14 ms·

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)?

by bhl 6y ago

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.
    - pfranz 6y ago
      I delivered for Pizza Hut a dozen+ years ago. The store I was at only did delivery and take out. We didn't have routing software, but it was really easy to divvy up and group orders looking at a map. I'm sure it would be more difficult if your software wasn't great, volumes weren't high enough, or just not having the vertical integration. Also, with vertical integration drivers can help cut, box, and confirm orders so staff can focus on other things--or not depending on how busy they are. I worked Sunday afternoons just me and a manager. I would share responsibilities of cooking, prep, and delivering, they would cover the phone lines, prep, and cook as needed. It would normally be quiet, but we might randomly get a large youth group or party order while also prepping for Sunday evening football rush. The fungibility of labor seemed better than the burstability of delivery, at least in that case.
    - user5994461 6y ago
      A cheap pizza from Aldi is £1. A regular pizza with some toppings and maybe meat is £2-3 in most supermarkets. Could be £4 in higher end supermarkets. You see where this is going. Pizzas are worth nothing, supermarkets are making money on these (it's not allowed to sell an item at a loss in Europe). Domino produces for £1-2 and sell for £10-20. The accepted number in the restaurant industry is that food cost must be less than 30% of the listed price. Pizzas are pushing this to an extreme by selling for double digits while they're so cheap.
      - the-dude 6y ago
        > (it's not allowed to sell an item at a loss in Europe). Do you have a source for this?
        eloisant 6y ago
        It's not a European legislation, but a law in some countries (including France). This is dumping, and considered anti-competition.
      - bluedino 6y ago
        You can't really compare a cheap frozen pizza to a chain pizza. They are bigger, for one. I've read before that a Hot-n-Ready from Little Caeser's is sold for $5.55 but costs $3.50 in just ingredients. They don't make any money on those. The breadsticks that they sell for $3.99, the cup of marinara for $1.99, the $13 veggie pizza and the $15 supreme pizza is where the money is made. Do you think there's an extra $10 in toppings on those supreme pizzas? Don't forget the bottles of soda.. http://www.unhappyfranchisee.com/little-caesars-what-franchisees-make-on-a-5-pizza/ http://www.unhappyfranchisee.com/little-caesars-what-franchi...
- geitir 6y ago
  I imagine the end goal is the same as with Uber's main business. Automation
  - unityByFreedom 6y ago
    Bubble
  - felipellrocha 6y ago
    Uh, considering they've been doing well prior to tech, and AI being a thing, I think that's non-factual
  - Thorrez 6y ago
    The end goal of what? Uber Eats or Domino's?
    - geitir 6y ago
      Both probably. I read an interesting article about restaurants renting in industrial areas with no dining room only doing take out. People will always want to eat somewhere nice / fun but certain franchises I could see making the switch
  - bitcoinbutter 6y ago
    They'll need to survive for 10 years losing billions annually if that is their goal. And it will take them years to scale up automated rides/food delivery even after it becomes available.
deleted 6y ago
[deleted]
twelvechairs 6y ago
It worked as a vertical before technology allowed it to work as a horizontal. Now it is just a value proposition. Dominos can still make it work because the delivery is bundled with incredibly cheap to produce food. Horizontals do work and aren't going away but right now there's many players making the bet that future market position is more important than current revenue so its not making great money today.
wiseleo 6y ago
Domino’s delivery is subsidized by tips.
felipellrocha 6y ago
I think you could say something about optimization here. When I was in college, I briefly worked as a delivery boy, and I'd often make 2-3 deliveries per trip.
cameldrv 6y ago
Part of it I think is that Dominos only does delivery, and their product holds up well in delivery. It comes out of the oven very hot, and with an insulated bag, it can sit for a little while and still be good. If you deliver something like Thai food, it doesn't come out as hot, and there are hotter and cooler parts of the food. This doesn't taste great if it takes 20 minutes to get from the kitchen to you. That, plus the volume, allows Dominos to send out drivers with multiple pizzas. They can calculate an optimal traveling salesman route from the store to all of the customers in the run, and then the driver comes back to the store to do it again. Also, the whole organization is built around the drivers not waiting around. Restaurants will often not have the order when the driver arrives, and they have to mess around with payment, etc for every order. All of that makes driver productivity much greater and so the delivery cost per order is much less.
ThrustVectoring 6y ago
I've worked as pizza delivery. The tipping and per-delivery payments to drivers is why it works. Roughly speaking, a delivery driver in my area nearly a decade ago earned roughly $20/hr after gas and car expenses, half in hourly wages @ state minimum and the other half in tips + $1/delivery payment. They also took about 3 deliveries an hour when fully utilized, which wasn't for 100% of their shift. The wait time got used productively, combination of answering phones, making pizzas, or at worst folding boxes. This combination means that you're employing people at a significnatly-above-minimum-wage level, but their excess time waiting for deliveries gets paid at minimum wage and used to do customer service. And in the worst case when things are so absolutely slammed that there is no downtime, well, that's when you have to let phones ring (or answer briefly with "thank you for calling, our wait time is currently two hours, would you like to place an order?"). Plus these drivers know the store and the area well and from that alone should be significantly more competent at resolving issues - often enough someone calling in about their order will end up talking to the person who just tried and failed to make the delivery. With Postmates and the like, though, the time spent waiting for a delivery has no useful work to fill the time. It's also not paid, but the gig has to justify itself economically, which means that drivers have to make up for it through increased per-delivery payments. Basically, the difference is that store-employed drivers can do useful work while waiting to engage in deliveries, while app drivers can't. This is a very significant efficiency gain.
- bonestormii_ 6y ago
  You raise an interesting point. Maybe with uber the goal is to integrate delivery work force with ride work force to improve utilization of drivers/deliverers. Horizontal, but complimentary.
  - martinald 6y ago
    In many markets they are different vehicles, scooters/(e)bikes for food delivery, cars for passenger transport. Even in markets where cars are used a lot for food delivery; I can't see it really working very well. It's hard enough trying to schedule food delivery drivers being in the right place at the right time (often waiting a while for food to be ready if the order got delayed in the kitchen). Trying to then piece together humans going places in between seems virtually impossible.
saalweachter 6y ago
Well, for one thing, "integration". Domino's is built to deliver pizzas. They have streamlined the process of an order being placed, prepped, and handed off to delivery to try to make each step of the process as efficient as possible. Do "horizontal" delivery companies have similar integration and benefit from similar efficiency? In an ideal delivery situation, you want two things to be true: first, delivery people should be constantly moving. Second, orders should be handed off to a delivery person as soon as they are finished. Is this achievable when delivery people are routed to new pick-up locations for each delivery? You want your delivery person to arrive at the restaurant right as the meal is finished -- if they arrive early, your delivery person is idle and your costs go up; if they arrive late, the food is cold and your customers are dissatisfied. Restaurants with successful delivery components can solve this by tweaking their number of delivery people and their service areas in response to their busy-ness, so that they always have delivery people returning to pick up more food with an appropriate frequency. Have horizontal delivery companies solved these problems, either through integration with the restaurants or through some sort of big data magic?
- ethbro 6y ago
  I suppose the argument goes: if anyone can approach that optimality, it's a company with a large fleet of repurposable drivers. Being able to dispatch to a driver in motion depends on having a suitable driver available. I'm still doubtful it can ever work, for the reasons people mentioned above. But the realistic game is that Uber becomes the new Yelp and strongarms restaurants for a share of their profit, in return for customer access / promotion. (Which I have pretty strong feelings about as an ethical business model, but that's just my opinion...)
  - kenhwang 6y ago
    Other way I see it working out is Uber gets so optimized that they can have a driver double dip with a delivery and passengers going on the same route.
    - ethbro 6y ago
user5994461 6y ago
Add costs to the other points mentioned in comments. A pizza is made for £1-2 and sold for £10-20. The margin is incredible and more than enough to pay staff and deliverers. I personally never order pizza delivery because it's a total ripoff. Don't want to pay £20 for a pizza (or two on promotion). This is a party delivery service as far as I am concerned, only used when there are friends over (big dollars for the company for a single delivery). The business model of Uber and Just Eat by comparison is to attempt to deliver Noodles for £10 (one meal for a lazy millennial or a couple who doesn't want to cook). It doesn't work.
nightfly 6y ago
If I buy from Domino's I pay the fixed price for my pizza + delivery fee + tip for the driver. If I buy food from $local_restaurant via $delivery_service I pay original cost of food + whatever the food deliver service adds to the cost of the food + the delivery services fee + tip to the restaurant + tip to the driver.
kelnos 6y ago
@ThrustVectoring has an excellent answer, but to add one more bit: When you have your own delivery staff, you are planning your costs and setting your prices with all that built in. When a third party is handling deliveries (in a very non-integrated manner), it's a lot harder to consider the delivery cost as a part of the business, because the cost is being borne by a third party who is charging you an arbitrary amount that may not actually reflect delivery costs. Since the third-party delivery companies usually take a cut for their services, restaurant owners can't plan that way. They do have choices: they can raise prices overall or they can charge more per-item for delivery orders (if the delivery platform allows it). If they do this, the restaurant owners will be fine; they'll offset any loss to the delivery company with an increase in prices (as long as this doesn't hurt non-delivery business). The problem lies with the third-party delivery companies. They have drivers who are sitting idle during their downtime, so they have to pay them more per-delivery, essentially paying them to sit around. They have a ton of cheap VC money behind them, and VC's seem to care more about market share than profits, so they are incentivized to do deliveries at a lower price than what it actually costs. So it's no surprise that we see things like revenue of $50M on expenses of $100M. It's a race to the bottom, fueled by someone else's money. All the delivery companies must charge well below cost in order to be competitive. At some point (hopefully) people will stop investing in these companies. At that point, we'll see the final consolidated state of things, and we'll see delivery fees go up dramatically, or service quality go down quite a bit, or both.

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)?

by 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.
  - pfranz 6y ago
    I delivered for Pizza Hut a dozen+ years ago. The store I was at only did delivery and take out. We didn't have routing software, but it was really easy to divvy up and group orders looking at a map. I'm sure it would be more difficult if your software wasn't great, volumes weren't high enough, or just not having the vertical integration. Also, with vertical integration drivers can help cut, box, and confirm orders so staff can focus on other things--or not depending on how busy they are. I worked Sunday afternoons just me and a manager. I would share responsibilities of cooking, prep, and delivering, they would cover the phone lines, prep, and cook as needed. It would normally be quiet, but we might randomly get a large youth group or party order while also prepping for Sunday evening football rush. The fungibility of labor seemed better than the burstability of delivery, at least in that case.
  - user5994461 6y ago
    A cheap pizza from Aldi is £1. A regular pizza with some toppings and maybe meat is £2-3 in most supermarkets. Could be £4 in higher end supermarkets. You see where this is going. Pizzas are worth nothing, supermarkets are making money on these (it's not allowed to sell an item at a loss in Europe). Domino produces for £1-2 and sell for £10-20. The accepted number in the restaurant industry is that food cost must be less than 30% of the listed price. Pizzas are pushing this to an extreme by selling for double digits while they're so cheap.
    - the-dude 6y ago
      > (it's not allowed to sell an item at a loss in Europe). Do you have a source for this?
      - eloisant 6y ago
        It's not a European legislation, but a law in some countries (including France). This is dumping, and considered anti-competition.
    - bluedino 6y ago
      You can't really compare a cheap frozen pizza to a chain pizza. They are bigger, for one. I've read before that a Hot-n-Ready from Little Caeser's is sold for $5.55 but costs $3.50 in just ingredients. They don't make any money on those. The breadsticks that they sell for $3.99, the cup of marinara for $1.99, the $13 veggie pizza and the $15 supreme pizza is where the money is made. Do you think there's an extra $10 in toppings on those supreme pizzas? Don't forget the bottles of soda.. http://www.unhappyfranchisee.com/little-caesars-what-franchisees-make-on-a-5-pizza/ http://www.unhappyfranchisee.com/little-caesars-what-franchi...
geitir 6y ago
I imagine the end goal is the same as with Uber's main business. Automation
- unityByFreedom 6y ago
  Bubble
- felipellrocha 6y ago
  Uh, considering they've been doing well prior to tech, and AI being a thing, I think that's non-factual
- Thorrez 6y ago
  The end goal of what? Uber Eats or Domino's?
  - geitir 6y ago
    Both probably. I read an interesting article about restaurants renting in industrial areas with no dining room only doing take out. People will always want to eat somewhere nice / fun but certain franchises I could see making the switch
- bitcoinbutter 6y ago
  They'll need to survive for 10 years losing billions annually if that is their goal. And it will take them years to scale up automated rides/food delivery even after it becomes available.

deleted 6y ago

[deleted]

twelvechairs 6y ago

It worked as a vertical before technology allowed it to work as a horizontal. Now it is just a value proposition. Dominos can still make it work because the delivery is bundled with incredibly cheap to produce food. Horizontals do work and aren't going away but right now there's many players making the bet that future market position is more important than current revenue so its not making great money today.

wiseleo 6y ago

Domino’s delivery is subsidized by tips.

felipellrocha 6y ago

I think you could say something about optimization here. When I was in college, I briefly worked as a delivery boy, and I'd often make 2-3 deliveries per trip.

cameldrv 6y ago

Part of it I think is that Dominos only does delivery, and their product holds up well in delivery. It comes out of the oven very hot, and with an insulated bag, it can sit for a little while and still be good. If you deliver something like Thai food, it doesn't come out as hot, and there are hotter and cooler parts of the food. This doesn't taste great if it takes 20 minutes to get from the kitchen to you. That, plus the volume, allows Dominos to send out drivers with multiple pizzas. They can calculate an optimal traveling salesman route from the store to all of the customers in the run, and then the driver comes back to the store to do it again. Also, the whole organization is built around the drivers not waiting around. Restaurants will often not have the order when the driver arrives, and they have to mess around with payment, etc for every order. All of that makes driver productivity much greater and so the delivery cost per order is much less.

ThrustVectoring 6y ago

I've worked as pizza delivery. The tipping and per-delivery payments to drivers is why it works. Roughly speaking, a delivery driver in my area nearly a decade ago earned roughly $20/hr after gas and car expenses, half in hourly wages @ state minimum and the other half in tips + $1/delivery payment. They also took about 3 deliveries an hour when fully utilized, which wasn't for 100% of their shift. The wait time got used productively, combination of answering phones, making pizzas, or at worst folding boxes. This combination means that you're employing people at a significnatly-above-minimum-wage level, but their excess time waiting for deliveries gets paid at minimum wage and used to do customer service. And in the worst case when things are so absolutely slammed that there is no downtime, well, that's when you have to let phones ring (or answer briefly with "thank you for calling, our wait time is currently two hours, would you like to place an order?"). Plus these drivers know the store and the area well and from that alone should be significantly more competent at resolving issues - often enough someone calling in about their order will end up talking to the person who just tried and failed to make the delivery. With Postmates and the like, though, the time spent waiting for a delivery has no useful work to fill the time. It's also not paid, but the gig has to justify itself economically, which means that drivers have to make up for it through increased per-delivery payments. Basically, the difference is that store-employed drivers can do useful work while waiting to engage in deliveries, while app drivers can't. This is a very significant efficiency gain.

bonestormii_ 6y ago
You raise an interesting point. Maybe with uber the goal is to integrate delivery work force with ride work force to improve utilization of drivers/deliverers. Horizontal, but complimentary.
- martinald 6y ago
  In many markets they are different vehicles, scooters/(e)bikes for food delivery, cars for passenger transport. Even in markets where cars are used a lot for food delivery; I can't see it really working very well. It's hard enough trying to schedule food delivery drivers being in the right place at the right time (often waiting a while for food to be ready if the order got delayed in the kitchen). Trying to then piece together humans going places in between seems virtually impossible.

saalweachter 6y ago

Well, for one thing, "integration". Domino's is built to deliver pizzas. They have streamlined the process of an order being placed, prepped, and handed off to delivery to try to make each step of the process as efficient as possible. Do "horizontal" delivery companies have similar integration and benefit from similar efficiency? In an ideal delivery situation, you want two things to be true: first, delivery people should be constantly moving. Second, orders should be handed off to a delivery person as soon as they are finished. Is this achievable when delivery people are routed to new pick-up locations for each delivery? You want your delivery person to arrive at the restaurant right as the meal is finished -- if they arrive early, your delivery person is idle and your costs go up; if they arrive late, the food is cold and your customers are dissatisfied. Restaurants with successful delivery components can solve this by tweaking their number of delivery people and their service areas in response to their busy-ness, so that they always have delivery people returning to pick up more food with an appropriate frequency. Have horizontal delivery companies solved these problems, either through integration with the restaurants or through some sort of big data magic?

ethbro 6y ago
I suppose the argument goes: if anyone can approach that optimality, it's a company with a large fleet of repurposable drivers. Being able to dispatch to a driver in motion depends on having a suitable driver available. I'm still doubtful it can ever work, for the reasons people mentioned above. But the realistic game is that Uber becomes the new Yelp and strongarms restaurants for a share of their profit, in return for customer access / promotion. (Which I have pretty strong feelings about as an ethical business model, but that's just my opinion...)
- kenhwang 6y ago
  Other way I see it working out is Uber gets so optimized that they can have a driver double dip with a delivery and passengers going on the same route.
  - ethbro 6y ago

user5994461 6y ago

Add costs to the other points mentioned in comments. A pizza is made for £1-2 and sold for £10-20. The margin is incredible and more than enough to pay staff and deliverers. I personally never order pizza delivery because it's a total ripoff. Don't want to pay £20 for a pizza (or two on promotion). This is a party delivery service as far as I am concerned, only used when there are friends over (big dollars for the company for a single delivery). The business model of Uber and Just Eat by comparison is to attempt to deliver Noodles for £10 (one meal for a lazy millennial or a couple who doesn't want to cook). It doesn't work.

nightfly 6y ago

If I buy from Domino's I pay the fixed price for my pizza + delivery fee + tip for the driver. If I buy food from $local_restaurant via $delivery_service I pay original cost of food + whatever the food deliver service adds to the cost of the food + the delivery services fee + tip to the restaurant + tip to the driver.

kelnos 6y ago

@ThrustVectoring has an excellent answer, but to add one more bit: When you have your own delivery staff, you are planning your costs and setting your prices with all that built in. When a third party is handling deliveries (in a very non-integrated manner), it's a lot harder to consider the delivery cost as a part of the business, because the cost is being borne by a third party who is charging you an arbitrary amount that may not actually reflect delivery costs. Since the third-party delivery companies usually take a cut for their services, restaurant owners can't plan that way. They do have choices: they can raise prices overall or they can charge more per-item for delivery orders (if the delivery platform allows it). If they do this, the restaurant owners will be fine; they'll offset any loss to the delivery company with an increase in prices (as long as this doesn't hurt non-delivery business). The problem lies with the third-party delivery companies. They have drivers who are sitting idle during their downtime, so they have to pay them more per-delivery, essentially paying them to sit around. They have a ton of cheap VC money behind them, and VC's seem to care more about market share than profits, so they are incentivized to do deliveries at a lower price than what it actually costs. So it's no surprise that we see things like revenue of $50M on expenses of $100M. It's a race to the bottom, fueled by someone else's money. All the delivery companies must charge well below cost in order to be competitive. At some point (hopefully) people will stop investing in these companies. At that point, we'll see the final consolidated state of things, and we'll see delivery fees go up dramatically, or service quality go down quite a bit, or both.