All of these food delivery services are unlikely to ever turn any kind of meaningful profit. The primary issue here is because there’s so many services, they have almost zero pricing power, along with high customer acquisition costs since they’re all competing for the same customers, and high labor costs as they’re also all competing for the same labor pool.
Let’s take a look at the economics here. A typical food delivery order charges the customer about $5 for a delivery fee plus the app takes a percentage of the order. When there’s 99 cent delivery fees or free delivery, then the restaurant is paying a higher percentage to cover the delivery and probably charges more for the food, so in the end it’s a wash. Even though fees end up being a high percentage of the order, most delivery orders aren’t that large, so my guess is a company like DASH is grossing $10 / order on the higher side.
Back when restaurants did their own delivery, they would usually only deliver within a fairly tight radius, and they would group up all the orders and deliver them at once. All restaurants only delivered in a small radius, so for the most part restaurants exclusively had that delivery territory shared w/ a few other restaurants. This kept costs low because people are ordering locally. Now with the introduction of all these apps, they offer restaurants that can be up to 20 - 30 minutes away (and it could be even more if there’s traffic), and all those restaurants are competing with all other restaurants, so all the orders are now spread out. Apps still do some order grouping, but because there’s so many different apps (and all restaurants list on all apps), there’s not a lot of efficiency here.
So looking at these 2 factors, the fact that we’re talking about a lot of low value orders spread out in a large geographical area, it ends up being a business that’s low revenue and high effort. Add this to the fact that there’s absolutely zero product differentiation (especially when you consider the fact the same couriers work for multiple apps as well) and you have a situation where nobody has pricing power and where marketing costs are high. Apps regularly send out promos to get people to choose their app over another identical app. Even if an app found a way to gain some pricing power, customers would balk at paying a $10 delivery fee on a $20 order. If an app tried to reduce the delivery radius to cut costs, then they’re at a disadvantage for offering less selection.
Bottom line here is the economics of food delivery to a wide geographic region sucks, and there’s no way to fix it.
I don’t know if you saw the news this morning, but Amazon is partnering up with GrubHub:
The deal, announced Wednesday, will give Amazon’s paying subscribers the option to sign up for a free one-year Grubhub+ membership (normally $9.99 a month) and receive unlimited free deliveries when they order from restaurants listed on the service.
I did see that. Food delivery was already unprofitable before amazon got involved, now amazon bundling it with prime will just further erode the business.
Disney + just had a promotion for 6 months free of the Ubereats + normally about $10 a month. Stands to reason they are hoping everyone doesn’t cancel downgrade when that first charge hits, paying $60 (factoring the potential lost revenue and assuming Disney gets some type of payment for promotions) puts them at $60 customer retention fee, if we assume a large percentage of the users already had the app and used it from time to time. - Reminds me the Groupon back in the begaining paying a 3rd party to offer your exiting customers a discount on you’re service they already use never ends up well unless perfectly managed.
I don’t think the amount going to the partner in deals like this is substantial. A lot of times there’s some kind of cross-promotion deal or disney would be satisfied with just being able to offer this benefit to it’s subscribers for free. Depending on the companies involved there might be no payment or a small payment. Part of the strategy as well is probably hopes that people forget to cancel after they start getting billed for the service. (though this can end up poorly as well if a lot of people do chargebacks for it).
It is however a generally poor way to attract and retain customers for the long term for the reasons that you stated.
So apparently DoorDash scrapped its fuel surcharge in May, and now drivers are being a LOT more picky about deliveries (duh)… But one guy was canceling 9 out of 10? That’s not going to be good for their bottom line.
Just one state, and not a huge number - 27 cents probably won’t make or break anyone - but I expect more to follow - long term could they end up like Cable TV for those how ever seen the taxes on the bill and how much they add up too…
Colorado consumers will start noticing a 27-cent fee on receipts for almost everything that gets delivered to them, including restaurant food, after Colorado’s new “retail delivery fee” took effect July 1.
And to think the company’s not even making money as it is. As I said in the original post, $5 - 10 in delivery fees + order commission doesn’t justify having someone spend 30 minutes to deliver the order. The whole business model sucks.
As a side note, one thing I’ve read online is that some people will put a high tip to get their order delivered quickly (or accepted at all), then change it to something lower after the fact. It’s called “tip baiting”
The fact this even exists again shows just how fucked up the business model is. I don’t blame the customers who do this, I blame the platform for this since everybody should be getting their order in a reasonable amount of time. If the service fee needs to be higher to pay for that, then it should be higher.
I was a door dash driver a few months ago. I was making around $25/hour after gas when I was paying $2.99/gallon back then compared to $5.30 now. Cancelling 9/10 orders was pretty common for me to do. I would only take orders that were at least $6, and within a delivery time window of 10-15 minutes. I made good money for a part time gig.
I don’t plan on picking it up again now that gas costs are higher. I’d have to take that into account and probably only pick up orders that are more than $6 which are rare, heck even $6 orders were rare to come by. Tip baiting was something that would happen to me occasionally and was an asshole thing to do.
This is looking like a big storm coming. Let’s take into consideration all of the negative catalyst that’ll propel this business model to fail.
The pricing model itself is flawed and has proven to be unprofitable.
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Economic conditions are causing disposable income to shrink which decreases the influx of revenue to these type of businesses.
Amazon-Grubhub partnership. Knowing how Amazon has more money than God, they’ll probably take a good amount of market share in an already competitive space.
If you dig through their statements and graph out their gross margin over time, you can see how they’ve already peaked and are “trending” to the downside. Inversely their losses keep going up.
Surprised it wasn’t mentioned, but DoorDash had that glitch that allowed people to order large amounts of food and items skipping payment verification, essentially getting their ordersnfor free. Some people obviously abused the hell out of this, and looks like DoorDash is coming for their money-
So sentiment sucks too. Seems to have turned last year and is only getting worse, so it’s not like they even have a loyal customer (or employee) base to fall back on. These companies have to be held together by straw and glue at this point…
It seems one of the fundamental problems with their service is they have no direct / fixed compensation method for the actual distance / time it takes to deliver between the restaurant & customer’s location. Or maybe some of you that have done deliveries can better explain the compensation?
Also, like notmisa said, economic conditions have changed. People are no longer locked down in their homes from COVID, so what was viewed previously as a godsend is now just a basic transparent convenience (food magically appears at your front door with no human interaction). Likewise, inflation (and potential future recession) cause a sharp decline in disposable income, so people are either tipping less or cutting back how much they eat out.
I also wonder about those pics you always see (like Labubs posted) of orders piled up at restaurants that never get picked up (and I’m sure eventually thrown in the trash). Is that a common thing? If the order isn’t picked up, has the restaurant already been paid by doordash? Or do they eat that as a loss? If restaurants get paid regardless, then doordash has a huge problem on their hands they need to resolve. Even if they can overcome it financially somehow, just the amount of food waste they are directly causing is bad PR. If restaurants are expected to eat the loss, I’m sure eventually at some point they will just opt-out of the doordash service.
There’s obviously some bias here with rejecting 9/10 orders, as you’re probably shown the orders that other dashers rejected already first, but even still the fact this exists is ridiculous.
A properly set up system IMO is one where dashers have to accept the assignment shown, but all assignments should be reasonable. a $5 order that takes 30 minutes to deliver is not reasonable, end of story. That kind of assignment shouldn’t even exist.
IDK what genius thought it was a good idea to have people bidding on dashers with tips (and sometimes fake ones) in order to get service.
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