that does its own delivery. I agree that GrubHub, Doordash, and to some extent Uber seem bloated when considering the sum total of the markets they play in. That doesn't mean these business models aren't sustainable, though. Some companies allocate resources to a few areas that turn into profit centers, some don't. The ones that don't will be sold off or parted out. And the cycle will continue. I'd wager that one of these companies will survive and turn out to be a profitable, healthy business in the next few years. The rest will probably be sold off or slowly downsized. More broadly, to your criticism of SV's investment strategy, resource allocation is a hard problem. If you want to direct large sums of capital at certain business verticals, do you want to grow slowly and steadily over a 20+ year period only to find that the economics don't work, or do you want to fail fast with some extra waste in the middle? Failing fast has some upside to it, though I understand why I consistently hear this criticism on this site. It feels like the last decade has seen the pendulum swing towards fast money and back a little. I don't think were as far off from a healthy middle ground as some might argue.

kahnjw 6y ago
Correction: Dominos not Pizza Hut.
Apocryphon 6y ago
> If you want to direct large sums of capital at certain business verticals, do you want to grow slowly and steadily over a 20+ year period only to find that the economics don't work, or do you want to fail fast with some extra waste in the middle? Maybe we'll eventually learn that artificially forcing business models to run at accelerated rates creates self-fulfilling prophecies of "fail fast."
- kahnjw 6y ago
  Except for dozens of counter examples that make up for literally multiple trillions of dollars in market capitalization.

pj_mukh 6y ago

The traditional silicon valley approach would be to fund new ways of doing delivery. And behind the most click-worthy headlines, that is what is happening! [1]. [1] https://techcrunch.com/2020/04/09/starship-technologies-is-sending-its-autonomous-robots-to-more-cities-as-demand-for-contactless-delivery-rises/ https://techcrunch.com/2020/04/09/starship-technologies-is-s...

SilasX 6y ago

>Maybe food delivery services isn't solvable using the Silicon Valley method -- use insane amounts of rich people's money to subsidize product hyper-growth to only later monopolize said market to re-coop earlier losses. I tend to agree, and also because I don't think food delivery can be easily decoupled from the preparation (for ready-to-eat orders). I mean, restaurants have done it profitably for ages, but whenever one of these SV companies tries it, I hear all kinds of stories about how, unless everything goes right, the whole process becomes tedious an frustrating. Like, the order's wrong, and it has to restart through Uber's whole system. And the runners can't look inside to verify the order because (legitimate) health regulations. And it just ends with an unsatisfied customer who has some credit on the app. But I do think there is a way to SV-ize food delivery, like if they could get economies of scale to work for food delivery. Imagine this: A restaurant knows at least one customer needs their dish to start prep at 5:30pm. The website indicates they're starting one then anyway, so you get a discount for ordering the same food to start at the same time. Meals can be batched easily -- it costs them much less than N times to scale up the order to N servings or customers. Ditto for (in urban areas) delivering to the same building or block. If they only have to stop once, they can offer a discount to anyone ordering the same thing in the same building. This is exactly the kind of thing where it pays to be a broad platform that everyone's on, and has kinds of monopoly profits, and provides legit consumer value. (Disclaimer: I registered a domain name suitable for this kind of service but haven't otherwise advanced it.)

slfnflctd 6y ago
> runners can't look inside to verify the order I was an Uber/Lyft driver, and I tried delivery a couple times way back before covid-19. One pickup was 5 identical, unlabeled containers, two of which were special orders. Having worked in restaurants before, there was no way in hell I wasn't going to visually check them (also I don't recall this being prohibited before). Turns out, one was wrong-- so the other 4 got cold while that one was re-made and I sat for 20 minutes. All told, it took me 45 minutes to bring mostly cold food to an unhappy person and I made about $4. Not. Sustainable. It sounds like you have some good ideas and are thinking in the right direction, though. Streamlining your whole operation to minimize the possibility of errors and reduce wait times is one of the most important things to focus on in my book. Give people fewer choices.

pembrook 6y ago

In reality, there is no choice between: A) Silicon Valley-style hyper growth or B) Slow and steady growth Choice B is not actually an option if you want to change human behavior and actually benefit from economies of scale. This is because of the nature of competition and the power of habit. If it takes you 20 years to go national, then competitors will have cemented themselves in each region you try to operate. And because humans are creatures of habit, it will be ridiculously expensive to get them to change their behavior even if you offer a comparatively better service.

AlexandrB 6y ago
> Choice B is not actually an option if you want to change human behavior and actually benefit from economies of scale. But there's little or no economies of scale in the delivery business. A citywide delivery service would be equally efficient whether operated by a local company or a multinational. The local company may even have an advantage in terms of knowing their customers better. The only economy of scale I see is access to cheap VC capital.

2OEH8eoCRo0 6y ago

I think it's not solvable with human delivery workers. Hopefully someone tries to do it with robots when we get there.

strken 6y ago

Dominos is famous for charging more for delivery than for takeaway. Their "$4 delivery" is no more accurate to the true cost of delivering a pizza than the "delivery fee" of their competitors.

puranjay 6y ago

I also don't think that food delivery is something that needs to happen at a global scale. The market is local enough that you can have one player for every city or region that can grow organically, charge lower rates, and be beneficial for everyone involved.

Lammy 6y ago

The Bay Area’s dual refusal of housing and transportation made the delivery apps necessary in the first place, so I agree it may not be a great place to look for a solution. If housing and retail space were more abundant there would be more options within my immediate area, and if transportation were better my “area” would be even larger than it is now with what’s comfortable to reach on foot.