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Food delivery is a terrible business. M&A won’t make it better. I worked at LivingSocial in 2012/2013. We used to joke that “we lose money on every transaction

• Jommi 6y ago
  I think you'd be surprised how profitable late entrants to the space can actually be. Like you said teaching small businesses is hard, and you need to undercut competition to grow. Well you don't need to teach someone who has been using grubhub and postmates already.
• csours 6y ago
  I saw someone online saying how they didn't get their ranch with their pizza, so they called up customer service and eventually got a whole new pizza out of the deal. I understand it sucks to not get your ranch, but come on...
  • tyre 6y ago
    I had a few friends in customer support. This happened all the time. If you spend too long going back and forth with a customer, the salary-based calculation of what it costs the company doesn’t make sense. So you give it to them free. But then it’s not like you have any margins that those come out of.
    • BurningFrog 6y ago
      But as your customers learn that wasting support time pays off, the game is surely over!
      • parsimo2010 6y ago
        Most people know that they can harass customer support to do ridiculous things, but they don’t act on it. Maybe because they don’t think it’s an honest way to act, or maybe they don’t think it’s worth their time to harass customer support over something like free pizza.
      • boomboomsubban 6y ago
        Every traditional delivery place will already do this, call Dominos and make up some way they got your pizza wrong and they'll send a new one. The benefit from gaming the system isn't worth it for most people.
        • Spivak 6y ago
          Papa John’s is kinda unique in that they game themselves quite often and use it to their advantage. I will order pizza and have zero problem with the delivery or order and I’ll get one of those “we’re sorry” postcards. It’s just a better than average coupon and since they expire quickly there’s pressure to use it. I’m kinda surprised (and happy) that all these delivery startups haven’t figured out that bs customer service can be a way to make money.
      • duxup 6y ago
        Generally people trying to scam customer service out of a free pizza doesn't seem to happen at scale at least based on my experience in the food industry. Folks who demand free food do it regardless of if it can be done or not and most everyone else just shrugs their shoulders and doesn't want to talk to anyone about their experience.
      • floatingatoll 6y ago
        It turns out that human beings are often inclined not to lie for selfish gain, and there is often a certain degree of social pressure not to lie for selfish gain.
  • flattone 6y ago
    well from the customer view (i think i have been this person a few times).. i dont exist to keep your company afloat. I trusted you to do what you said, and i gave you my money. and you didnt do what you said you would do. Dear Company, if you cant do your job you shouldnt exist Self promoting tip: hire people who feel this
  • rrrrrrrrrrrryan 6y ago
    These delivery companies running at a loss are valued almost entirely based on growth in MAUs. Giving a customer a free pizza may be worth it if it keeps them on the platform, considering how much it costs to aquire a new customer.
  • xvector 6y ago
    Perhaps because of this Doordash has been aggressively cutting their refund policies. If an item is not delivered you don't get a full refund and often don't even get a refund for the item price + tax on said item.
    • hevelvarik 6y ago
      How is that legal? Is there something in the terms of use for the app that you have to accept
    • Larrikin 6y ago
      The automatic refund gives that scam price, but if you insist on the full refund plus tax you'll still get it
      • xvector 6y ago
        Not been the case for me unfortunately, even after escalating. Ordered some stuff and everything but the condiments were destroyed on delivery. Couldn't get a full refund.
        • Larrikin 6y ago
          Did you try escalating and saying you will do a chargeback?
  • squeaky-clean 6y ago
    I mentioned this in a comment above, but I worked at Domino's and this was 100% encouraged. My manager hammered it into my head that a mistake was just an opportunity to gain a more loyal customer. If someone called with a complaint, we would credit you for a whole new pizza. Drink and dessert too if we really F'd up. The reason being people will actually stop ordering Domino's if they're upset at a mistake in an order. Even something as silly as not getting ranch dip you paid $0.50 for. Making it up to them with a free item way more valuable than the mistake almost made the customer feel guilty. After using their free pizza credit, a customer was almost guaranteed to order Domino's again within 2 weeks, and would generally order twice as often as they normally would for the rest of the year or longer. My very first delivery ever, I opened up the heatbag and their whole order slid out and fell onto the floor outside their front door. Maybe still one of my most embarrassing moments ever, I was sure I was going to get fired. When I told my manager about it, he said "This is going to be more powerful than a hundred TV commercials" Oh, and they have all your orders and previous free credits saved in the computer system that handles orders, tied to both address and phone number (or online account). So if you tried taking advantage of this thing they would just permanently ban you from ordering from our store. This only happened once or twice in my couple years there.
    • maps7 6y ago
      It makes sense. I would definitely order again and again from a place that gave me assurances that they would handle any mistakes. I got an Indian meal delivered without the rice I ordered. I rang up and they apologized and refunded me straight away... but I still didn't have the rice so the meal I intended on having was ruined. I probably will never order from them again (there's plenty of other Indian food places near me)
      • washicalendar 6y ago
        I ordered a vegetarian meal from a place I wanted to try. They delivered it, the item had a big green VEGGIE sticker on it, but taking a bite my mouth was filled with meat. The only recourse I had was to use the app’s help feature and mark it as “incorrect dietary restrictions” and select which item in the order was wrong. Deliveroo instantly gave me credit for it, which isn’t a refund but I’d use the credit sooner or later so not a big deal. But now the problem is that I have a neat filled burrito that I can’t eat. I’ve once again accidentally ate meat through no error on my part, so my entire meal is ruined because my mood is ruined. There was a desert I could eat, but that’s it. I ended up waiting 30 minutes for a delicious meal only to end up with just a desert and now I have to spend time to cook my own meal. If the restaurant would have delivered me another meal then I’d probably still consider ordering from them again, but with the way the app is set up, that I got a measly €10 credit for one part of the meal (still had to pay for delivery, the dessert that I didn’t eat, and a tip cause it was raining). This just meant I’ll never give that restaurant another chance.
• shin_lao 6y ago
  I think it will make sense when cities will have a better infrastructure for targeted deliveries. I'm thinking routes for drones and clear delivery spots. Would not be surprised 30y from now most homes won't have kitchen anymore. You'll have an access where a drone can come in an deliver whatever you ordered.
  • rhipitr 6y ago
    I do not look forward to that kind of future. As someone who has worked in food preparation, meals are usually quite unhealthy because they are designed to taste great. I can’t imagine eating delivered meals daily is good for your long term health. You would be surprised that seemingly healthy food, when made at a restaurant, is often anything but.
    • rapnie 6y ago
      Yea, "Super Size Me" is a great documentary to watch in that regard. https://en.wikipedia.org/wiki/Super_Size_Me https://en.wikipedia.org/wiki/Super_Size_Me
  • Swizec 6y ago
    > Would not be surprised 30y from now most homes won't have kitchen anymore. You'll have an access where a drone can come in an deliver whatever you ordered. I suspect you vastly underestimate how cheap and time effective cooking at home can be. My girlfriend and I just mealprepped 8 meals for $30. Took 15min of active work. The whole week we both get a healthy balanced meal that takes 2min to prepare. No delivery company can compete with that. Drones or no drones. Edit to answer questions below: We don’t mind eating 4 identical lunches. Saves you thinking about it. We use dinners and snacks for variety. This week it’s a pork roast with string beans and fingerling potatoes. Put potatoes in a baking pan, stick roast on a rack above the taters, stick in oven for 45min. Cook the beans in water. About 15min of active prep time, another 5min to portion it out, 5min to stick dishes in dishwasher. Watch netflix or hangout while food cooks itself.
    • sequoia 6y ago
• chejazi 6y ago
  Maybe ghost kitchens will fix the unit economics.
  • tbdenney 6y ago
    Kinda surprised this isn't higher up, I also assumed the path to a more sustainable model is to have a set of ghost kitchens making food of different types exclusively serving Deliveroo/Glovo/UberEats customers.
    • deleuze 6y ago
      Most of the food I've gotten from ghost kitchens has been pretty okay, but it's still way too expensive, especially if you're a good tipper. I'm a well paid software engineer, so I can afford to pay like $20 surcharge on laziness, but it doesn't really make sense. The ghost kitchen burger isn't thaaaat much better than fast food and 2-3x the price. The ghost kitchen burrito is actually worse than the local Mexican street food, just will be delivered to me door.
• godzillabrennus 6y ago
  Until we have robots to do the labor I agree.
  • oblio 6y ago
    I like how "robots" are the solution. Robots might be 1-10 or even 100 years away from being used. It's like relying on a miracle. It's not a valid business plan.
  • puranjay 6y ago
    For that to happen, we have to first: - Create robots capable of handling pickup and delivery automatically - a very hard technical problem that were far from solving - Manufacture these robots at scale - Purchase and deploy these robots at scale The timeline for all of these things together is years, even decades into the future. Even if you get the tech down, creating factories that can churn out hundreds of thousands of these robots will take years (see Tesla's example - and that's for tech we already understand, like cars). It will also require massive amounts of cash to buy and deploy all these robots. Robot-led delivery isn't happening for a long time.
    • eloisant 6y ago
      drones, maybe
      • puranjay 6y ago
        Regulatory and security nightmare. Having thousands of drones zipping around a city at the same time is going to open up the doors for some bad actors. It will take one lunatic with a homemade bomb and everything will be grounded.
• clairity 6y ago
  i think this round of delivery startups were mostly driven by concentrated capital desperate for return (plus not enough diversity of thought to recognize unconventional but interesting bets), because anyone who remembers webvan knows that the economics of last-mile logistics hasn't changed substantially with faster/ubiquitous computing and mobile. mobile does increase availability slightly and reduces friction a little, but those weren't the core problems that needed solving to make a successful business in the space. even uber's outsourcing of capital costs wasn't a major problem that needed solving to unlock the market. you can't beat last-mile logistics by throwing more marketing at it.
  • deleted 6y ago
    [deleted]
• SEJeff 6y ago
  To be honest, this seems perfect. Your description of this business fits pretty well with the rest of Uber's business aka "burning investor money to never make a profit".
• badestrand 6y ago
  > Margins are terrible, if they’re ever positive. It’s just a bad business. That's simply false. A lot of profit is made in the space and as soon as you have some significant market share it becomes a cash cow. Yes, it might not always work to start up in a already saturated market, but that shouldn't be a surprise.
  • duxup 6y ago
    Are food delivery services cash cows? I hadn't gotten that impression.
    • badestrand 6y ago
      They can be, of course. I worked in a food delivery company of the Just Eat group ~5 years ago, for 1.5 years. They take a comission of ~12% of the order price just by providing the platform to place orders. The technology is simple, then you have a sales team to acquire restaurants as partners and a customer service team to support when orders get lost or to update the menus. Yes, there can be cut-throat competition in a market where a lot of money is sunk into marketing and the business is operating at a loss. But there are also consolidated markets where one platform captures >80% of all online orders and generates endless profits. Just because a few VC-backed companies burn their many millions in a short time doesn't mean that there aren't large and very profitable food delivery services.
      • duxup 6y ago
        I feel like that is a pretty big stretch. Basically there is a "cash cow" if someone can monopolize the market, not have competition, and if people are willing to pay more. What isn't a cash cow under those circumstances?
• edoceo 6y ago
  > We used to joke that “we lose money on every transaction but make it up in scale. Ooof, I remember that from 2000. Does anyone look at unit economics? PT Barnum made a book called "the art of money getting" - which could help many, worth the read.
  • jacquesm 6y ago
    That quote is from Catch-22 I think.
• bhl 6y ago
  I think a questions that’s going to pop up is, why does delivery work for a company like Dominos’s (vertical integration) but not Postmates (horizontal)?
  • MattGaiser 6y ago
    I am betting it is density. I can order Chinese From halfway across the city for the same price as delivery by Dominos. The closest Dominos is 5 minute walk away. The next is a 5 minute drive. The Chinese food is 25 minutes away.
  • ByteJockey 6y ago
    You're assuming that domino's makes a profit on food delivery rather than breaking even on it. But domino's also makes the food, so if they break even on the deliver, that's fine, they made money on the food. Scaling the delivery part of the business also scales the food part. If you aren't making the food, you have to make money on the delivery alone because scaling your delivery service scales someone else's food business. You're essentially competing with your suppliers (restaurants with their own delivery), and they don't need to make money on the product. That's a hard position to be in.
    • MattGaiser 6y ago
      Yeah, but the delivery companies take 20-30% of the gross food order. So while they aren’t technically vertically integrated, they have the pricing of vertical integration (assuming typical restaurant margins).
      • squeaky-clean 6y ago
        > assuming typical restaurant margins I think Domino's margins blow typical restaurant margins out of the water. I don't have hard numbers, but worked a variety of delivery jobs from 2010-2014. Domino's was the only place with the attitude that their food was worth pennies to produce. Most places didn't offer discounts to their employees, not even for food that was mistakenly made and had to be trashed. Domino's was the only one that would just allow employees to make themselves a pizza for lunch or to take home for dinner (but no feta cheese, we had limited quantities of that). Call and complain about any Domino's order, even over the dumbest thing, and they're supposed to give you a credit for a new order. It was drilled into my head as an employee. If someone complains, give them something free, and they're pretty much guaranteed to order from Domino's again in the future more times than they would if you had never made a mistake. Also an individual driver could do far more deliveries than an app-based delivery worker can. The routing software they used at the time was really good, and would group 2 nearby orders for one trip by a delivery driver. There was never any waiting unless there were no orders at all. From what I hear with my friends who work UberEats/GrubHub, a lot of time is wasted at the restaurant waiting for the food to finish. McDonalds (at least in my area) is a big offender, marking orders as ready for pickup when they haven't even started making them yet. Having all food coming from a single storefront, and being able to take multiple deliveries at once is a big deal. As for why places like Pizza Hut and Burger King can't do it as well, I guess it comes down to the tech and management. When Burger King tried offering first-party delivery services it was a massive shit show. I worked there for a bit, as they were the only store paying drivers 100% of the delivery fee. It ended up being a terrible deal because I would average 1-2 deliveries per hour during the lunch and dinner "rush", while a great day at Domino's could have me doing 10 per hour. Pizza Hut wasn't as terrible as when BK attempted it, but I feel like it only worked because they have a limited menu and not because they're actually competent.
• mardifoufs 6y ago
  Imo Netflix is much worst in that regard. At least in this case, you can hope to won a capital attrition war and become the really big player. But for Netflix, it's literally a never ending spring in a hamster wheel. You have users that can almost instantly leave your platform if you don't have interesting content, so you need to perpetually use whatever money subscriptions generate to produce even more content, even more quickly as you get more users with varied tastes. If you slack on content, you get less subscription money. Considering that a large part of the culture defining movies/franchises/series IP is also not owned by Netflix, they can't really hope to just end up outcompeting everyone else down the line. Think about it: food delivery is pretty generic, you don't really see the difference apart from cost. So if let's say Uber manages to bring down costs, outrun the current big competitors, and use that dominant position to keep prices lower than future newcomers, odds are customers will just keep using Uber. But in Netflix's case, people will still want disney movies or HBO series. That means there's no real hope for a profitable market dominating position down the line, so they will need to perpetually produce a very expensive product just to pay off the cost of other expensive product. If Netflix starts to lose subscribers, it still has very fixed costs (content acquisition & debt service for already made content) whereas Uber or Doordash have most of their operational costs directly tied to demand. No orders only means loss of revenue, but no additional losses. Netflix just seems like a very weird and very... risky investment and much more so than the already very shaky business of food delivery. But I always assume the markets see something I don't, so maybe I'm totally wrong!
  • nemothekid 6y ago
    Not sure I understand - Netflix has the same problem as Disney and HBO, they must spend a ton on content to differentiate.
    • mardifoufs 6y ago
      Yes, most content producers have the same problem but few have to maintain the pace Netflix needs to keep users subscribed to a unlimited platform. Disney has a very strong and very culturally defining position. They are also more diversified and generate cashflow from multiple sources. Disney+ is also mostly content that has already been "paid for" by either box office sales or licensed merchandise.For example, selling Star Wars toys is very profitable and makes the movies even more profitable. The box office sales usually also more than pay for their production costs. Netflix does not have any other source of revenue, is totally dependant on month to month subscriptions and has to compete with decades of already made and paid for content that it's competitors can and will often chose not to license to Netflix. To finance that huge catalog they basically took a mortgage on all of their future subscription revenue. Disney can afford to lose all of it's disney+ subscribers as long it's movies are still watched and its parks still visited. It can lose a revenue stream and still be alive As for HBO, it's owned by ATT and usually has "premium" content. ATT can also afford a few bad years for HBO but the same would be a death sentence for Netflix. I guess my point is that netflix has almost no room for error, it bet everything on never not growing. What's really going to be interesting for Netflix and for food delivery apps is what will happen once the lockdowns end and when we get back to normal. Will people still have things left to watch that appeals to them after so much free time? Will food delivery stay popular?
• randomsearch 6y ago
  Perhaps we’ll look back and say “food delivery was the pet food of the 2020 startup boom/bust.” I think these businesses are awful and probably unethical, but from the outside it would surprise me if a single winner could not make this business model work, once they had so much of the market that delivery schedules could reach high utilisation.
  • WrtCdEvrydy 6y ago
    The issue is mostly limited by requirements to get food there quickly. If we knew what we wanted ahead of time, scheduling delivery ahead of time would make it easy... since you could use a delivery route (to deliver 2-3 items nearby). A single winner may be able to make it work since you can do 1-2 pickups and deliver to two nearby homes.
    • richthegeek 6y ago
      Uber Eats has done this to me and it made me stopped using them. Driver needs to wait for the second meal to be prepared, pack it together, take a detour to the other place and spend time delivering it. So your meal arrives late, cold, and crushed after you paid full-price for the delivery.
      • WrtCdEvrydy 6y ago
        > Driver needs to wait for the second meal to be prepared, That's the rub right there. If you're the winner in the market, can send info to a restaurant to keep your food hot (or even hotter than normal) and can schedule it perfectly it will work. Once you spend a couple of billions into the infrastructure to make it happen, you can totally make a couple of hundred thousands worth of profit - 2020 Startups.
        • Talanes 6y ago
          >send info to a restaurant to keep your food hot I'm not sure what exactly you think restaurants can do with that request. A small subset of places will have a heat lamp, but that still doesn't really preserve quality, just heat.
• TomMarius 6y ago
  DameJidlo.cz is very profitable.
• oblio 6y ago
  Food delivery is the offline image storage service, it seems :-D
• totalZero 6y ago
  I have never worked in the food delivery industry (tech or otherwise), so I'm not in a position to make any assertions about it. From my limited vantage point, it seems that churn becomes less of a factor when you acquire and absorb/digest your competitors. Maybe that's the play here....buy the competition and then push the margins upward by (A) granting fewer introductory discounts, and (B) pushing on vendors to fork over more of their own margin.
• JMTQp8lwXL 6y ago
  When all you have is hammers, everything looks like a nail. Interesting to see this engineering folly in the financial space: M&A, no doubt, is a familiar tool among financiers.
• cycomanic 6y ago
  I've said this in another thread, the business of all these "startups" seems not to be of making a sustainable business, but instead it's more of a pyramid scheme where one set of investors are trying to make money of the next round of investors (up to and after IPO). If we view it like that it makes sense, the merger/acquisition will increase stock prices because it seems like there is a holistic strategy. At some point the whole house of cards is going to fall down, but by that times all the early investors will have left and made a big buck.
  • TheSpiceIsLife 6y ago
    It's a wealth transfer scheme. Wealth is transferred from ordinary folk via the IPO-retirement-fund axis to the plethora of agents involved in the whole scheme, from the employees bashing out code and UX, right through to everyone involved the M&A and IPO and the whole tax / tax agent / government tax agency cadre. It's not trickledown. It's deluge-up economics.
    • marvin 6y ago
      Huh. That's a novel use of stupid index fund money. Just get your shitty investments listed on the stock exchange and cash out. Index fund buyers don't care, they'll swallow it right up and it's free to crash and burn at their expense. You could even do it deliberately, as long as it follows securities regulations. Being a pure momentum strategy, index investing has no intelligence. At one point this would make index fund investing as a whole significantly less profitable. With all the horror stories we've seen unfold in the last five years, you could begin to suspect that boards actively and knowingly execute this strategy. You can only hope that a money manager would be smart enough to avoid the SoftBanks, Ubers and WeWorks. But I don't know that's a given. Shorting them out of your portfolio isn't an obvious strategy either, due to borrow costs and so on. Anyone given a significant amount of thought to this?
      • mschuster91 6y ago
        > You can only hope that a money manager would be smart enough to avoid the SoftBanks, Ubers and WeWorks The problem is, no one has much other choice than to go this route and invest into the "next potential unicorn". With classic stocks stagnating and many government bonds in low to negative interest territory, it's hard to make any noticeable profit. The way to fix this would be to reform pensions to a government-backed system such as Germany or Austria have - that reduces the amount of "dumb money" in the system.
• perf1 6y ago
  Maybe they convinced themselves that automated cars will come soon and then delivery will become basically almost free.
  • throwaway744678 6y ago
    That is probably not so easy: you'd still have to pay for the car (if it retails for $100k, that is a lot of deliveries to make before eating that cost), and it will depreciate over time. And you still have to pay for gas (electricity?), insurance, maintenance, etc. Not to mention solving the issue of the physical exchange with the customer.
• finolex1 6y ago
  It is not impossible to achieve profitability. Seamless (what used to be every Wall Street Banker's go-to service) was profitable for a long while. Granted, they didn't have the same level of competition we see today.
  • triangleman 6y ago
    I was looking for a comment mentioning Seamless. This is the best counter example. Note that these guys bootstrapped correctly from the start; as you mentioned, group buys was a great low cost/high margin way to get started.
• jon-wood 6y ago
  I worked for five years at a grocery delivery company, and even there it was a nightmare trying to keep delivery routes profitable - that was with at least 5 hour's notice on what people had ordered, and pre-selected delivery slots, which meant we could peak at each driver doing 10-12 drops an hour if they were in an area with a high customer density. I have no idea how companies like Deliveroo expect to make a consistent profit when they get 25 minute's notice, no delivery slots, and therefore little to no ability to batch a driver's work. Everything I've read indicates a single Deliveroo driver would expect to do 1-3 drops an hour, which is just wildly inefficient. Having said that, I do now wonder if you could make the model work by offering very cheap, or even free, delivery on the condition that you place the order a few hours in advance for a pre-selected delivery time. I'm not sure what the market is like for customers who want to order takeout food, but also know they'll want to do that in advance, but I think there's probably a niche there if anyone fancies taking a pass at it.
  • CaptainZapp 6y ago
    > Having said that, I do now wonder if you could make the model work by offering very cheap, or even free, delivery on the condition that you place the order a few hours in advance for a pre-selected delivery time. While a nifty idea, I don't think it really works. I see two major obstacles: Food ordering is instant (or almost instant) gratification. You want your food and you want it now. Or if not now then in 30 minutes, max. You may have the odd outlier, who plans accordingly and orders dinner at noon. The other problem would be the customers at the end of the delivery route. While that doesn't matter much for groceries that sauce on the former tasty duck à l'orange may be mighty congealed and rather unappetizing once it arrives as one of the last deliveries of a route. I just don't think that there's enough of a market for pre planned food deliveries and quality assurance would be impossible.
  • Zenbit_UX 6y ago
    > Having said that, I do now wonder if you could make the model work by offering very cheap, or even free, delivery on the condition that you place the order a few hours in advance for a pre-selected delivery time. You're right and you just described how that "Special Offers" section of über ears works. They give you a small selection of restaurants that another user near you has ordered from and a 5min countdown to place an order yourself, if you do you get free delivery and über benefits from the efficiency of a double or triple order for one of their drivers.
• TuringNYC 6y ago
  Isn't it reasonable to think that once you have enough density, the business starts making a lot of sense (e.g., collecting (in the same car) multiple orders simultaneously from the same restaurant -- and delivering multiple orders on the same car to the same building/neighborhood) I imagine you'd need a local hub/exchange for it to really work. I do question whether the model works outside urban settings though.