Uber’s Restaurant Empire

https://www.bloomberg.com/news/articles/2018-10-24/uber-s-secret-empire-of-virtual-restaurants

by PretzelFisch • 8 years ago

171 120 8 years ago

hmmmm.... I wonder if Uber eats can do what AirBnb did to the hotel business by allowing home chefs-after-6pm to take low risk experiments and launch micro Uber only restaurants from their home kitchen or a common kitchen (managed by Uber eats to deal with sanitation challenges).

stephengillie3• 8 years ago

It would have to be a common kitchen, and they would need everyone to pass a food handler's class.

Given Uber's reputation for bucking regulation, I would be doubly-hesitant to trust meals from their kitchen.

zby• 8 years ago

Sounds risky. Not that uber drivers are riskless - but food can be spoiled in less obvious ways than driving.

extrapickles2• 8 years ago

It would have to be from a commercial kitchen to pass health regulations in most places. There are a few restaurants than share kitchens with the one next door, and I would not be surprised if they had a virtual restaurant or two for delivery only.

No reason that the kitchens that food trucks use can’t support this as I suspect they dont have much demand for space around 5pm.

dawnerd• 8 years ago

In Portland damn near every food cart is on some delivery platform. It’s actually made ordering from some of my favorite spots almost impossible in person since their order volume is just too high.

Forge36• 8 years ago

I agree with your point on kitchen sharing, but I'm wondering if we sharing an incorre assumption:

should we expect that the laws will be followed? Policing unlicensed taxis _should_ have prevented Uber from succeeding. I recall early Uber being a considered "ride-sharing" in attempt to avoid this problem.

How will unlicensed restaurants be enforced? Will people simply call the practice food-sharing or splitting-meals? Start from the same model: two friends living across the city but one didn't cook, the other makes large meals. Uber meals is just a delivery service. Combine with money transfer app: it's not a restaurant, is a group of friends pitching in for a good meal.

Uber successfully managed to get driver's to assume the risk when running unlicensed taxis. It wouldn't surprise me if they could reimagine that success here. The biggest hurdle I foresee: keeping the branding, and scale small enough to fly under the radar until it's well established

esotericn3• 8 years ago

Individuals are not allowed to opt out of commercial food safety in most advanced economies.

It could be done using a decentralized platform, but any registered company attempting that sort of business model wouldn't last very long.

acover2• 8 years ago

Individuals weren't allowed to run unlicensed hotels or operate unlicensed taxis.

I've never gotten sick from home cooking but have from restaurants. I always hear horror stories about the conditions of restaurants.

Does anyone know why the risk rate of food production in a home kitchen thought to be higher? Can that be mitigated somehow?

sampo• 8 years ago

Individuals are not allowed to opt out of commercial food safety in most advanced economies.

Since 2011, Finland (and now also some other countries) has twice a year a special "restaurant day" food festival, when anyone is allowed to run a pop-up restaurant for one day, and serve food cooked at home.

disappearance• 8 years ago

I think Deliveroo Editions use commercial kitchens from temporary shipping containers, dropped in 'dead space', out of hours car/ industrial parks. Ah, from 2017:

https://www.theguardian.com/business/2017/oct/28/deliveroo-d...

PretzelFisch• 8 years ago

It would be interesting to have access to an anonymized uber eats order dataset.

ben_jones• 8 years ago

Op-ed from a former power user: Uber eats caters in part to the socially anxious and introverted demographic with moderate to high levels of disposable income. It pushes high margin, low-quality, foods at 2x or more pricing - particularly pizza, wings, chinese, and burgers. With some exceptions a large portion of these restaurants delivered already for lower prices, but with less convenience such as order tracking or ordering through an app. Over-time many "power users" of Uber eats and similar apps will regress to only a couple favored restaurants or stop using the app entirely. Uber eats will optimize for these power users to the detriment of non-chosen parties for the worst of the ecosystem as a whole.

stephengillie3• 8 years ago

Many of these stores have a counter or wall full of tablets - 1 for each delivery service. They have an Uber Eats tablet, a GrubHub tablet, DoorDash tablet, Bite Squad tablet, etc.

fjsolwmv2• 8 years ago

Maybe in SF. In the rest of USA is just Uber

gonehome2• 8 years ago

I stopped using it because the Uber drivers never get out of their car and come to your door (even if you mark this in the app).

I also had a driver drive close to my place and then steal the food - there was no ability for me to rate them and support was some call center that didn’t understand the issue.

DoorDash is a lot better.

CamperBob23• 8 years ago

I also had a driver drive close to my place and then steal the food - there was no ability for me to rate them and support was some call center that didn’t understand the issue.

Same here, although there's never been any problem getting a refund from Uber Eats in my experience.

My house is several miles out in the middle of nowhere. Someone went to the trouble of bringing my food within one block after a 15+ minute drive, and then they abruptly cancelled the order and disappeared from the map without a trace. I'll never figure out what the point of that was, but I hope they enjoyed my sushi.

1123581321• 8 years ago

I disagree with your theory but you shouldn’t be downvoted for it.

I think that over time, the cost of delivered food will lower as restaurants that do it well (perhaps these virtual restaurants) become faster, optimize their production and optimize the handoff to the driver. Jimmy John’s subs is an example of a company that has done this with their own delivery drivers.

user59944613• 8 years ago

It pushes for higher quality. It allows me to get food from real restaurants that didn't offer delivery otherwise. Same as sitting in.

That being said, I agreed that the margin is huge.

cm2187• 8 years ago

That's deliveroo. Uber is rather your local mcdonald's. My experience is that the service of Uber eats is disastrous. They hire drivers that do not speak a word of english and more often than not don't want to step out of their vehicle. Deliveroo has an OK service.

buboard• 8 years ago

is that an american perspective? There many places where ordering delivery food is a very ordinary thing.

fjsolwmv2• 8 years ago

Is just a clever HN user thing. Delivery is common in USA too.

always_good2• 8 years ago

They're so specific that it's obvious that they're describing their self. The HN trope where someone mistakes their own specific tastes for self-evident commentary on how the world works.

e.g. As if you need social anxiety to appreciate the vast convenience of ordering food to your doorstep.

706f6f70• 8 years ago

the socially anxious and introverted demographic with moderate to high levels of disposable income

I've began wondering if Silicon Valley is intentionally growing this demographic. If your customers need you because they are mentally unable to order food without you . . . well that's even better than a lifetime prescription of your medication or selling cigarettes.

It's twice as good if I can slowly train my customers to develop social anxiety by removing transactional interactions with minimum wage earners. That sort of interaction would traditionally service as a stepping stone in developing and maintaining social skills.

Add in social media which constantly has self-condemning memes about social anxiety, embarrassing moments, and so on; and you've got an extremely fertile ground for social anxiety.

dannyw2• 8 years ago

I don’t know where this whole idea of minimum wage interactions being a stepping stone in developing social skills came from, because I don’t think these sort of rote, algorithmic interactions help anyone develop anything.

CamperBob23• 8 years ago

I thought Black Mirror was supposed to be a cautionary tale, not a business plan.

r00fus4• 8 years ago

I don't think it's intentional. I think it's due to aggressive hill-climbing optimization engine driving to the local minima of "increased engagement" of the hyper-engaged subset of populace - combined with the intensely myopic view of investors (as viewed from the incubated startup within a startup which it is).

kerng• 8 years ago

Had never thought about this, but it's pretty smart idea. Wondering if this will become more and more the norm, especially catering singles. Is there a way to search for these online only restaurants exclusively?

tardo99• 8 years ago

The thing that really impresses/surprises me about the growth of services like these is that people have so much disposable income to pay for stuff like this. In the news one reads constantly about how people are stressed financially. Maybe people are diverting money they once would have spent on other luxuries (cable tv maybe?) toward this kind of expense.

huac• 8 years ago

couple factors

- growing inequality: more people at each end of the spectrum; rich get richer (and have more income for food delivery), poor get poorer and lack full-time job opportunities (and are more incentivized to take low income, insecure delivery jobs) - it's expensive to be poor: working more hours means fewer opportunities to buy groceries or take time to cook.

pjc50• 8 years ago

The inequality slope is increasing. There's a fairly large upper middle class of people who work+commute long hours and are prepared to pay for extreme convenience. While at the same time there's also a precariat of people for whom earning a small and variable amount outside normal working hours sounds like a good idea, providing cheap labour to these services.

https://delong.typepad.com/sdj/2009/02/changing-relative-pri... : "In Agatha Christie's autobiography, she mentioned how she never thought she would ever be wealthy enough to own a car - nor so poor that she wouldn't have servants..."

Perhaps that is now reversing. Or the gap is wide enough to have a servant with a car.

actuator3• 8 years ago

Cable TV? I am quite sure in the future we are going to pay almost the same amount what people were paying for cable TV. Not all content is available on each service so in the end people will end up subscribing for Netflix, Amazon Prime, HBO, Disney whatever etc. Plus more for sports. Also, good luck to people who don't have true unlimited plans, as streaming all those high definition bits over the internet just means paying your ISP more.

prostoalex2• 8 years ago

1) It’s not that huge of a markup

2) For a larger group, consider the added cost of dining in - expectation of 18-20% tip, the wine (or other alcohol) is typically overpriced or there’s a $15-20 corkage fee per bottle. Transportation or parking is another potential expense.

3) Some foods lend themselves well to leftovers, so with marginal increase in price one might be buying a meal for the next day, too.

4) For family dining, this puts less pressure on kids and less stress on parents. Keeping the little rascals busy for 2+ hours that a typical dinner might last could get a tad hard.

r00fus4• 8 years ago

One word: kids. For a family of 4 or 5 or if you have baby, going to a restaurant is much more challenging than eating in.

We order in usually once a week - sometimes from DoorDash sometimes from the restaurant directly.

diogenescynic• 8 years ago

I will not order take out from Uber. I’ve seen drivers with the food on the floor with passengers sitting over it. Deliveries also aren’t quick.

icebraining• 8 years ago

Weird; in the two cities I've seen them, all UberEats drivers use mopeds, they don't drive people as well. How does that even work? I don't think the apps let you coordinate the delivery and ride.

actuator3• 8 years ago

I think this is pretty common across industries where a platform acts as an aggregator/marketplace. Case in point services like Amazon.com, Netflix have their own brands/content as well. Netflix is known for using data of people's content consumption to make new content. I think this makes sense for two reasons:-

- Tighter control over what you produce, so higher margins and potential differentiators(like the burger example in article).

- Acts as a defensible strategy for the aggregator if it can tie these brands with itself.

The only scary thing is when these marketplaces/aggregators just kill small businesses because of controlling the "storefront", discovery and leveraging economies of scale. Example search in Amazon: https://imgur.com/a/zHDueIk

vageli• 8 years ago

I think this is pretty common across industries where a platform acts as an aggregator/marketplace. Case in point services like Amazon.com, Netflix have their own brands/content as well. Netflix is known for using data of people's content consumption to make new content. I think this makes sense for two reasons:-

In this case it's quite different, I believe, in that Uber will notice an underserved market and reach out to existing players/small business in that area to expand into that market. This sounds very different than Uber using their market knowledge to create a competitive advantage for themselves.

actuator3• 8 years ago

This is just the cynic in me; but I think this is just for now, because it allows them to test these theories and ramp up faster. In the future Uber might just decide to go the Amazon way or just cut deals where they earn significantly higher margins compared to other restaurants.

petra3• 8 years ago

In the case of "virtual restaurants", centralized, high volume kitchens are much more cost efficient - for example they can get salmon for $6/pound instead of the $9-$11/pound restaurants pay, and can save maybe up to 85% on labor.

So thinking that a small business could play in the "virtual restaurant" industry, is probably not realistic.

Eridrus• 8 years ago

And yet, most of the centralised places have shut down. I'm thinking of Maple and others, which I enjoyed using in NYC, and yet they are gone now.

tsumnia• 8 years ago

But I think that's part of the barrier of entry for a small restaurant. I enjoy supporting local food trucks, and while the food is good, the workflow is terrible. If you look at a quick service restaurant as a logistics company, they are successful at getting completing the transaction and delivery quickly.

For a small restaurant to be successful, while quality is still a necessity, their pseudo "supply chain management" process needs to avoid as many bottlenecks as possible.

1337biz• 8 years ago

I think the main advantage of small restaurants is the labor advantage. Owner, family, friends are willing to work at ridiculously low (no) wages until there is a decent profit.

dawhizkid• 8 years ago

I'm still waiting for someone to figure out how to make "Etsy for food" work at scale. My guess if/when it happens it will look somewhat like what Uber has i.e. rent licensed "ghost kitchens" to small cooks by the hour and make all deliveries originating from those kitchens.

appwiz• 8 years ago

Sounds like Cloud Kitchens is trying this model - https://www.cloudkitchens.com

netsharc• 8 years ago

Seems that's already happening: https://www.theguardian.com/business/2017/oct/28/deliveroo-d...

Article lead: As appetite grows for upmarket takeaways, delivery service is setting restaurants up with satellite kitchens inside metal boxes.

foolfoolz2• 8 years ago

That’s Gobble https://www.gobble.com

They’ve been around a long time

hayksaakian• 8 years ago

That sounds more like the ikea.com of food.

As I understand Etsy, you're ordering complete products

dopeboy• 8 years ago

This was tried most recently by Josephine (josephine.com) in the bay area. They ran up against laws that forbid selling food cooked at home.

I don't think it is a matter of figuring out but rather legislation.

analogmemory• 8 years ago

I hope someone can figure out a model like Josephine had, I had some really tasty homecooked meals

r00fus4• 8 years ago

Interesting how when Uber and Airbnb did it they could bypass laws even with opposition.

I wonder what the difference was.

blatherard• 8 years ago

Seamless had virtual restaurants at least 5 years ago. I remember in particular my wife liked to order burritos from a certain restaurant, named "Coastal" on the UWS. We tried visiting the restaurant based on the address, and found out that it was actually "Citrus", an upscale latin american place with an entirely different menu (that has since closed).

smmnyc• 8 years ago

I used to live on the UWS and remember Citrus. Never encountered Coastal but do recall an eclectic menu. (No burritos though!)

QML• 8 years ago

In reflection, it’s a good idea. Consumer preferences are hard to gauge; there isn’t much of a feedback loop right now with restaurants beyond you either have business and are sustainable, or you don’t and lose it all. This is comparable to YouTube giving you different advertisements, but that these ads (restaurants) are really expensive to run and experiment with. Virtual restaurants essentially bring A/B testing from the digital realm to the physical one. They provide and shorten the feedback loop, lowering the cost of exploration by centralizing and by economies of scale; and resulting in greater exploitation (not in the economic sense but in the multi armed bandits framework).

ikeboy2• 8 years ago

What's annoying is when you try to order from an existing restaurant and notice they marked up their menu across the board for Uber Eats, then there's delivery on top of that.

wenc2• 8 years ago

That's because Ubereats (and most food delivery platforms) take a huge cut (up to ~30%).

Many low-margin restaurants wouldn't be able to survive without making that up somehow. I sometimes wonder why restaurants bother to list on food-platforms at all. Maybe they figure it's loss-leader marketing?

Or perhaps being that food markups are usually in the ~50%, and drinks are several hundred percent, they can afford to make less?

ikeboy2• 8 years ago

Restaurants are low margin because of fixed costs and a limited number of customers for their fixed space. Delivery doesn't add to their fixed costs, and their gross margin is high.

FTA:

For restaurateurs, it can be a chance to spread their fixed costs over a higher volume of orders.

dannyw2• 8 years ago

35% in Australia.

https://mobile.abc.net.au/news/2018-04-22/uber-eats-criticis...

sharkmerry2• 8 years ago

UBer eats $500/sign up + 35% of orders

Grubhub 27.5% if order comes from grubhub, it from restaurants website its 10%

Eat24 - 25%

pietroglyph• 8 years ago

The most interesting part of this is their use of user data. Traditionally, it seems like there isn't a great way to judge demand for a restaurant until you open it, so it makes sense that user tracking (to gauge interest) and the ability to operate out of an already profitable space (reduced upfront cost) gives establishments a significant advantage (although the article doesn't exactly comment on number of failed online restaurants, so selection bias cannot be ruled out.) I wonder how competitors like GrubHub use data to gauge interest...

dpeck• 8 years ago

See Mac’d from the last yc batch as well. There’s some cool stuff happening in food. Ghost kitchens have existed for a while, and I’ve had a restaurateur friend mention them to me quite a few years ago, but it seems like they’re hitting scale and getting very interesting.

jasonwilk• 8 years ago

I have always thought this space will turn into the Netflix of food. First you differentiate by having a good array of content (food) but will eventually need to create original content with exclusivity (Uber creating or funding their own restaurants just for delivery) to differentiate.

baseballMan• 8 years ago

The biggest thing I've noticed with uber eats is the outrageous delivery fees. I'm not really interested in paying an extra $6.99 for a meal and I'm surprised other people are fine with it.

foobaw• 8 years ago

In my area, a lot of them are either free or $1.99, $2.99. (It will vary by demand though).

I think my threshold is $2.99 - in some scenarios when I'm extremely sick.

bllguo• 8 years ago

in mine, fees used to be around there. I was comfortable with the 2.49 or lower fees. Around 1 month ago they raised delivery fees by ~$2-$3 across the board.

sytelus• 8 years ago

There are two fundamental issues in food delivery business:

1. Per hour cost of a delivery person is usually $20 after taking in to account vehicle, gas, down times etc. If you assume each delivery takes minimum of 20 mins (accounting for restaurant-customer-return hops), we are talking average of $6+ per delivery. Considering a cost of a meal is usually $10-20, this is significant barrier. My question is: Does these startups taking on losses to build customer base?

2. Cooked food is notoriously perishable. Think about eating burger lying around for 30-60 mins before you eat. This not only limits items you can deliver but also puts on pressure that you are always running against clock. One mistake and you are bound to lose a customer for factors not in your control.

So, food delivery idea is not new. It had been tried and failed to takeoff probably couple of dozen times mainly due to above two issues. What really has changed now to mitigate these two issues?

jy1• 8 years ago

Average order is closer to $20.

Uber then takes up to 30% cut on the food cost.

alaskamiller• 8 years ago

Fundamentals still the same from the Spoonrocket days. $15/hr to pay the drivers. 3 to 5 trips an hour. Avg ticket is $16, and the platforms (P, U, D) take a third.

What's changed?

Consumers changed. People are paying $6 for delivery. They've grown accustomed to room service.

No one's taking 60+ min for food delivery.

What's next is taking India's lead and integrating ordering, prep, delivery all in one.

daemin3• 8 years ago

The one thing that hasn't changed is that not all food is as good delivered as in the restaurant. For example anything fried or that should be crispy.

In my experience that food tends to absorb the moisture from the heat/steam it emits which gets trapped by the packaging and therefore makes it soggy.

remote_phone• 8 years ago

I get food from UberEats and DoorDash that are still hot to the touch. I’ve had some food that I had to cool down. This is in stark difference from delivery in the 90s (the last time I got delivered food). I’m very willing to pay extra for this and not have to pay tip to the restaurant.

mijamo• 8 years ago

You don't pay tip for delivery? Good to know, I guess I will only order deliveries when I got to the US becaude I refuse to tip and I understand it won't be a valid option at a restaurant.

chrisseaton• 8 years ago

we are talking average of $6+ per delivery. Considering a cost of a meal is usually $10-20, this is significant barrier

I don't understand. Why does the value of the thing being delivered make a difference to the value of the fact that it's delivered?

Should we expect it to cost more to deliver a more expensive item? I don't see why. Why should it cost less to deliver a less expensive item.

ergothus• 8 years ago

You are correct that the value of the delivery does not change with the cost of the item. As a cost impact, it makes sense to instead compare to the time and cost of traveling myself to get the item.

But the OPs point is valid if you think about the impact to your budget. Saying a meal delivered represents a 50% markup in your food entertainment budget is a legit consideration. Were we talking about a 5% or 10% impact to the budget it would less dramatic.

eloisant• 8 years ago

That's how human psychology works, and it's not always logical: we're willing to pay up to a certain percentage for delivery, when it becomes 50% or 100% of the price of the product the consumer would rather give up.

In a similar ways there was a study a few years ago that showed that people would be fine driving a longer distance to save $10 on something that's usually worth $30, but they won't bother to save the same $10 on something that's worth several hundreds.

SideburnsOfDoom• 8 years ago

Which talks about "dark kitchens" i.e. existing, well-known chain, having a branch that purely serves delivery services.

Uber’s Restaurant Empire

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