Doordash and Pizza Arbitrage

https://themargins.substack.com/p/doordash-and-pizza-arbitrage

by lunchbreak • 6 years ago

1393 514 6 years ago

themargins.substack.com

ed312• 6 years ago

Do businesses have any recourse here? E.g. for the pizza situation - can a business ban DoorDash and its ilk?

WrtCdEvrydy• 6 years ago

It probably can't since people don't have to be honest about being DoorDash.

gberger• 6 years ago

But how can DoorDash advertise and impersonate someone else's restaurant without their consent?

coderholic2• 6 years ago

The pizza business is the one making the profit here, at doordash's expense.

It'd presumably be trivial for doordash to fix this, by checking the order amount against the cost. The article explains why they might not be doing that ("growth")

xuki• 6 years ago

The problem is some customers received the pizza cold, and instead of blaming DoorDash, they blamed the restaurant. It's very misleading when DoorDash resell a product and pretend like the restaurant is actively participating in that process. I personally would not hesitate to ramp up the "self ordering", just to f* with DoorDash.

throwaway_dflka4• 6 years ago

It's an interesting question. I suspect there's some trademark arguments to be made regarding confusion as to who is providing the product and service and whose failures any mistakes reflect. That kind of attribution, and the product quality it promotes, is one of the central purposes of trademark law. But there's also the first sale doctrine--that after you sell your physical product, people can do with it as they please, including resell. I suspect it comes down to how clear Doordash makes it that the restaurant is not involved in the service, but I'm not an expert in these areas, and this is obviously not legal advice.

dbcurtis• 6 years ago

But doctrine of first sale does not extend to you fraudulently masquerading as the first-party seller.

paulcole2• 6 years ago

But there's also the first sale doctrine--that after you sell your physical product, people can do with it as they please, including resell.

Yep! First sale doctrine applies to all transactions. This is why my gammy can resell her Oxy’s and it’s all nice and legal.

xkcd-sucks• 6 years ago

All the regulation around food and beverage sales stands to the contrary - Normal people can't resell liquor, nor resell takeout food from a licensed restaurant.

Relatedly, it's surprising that delivery times aren't monitored because of (totally appropriate!) food safety laws on holding food at proper temperature

judge20203• 6 years ago

If delivery people are paying with the Doordash debit card (most likely for non-partnered restaurants) you might be able to ban that BIN number (YMMV but it is possible with Stripe Radar + Stripe Terminal), or you could instruct your cashiers to refuse service to doordash drivers based on what card they use. After DoorDash receives enough reports from their drivers/customers it'd probably be delisted.

toomuchtodo2• 6 years ago

This would be key for restaurants to do, in DoorDash’s largest markets.

miked85• 6 years ago

In-N-Out has done this: https://www.foodandwine.com/news/n-out-doesnt-want-anyone-de...

toomuchtodo2• 6 years ago

I enjoy that In-N-Out is still proceeding with the suit even though DoorDash has taken down the advertising in question. Have to send a message.

5revive• 6 years ago

it will be interesting to see the impact of SoftBank withdrawing on consumption patterns of city-dwelling professionals. So much of their daily life is subsidized courtesy of Son

exacube• 6 years ago

I'm curious to hear how restaurant delivery services are meant to make profit; is it really through service fees (or a monthly subscription model), and tips?

Cost per meal seems way too high for people to use it often. Maybe it make economical sense for larger party orders, but how often do those kinds of orders happen during considering the COVID situation?

MattGaiser18• 6 years ago

I assume it is the 30% they take from the restaurant.

dannyw3• 6 years ago

30-40% from restaurant + up to 35% in promotional fees from restaurant + delivery fees + service fees from the customer.

secabeen• 6 years ago

I'm not an expert in this, but I think that the evil VC game plan is to try to make their portal the default first stop when ordering food. If they can get to that point, then they can start transferring the profit from the restaurateurs to themselves. This is more likely if people are indifferent to the specific place they order from after they've selected a dish or cuisine; less likely if people want specific restaurants.

Essentially, they've looked at the food delivery market as thousands of individual orders all going through individual phone calls or web orders and said, if I could take a percentage of all that, I'd have a great business.

noad• 6 years ago

This is so asburd it feels like a story in bad movie. We have pushed finance & capital so far into the realm of fiction that it doesn't really make sense anymore.

Artificial growth for the sake of artificial growth, just so you can get to your exit and leave someone else holding the bag. Ponzi schemes at massive scale.

How did the startup/VC world become so entangled in all this bullshit capitalism?

jabbany• 6 years ago

I have a vague sense that this exact scenario with pizza was covered in the Silicon Valley sitcom...

imgabe6• 6 years ago

It was, they use it to bankrupt another startup so they can acquire them (and their employees). I'm wondering now which one happened first...

Spooky23• 6 years ago

Same way they did in the 90s, lots and lots of dumb money.

My son and i have a tradition when my wife attends a nonprofit board meeting every other month. She leaves and we order some five guys on doordash while we play a PlayStation game. I use a new email every time and usually get free delivery and a coupon. Doordash loses, Five Guys loses, and we get some dude to deliver a burger.

spurdoman774• 6 years ago

Though according to the article only doordash loses here, not fove guys. Doordash pays the difference netween menu and paid price.

perseusmandate5• 6 years ago

For a period of time when Uber was in China, a huge amount of revenue was from fraudulent rides that weren't actually happening.

There were smart investors who saw through the facade and didn't invest and there were smarter ones who saw through it and invested despite that.

jaboutboul2• 6 years ago

Honestly at times it seems like all these Uber for this or that, DoorDash and whatever other logistical services were created with the premise of just keeping people busy and making them feel like they have a job (one that often costs them money to work at).

Once upon a time you started something and hoped to figure out how to scale and find product/market fit. These days with the cloud it’s become trivial to scale almost anything that’s not building cars or spaceships.

All these other BS startups have no hope for profit and no end game in sight. It’s kind of pathetic.

MattGaiser18• 6 years ago

Honestly at times it seems like all these Uber for this or that, DoorDash and whatever other logistical services were created with the premise of just keeping people busy and making them feel like they have a job (one that often costs them money to work at).

Are you referring to customers or restaurants or drivers?

jaboutboul2• 6 years ago

I’m referring mostly to drivers, but programmers and basically everyone else in the chain as well.

Let’s throw a stupid amount of (not our own) money and manpower at programming a solution to a well defined problem and then grab a bunch of low wage workers and milk them. We will keep everyone, engineers, drivers, restaurants busy all the time to make it seem like we are making progress but in reality we are just burning time, money, oil and the last mile workers to the ground.

With all this money being thrown around you would think they would be able to engineer a solution wherein instead of committing identity theft (which is essentially what the author describes) and exploiting workers, they are actually solving the problem in an honest way which also provides an equitable wage.

Enough with the unethical bullshit. If you have to pose as the business to “help” a business all while exploiting cheap labor you aren’t solving a problem and you don’t have a right to exist, no matter how much money you got from SoftBank.

bransonf• 6 years ago

Reading the title, I anticipated this was going to be something along the lines of getting Domino's delivered for less than their delivery fee. (Side note, does anyone actually order franchise pizza on an app? They all already deliver for far less)

But this was far more interesting. The fact that Doordash scrapes prices, and apparently doesn't verify... how does this happen?

I'm not familiar with the reimbursement model. I'm assuming the driver pays with a credit card, and Doordash reimburses this amount. Regardless, there will now be database entries for a customer paying $160 and Doordash reimbursing $240.

What happens in a company that allows $80 to vanish like that? Unless this is an incentive (I'm doubtful this was deliberate). Wouldn't one of the first things you do is validate your financials? In which case, is the driver getting screwed here? (They charge the customer $160, and reimburse the driver for only that amount)

If not, this opens up a huge potential for fraud. There is a semi-popular YouTube video where some young British folks set up a 'restaurant' in their home kitchen and successfully list on a delivery app. They deliver several orders (reimbursing the customer of course). If it's trivial to get listed, and potentially with the wrong prices, then it's trivial to launder money this way.

Set up a fake restaurant, deliver little/nothing to a known party, profit. Now, maybe it would become obvious if you made the same orders or within the same time frame. But again, trivial to generate randomness.

What protection do these companies actually have against fraud? By nature, they're assuming trust, and this is exploitable.

MattGaiser18• 6 years ago

Side note, does anyone actually order franchise pizza on an app? They all already deliver for far less

Seen it done a number of times at campuses as the GPS helps the pizza guy find you. Although the pizza guy usually has a very good idea of where the residences are anyway.

bostonsre• 6 years ago

Anyone know if it would be considered fraud and/or illegal to exploit this? I would consider doordash and grubhubs tactics of falsely representing themselves as restaurants to be more unethical. It would be great if someone could scale a solution that would take those arbitrage opportunities and pass them on to the drivers and the restaurants.

astura4• 6 years ago

Yes, it's fraud.

In general, knowingly obtaining money, goods or services you know you are not entitled to is fraud/illegal.

Here's an example of someone going to jail for knowingly exploiting a glitch: https://www.inquirer.com/philly/hp/news_update/20071026_N_C_...

9nGQluzmnq3M• 6 years ago

The fact that Doordash scrapes prices, and apparently doesn't verify... how does this happen?

It kind of happens by default if your goal is "growth at any cost".

The video you mention is likely this one, and it's actually even more extreme: https://www.youtube.com/watch?v=bqPARIKHbN8

The fake restaurant in their garden shed, which never took customers or delivered any food, climbed up to #1 best restaurant in London (!) in TripAdvisor's rankings, purely on the strength of fake reviews and fake photos (artfully arranged closeups of bleach tablets etc). For kicks and video gold, they did open for their last night, serving 1-pound microwave meals from the supermarket.

mrnobody_67• 6 years ago

I saw that video a year ago... pretty epic.

333c• 6 years ago

While that is a good video (and demonstrates manipulation of TripAdvisor), I'm pretty sure the commenter means this one: https://www.youtube.com/watch?v=k47u9tduwb8

This video features (a) delivery and (b) reimbursement, both mentioned in the original comment but not present in your video.

pepy• 6 years ago

I gave a lecture in marketing at an university using that story.

To this day it is one of my favorites.

amoitnga• 6 years ago

is it actually real though? I imagine it'd be really difficult to pull it off. what if somebody who reviews restaurants would go there on, say, Monday? or at lease, even if they don't get in, just try to check out the place from 'waiting area' or at least outside.

Youtube videos have reputation for being fake, I wonder if this is actually true.

Consultant324523• 6 years ago

does anyone actually order franchise pizza on an app

I do. I find the app to be a much nicer experience. I see all the available coupons/deals in a list instead of the 1-2 deals the phone person wants to guide me towards. With an app I can start and order and my family/friends can have an extended conversation to figure out exactly what we want on our pizza, what sides/drinks/etc. And in a pinch, we can completely start the order over from scratch if we change our plan mid-way. It would be rude to hold someone on the phone for that. Plus the app gives better real-time update on the status of my order. I know when it leaves the oven, when it gets picked up by the driver, etc.

013a• 6 years ago

I imagine the OP meant through the DoorDash app? Recently, I've used the Dominos, Papa Johns, or Pizza Hut apps, which are, you know, fine enough, they get the job done, but critically: there's no surcharge beyond what you'd pay over the phone.

I would be confused why anyone would buy a chain pizza like this through DoorDash (or a similar service). Beyond the one tenuous benefit of not having to install another app; is it really worth the extra surcharge? Are they even listed in these apps?

superfrank• 6 years ago

The fact that Doordash scrapes prices, and apparently doesn't verify... how does this happen?

In the article they say:

We found out afterward that was all the result of a “demand test” by Doordash. They have a test period where they scrape the restaurant’s website and don’t charge any fees to anyone, so they can ideally go to the restaurant with positive order data to then get the restaurant signed onto the platform.

I'm totally guessing, but I would bet they do an audit of the numbers after the trial period and would have caught it then.

floatingatoll• 6 years ago

Google tracks outclicks, so setting a lower price at first is a cheap enough SEO tactic.

mdani• 6 years ago

Yes, it has been exploited exactly like you described. An example that I remember - Foodpanda in India. I guess fraud costs are massive for all the food delivery startups.

source: http://www.livemint.com/Companies/rYKC6HjnShogjE62jO5lpK/The...

bambax3• 6 years ago

That may explain why individual restaurants fare better at delivery; obviously they would catch a fraud immediately and are therefore immune to it.

dylz6• 6 years ago

The driver pays with a Doordash prepaid-reloadable card. When the driver GPS-checkins at the restaurant they're picking an item up at, the card is loaded with the exact balance the restaurant is "supposed to charge"

masonic2• 6 years ago

This mechanism reminds me of Moviepass.

astura4• 6 years ago

At that point door dash still thinks the pizza will cost much less, so if it's only the total the customer paid that's authorized, then how does the full cost of the order get paid?

walrus012• 6 years ago

I wonder to what extent the back end software supporting this is identical to, or similar to, what Moviepass created.

Cerium• 6 years ago

From the title I expected a story of how Doordash is running a pizza arbitrage scheme. Using an expensive restaurant name, and having the drivers go to a cheap pizza place to get the pie.

rrdharan• 6 years ago

Pedantically, that wouldn’t be arbitrage, it’d just be fraud. Arbitrage would involve exploiting differences in price for the same good/commodity, i.e. not substituting a different item...

bryanrasmussen• 6 years ago

If it's trivial to get listed, and potentially with the wrong prices, then it's trivial to launder money this way.

If it's trivial to launder money this way then it is a really good idea to build your own food delivery service and start doing all sorts of money laundering through it.

dvduval2• 6 years ago

Lose a few 100 million today for a monopoly next year. I make the assumption here that these delivery services are intent on dominating the search results so that independent restaurants are not able to compete. They are forced into using the services, or rather having a large majority of other orders coming from these services.

MattGaiser18• 6 years ago

rather having a large majority of other orders coming from these services.

DoorDash has managed to change my behavior to the point that it is where I do when I am hungry, so I can see that being viable for a portion of the population.

mlthoughts20182• 6 years ago

Until the prices inevitably rise back up to the level they require to make up for the massive losses. Then that’ll just drive your behavior right back, probably much much faster than it took for DoorDash to establish this, meaning the “monopoly mode” profit time will be so short-lived as to recover next to nothing of the losses.

mlthoughts20182• 6 years ago

The problem is all these businesses (ride share, food delivery), have extremely low margins and the tech to spin up a competitor is extremely cheap and commodity.

Thus the “monopoly” you allegedly get later is deeply unsustainable at the profit level and scale required to recoup losses on any timescale that would work for investors, assuming you can even hold onto it in the face of constant reemergence of competitors.

This is what Naked Capitalism has been point out about Uber for years and years. Uber just keeps changing the story. First rideshare itself would be profitable. Then logistics and trucking would be a sexy new profitable area. Then self-driving cars, then food delivery.

It’s frankly just a Ponzi scheme at this point that was foisted onto unwitting retirement plan investors.

GrubHub / DoorDash / etc., are just more of the same.

You can’t take businesses like taxis or food delivery, with well understood economics, round trip costs, density requirements, low margins, etc., and just slap an app on top and make them somehow different than they really are.

Artificially increasing the supply of something that’s fundamentally not sustainable at that price just will not work.

trixie_3• 6 years ago

It works great. All those management middle men of thousands of delivery and taxi companies have been replaced with software. Razor thin margins are enough to keep the servers running and a small team of developers managing it - for the entire planet.

It's difficult for any company to abuse their position as they're easily repalcable. So the margins will get lower, and more of the money paid by the customer will go directly to the supplier. Efficiency incarnate.

limomium• 6 years ago

How about public transport? It makes a substantial difference that I can pull up the route suggestion and station timetable from my pocket always-on always-connected supercomputer to know to the minute when I need to start tieing my shoes to get where I'm going. You're basically arguing that adding telepathic conscioussness to a service provides less than zero value.

hannasanarion6• 6 years ago

the tech to spin up a competitor is extremely cheap and commodity.

This is the part that makes me the most mad. The delivery companies have almost no value as business entities, all of their value is in the technology, and the technology is not complicated at all.

The job that's being done by doordash and grubhub and all of them would be accomplished much more affordably, sustainably, and ethically with a marketing co-op, which is already pretty common in the food industry in America (Blue Diamond, Land o Lakes, Ocean Spray, Sunkist, Sun-maid, Tillamook, Welch's, etc). There's no need for a separate VC-backed for-profit here, a simple confederation of restauranteurs would work fine and be just as effective and way better for the whole marketplace.

_bxg13• 6 years ago

What's amazing to me is that they can all so brazenly pursue a strategy of "monopoly or bust" without any fear of regulatory action once they reach that endgame. I'm not sure whether it speaks more to the foolishness of VCs, or to the corruption of regulatory institutions.

legolas2412• 6 years ago

I'm afraid that soon any regulation action will be seen as a death knell for the stock market, and all the monopolies will be judged "too big to fail". Then we'll have regulations not controlling, but cementing these monopolies

sherlock_h• 6 years ago

What if you strip out the entire 'aggregation' and customer facing side of DoorDash/GrubHub/UberEats and rebuild them as complete back-end logistics services to the restaurants? You charge lower percentage of orders or just a monthly fee to help procure and pay the labor and route deliveries. Seems like that's the actual challenge for restaurants

prostoalex• 6 years ago

ChowNow https://get.chownow.com/demo/ and Toast https://pos.toasttab.com/ do that

sdan• 6 years ago

CloudKitchens fixes this.

I also find this really weird: its like load balancing between https://server1.example.com and https://server2.example.com instead of using a proper load balancer under the hood to get https://example.com

perseusmandate5• 6 years ago

CloudKitchens is more the kitchen infrastructure for restaurants who only have a presence on delivery apps. They are trying to facilitate a restaurant model that is optimized for the delivery apps'supply chains rather than starting their own

Consultant324523• 6 years ago

Chipotle has white labeled DoorDash for delivery in my area. If I open the Chipotle app and make a delivery order, the "track your order" screen says it's "Powered by DoorDash."

chrisseaton3• 6 years ago

Chipotle has white labeled DoorDash ... it's "Powered by DoorDash."

Disclosing who’s powering it is the opposite of white labelling.

perseusmandate5• 6 years ago

DoorDash already serves as the back end for a number of other services.

But being a courier company is not near as good of a business model. The aggregation element means that they own the end customer and payment flow, which among other things increases spend since you discover new restaurants via the platform and can transact seamlessly with any restaurant on DoorDash vs giving your card info to each new place

More importantly, as a two-sided marketplace DoorDash enjoys network effects which are the source of its defensibility. If they were just a courier company, restaurants could just switch over when they found the next company that could deliver marginally faster or undercut them with VC funding. As a two-sided marketplace, the restaurants can't turn them off without losing all the demand coming through the platform, demand which is captured by DoorDash is because they have tons of restaurants on the platform, creating a feedback loop.

kevindong• 6 years ago

Very important note (near the bottom of the post) on why Doordash did what they did:

Note 1: We found out afterward that was all the result of a “demand test” by Doordash. They have a test period where they scrape the restaurant’s website and don’t charge any fees to anyone, so they can ideally go to the restaurant with positive order data to then get the restaurant signed onto the platform.

bb611• 6 years ago

It doesn't fully explain why they priced a $24 pizza at $16. I wouldn't be surprised if they're subsidizing purchases, but just skipping fees doesn't explain that.

MattGaiser18• 6 years ago

Lets them inflate the order count for the pitch.

Talanes• 6 years ago

"My second thought: I knew Doordash scraped restaurant websites. After we discussed it more, it was clear that the way his menu was set up on his website, Doordash had mistakenly taken the price for a plain cheese pizza and applied it to a 'specialty' pizza with a bunch of toppings."

kabacha2• 6 years ago

Web-scraping is hard man, especially with mom-and-pop restaurant websites that are often exported straight from microsoft word or some ancient "platform" that got reconfigured 20 times over.

As article pointed out it picked up full-toppings pizza as plain cheese.

vkou• 6 years ago

They are taking a loss on every order, but they are hoping to make up for it with volume.

Traster2• 6 years ago

Can you imagine getting that call "Hi, little Pizza place, we've been fraudulently impersonating your business, dragging your brand through the mud and pissing off all your customers selling your pizza at a loss, clearly we're the sort of people you need to do business with"

Spivak6• 6 years ago

I think there's a huge grey area between "hire a 3rd-party person to pick up your food and deliver it to you" and "impersonating your business."

Like DD, GrubHub, or whatever aren't pretending to be the restaurant (shady website bullshit notwithstanding). They're just saying that they can buy and drive the food to you on your behalf.

dvduval2• 6 years ago

The restaurants need to work through their own trade organization where they band together and push out the delivery businesses that are costing them money, and then allow delivery companies to bid for their business.

MattGaiser18• 6 years ago

I suspect the larger restaurants have negotiated deals already, so they would not be amenable to this.

spurdoman774• 6 years ago

In the end the customer needs some single easy interface where to order food from. It is kind of difficult to see how this could work in a way where restaurants would dictate how customers prefer to order.

dannyw3• 6 years ago

Why doesn't Google build this as an extension of Google Maps?

Charge restaurants no fee for the platform, if they provide their own drivers. Charge restaurants money through Google Ads to promote their restaurants for higher results.

In a few years, get Waymo's driverless cars on the game.

thewebcount2• 6 years ago

Why? All I want is for each restaurant to have their own website (which most already do), and to have a menu, a way to place an order, and a way to enter a credit card online, or for the person who comes to my door to be able to take a credit card. I don't care about an app or centralization, or having it be the same for every business. I just want to give them my money for their food in my house. So long as it works, doesn't get in my way, and doesn't cost me 30% extra, I don't have too many preferences on how it's done.

asveikau• 6 years ago

Same as it works today, but replace the VC funded app with a different app that a critical mass of restaurant owners get behind. That app could be owned, funded, managed by a group of restaurants in order to better serve their needs. Perhaps there could be some kind of federated standard.

ViViDboarder2• 6 years ago

Yelp actually provides a platform that integrates ordering from multiple providers into listings.

LudwigNagasena2• 6 years ago

The restaurants (that aren’t mega chains like McDonalds) are usually utterly incompetent in spheres of logistics and IT. I don’t see how this can end up well.

hannasanarion6• 6 years ago

That's what federations and marketing co-ops are for. They're really common in the agriculture sector. Nut, dairy, berry, and fruit farmers buy into groups like Land O Lakes, Blue Diamond, Sun-Maid, Tillamook, and Welch's, and then those entities handle the logistics and distribution and pass back the profits.

Platforms like grubhub and doordash could and should still exist, but they shouldn't be separate VC-backed for-profits, they should be restaurant-owned.

rootusrootus2• 6 years ago

After reading more about how these delivery companies function, we stopped using Door Dash a few days ago. We found it very convenient during the pandemic, but we like our local restaurants and we thought we were helping them out by ordering delivery pretty often. So now we just order it as take-out and then we go pick it up ourselves. Screw Door Dash.

slfnflctd2• 6 years ago

We came to the same conclusion a couple weeks ago. As a bonus, you're eliminating a person/environment from the loop (the delivery driver & their car), thereby reducing your Covid-19 attack surface.

Edit: I have also both read about & seen firsthand food delivery drivers with someone else in the car. It's almost certainly someone from the same household, but still, that's potentially yet another unknown, potentially untraceable person in the loop.

giarc2• 6 years ago

I've had amazon deliveries where it appears the whole family was in the car. Kind of heart breaking to think that a family of 4 has to drive around so I can get my AA batteries same day. We need drone deliveries.

ip26• 6 years ago

Make sure you're calling the right number

https://www.eater.com/2019/8/6/20756799/yelp-grubhub-phone-n...

dangoldin4• 6 years ago

This quote summarizes it all for me: "Amazon just bailed on restaurant delivery in the U.S."

If amazon, a "real" business with a reputation built on ruthlessly cutting margin can't get it to work why would anyone else?

LudwigNagasena2• 6 years ago

There are many businesses Amazon doesn’t enter. I personally don’t see how Amazon’s strengths can help them compete against other food delivery services. After all, same day delivery is the norm there.

dangoldin4• 6 years ago

I do suspect their focus on logistics and having an existing network would make it easier for them than others. They are doing food delivery through Amazon Fresh and also have been hiring contractors to do package delivery. Food, of course, has it's own constraints but compared to many they would be in a decent spot.

wmeredith• 6 years ago

I mean, they canceled their phone program too, you don't see Apple packing it up.

dangoldin4• 6 years ago

True. But that industry already has a duopoly with very strong network effects. Food delivery is extremely fragmented and it looks as if there's no one actually doing it profitably.

thewebcount2• 6 years ago

I mean, think about it – Amazon can't run it like their current delivery service. They can't mark it as delivered, but then not deliver it until the next day. They can't drive up to the curb, throw it over your fence and then drive off. They can't claim to have delivered it but just not bothered. They can't say they're giving you a pizza from Pizza Hut and then actually give you a pizza some guy made in his basement. In other words, they can't run it like their current business.

dangoldin4• 6 years ago

Yea for sure. At the same time they did acquire Whole Foods and are doing food delivery through prime. They do own the warehouses here rather than acting as couriers but I would not be surprised if they just found out the economics (especially given their strengths) to just not work out for them.

saos3• 6 years ago

Amazon just invested £500m into Deliveroo based in Europe...

alteria3• 6 years ago

This is absurd. Can someone explain to me why DoorDash exists? They're #1 in share, but I get the impression that they basically bought their spot.

Grubhub has been operating in the space forever, is public, and generally had been profitable until VCs came to town. How is DoorDash doing anything than Grubhub? Wouldn't this capital do better in other investments?

From the outside it seems like they've duped investors into burning hundreds of millions of dollars to hopefully build a monopoly in a structurally iffy market.

MattGaiser18• 6 years ago

DoorDash is winning in terms of market share for one thing.

https://www.cnbc.com/2020/01/17/doordash-took-the-lead-in-th...

I bet a big thing for DoorDash is DashPass. That would lead to people ordering food for anything as the price is basically the same as in restaurant then.

alteria3• 6 years ago

Definitely agree that they're winning (the Second Measure blog is fascinating), it just seems like they bought their way to the top at a very high cost.

DashPass is definitely keeping me a DoorDash user, it's benefits are significantly better than Uber Eats pass, but idk if that's sustainable for DoorDash.

perseusmandate5• 6 years ago

The thing that really allowed DoorDash (and UberEats) to pull ahead was investing in partnerships with chain restaurants vs focusing on independent restaurants. Which hasn't necessarily resulted int he best product

adrr• 6 years ago

I have Dashpass free from my credit card. Its not the same as ordering from directly from restaurant as Doordash marks up the prices 10% to 25%. I always thought Doordash was a terrible deal without it, you're paying marked up prices, delivery fee and a tip. Doordash is winning because they have the widest selection of restaurants since they are using their own drivers compared to Grubhub. Not sure why Postmates and UberEats failed to capture more market share since they offer the same service.

wmab2• 6 years ago

Grubhub for years were just a marketplace for customers to find food to order online / restaurants to find customers online. They'd charge a commission on order amount for fulfilling the match but the restaurant would have to deliver the food, manage their own delivery drivers etc. This is why they were profitable for years - they were a two-sided marketplace with a high commission percentage and low cost based since they didn't have any delivery costs.

DoorDash came along (after Postmates btw) and offered the same marketplace, but with delivery drivers too (a three-sided marketplace) - so that a restaurant didn't need to employ delivery drivers. This meant a higher cost base for DoorDash, lower for the restaurant, but similar commission fees. The simplicity of offering online marketplace ordering and delivery was very enticing for restaurants not wishing to manage this themselves, hence DoorDash's huge rise in market share, at the cost of Grubhub's over the last 2 years.

Grubhub has now for the past 3 years been busy spinning up delivery in its markets but is way behind DoorDash and Uber Eats. They have also admitted to falling behind in their Q3 2019 announcement[1] to the new competition (their late admission caused their stock to drop 43% in 1 day on the earnings announcement), and started also spinning up the non-partner side of the marketplace (adding restaurants without an agreement in place) to give customers more to order from (this is what Postmates then DoorDash pioneered). This is why they've started hemorrhaging cash and became loss making.

[1] https://s2.q4cdn.com/772508021/files/doc_financials/2019/q3/...

alteria3• 6 years ago

Got it, this makes a ton of sense, and explains why Grubhub was able to do the impossible, make money.

imgabe6• 6 years ago

Just some back-of-the-napkin math if you wanted to do this "right".

Let's say you hire drivers as employees and pay them $15/hr plus tips and reimburse them for mileage. You charge a $4.99 delivery fee. Drivers work set shifts and are paid hourly whether they are making deliveries or not.

That means each driver needs to be making at least 4 deliveries an hour or you're losing money. That's not even really counting for mileage or any other benefits like health insurance or retirement (not that jobs like this usually provide this, but people seem to think that they should).

When I lived in DC, driving anywhere could take at least 15 minutes. Getting 4 different trips from a restaurant to somewhere reliably every hour would be difficult. Obviously, drivers can pick up multiple orders and take them in one round trip, but you're at the mercy of what orders happen to come in and where they happen to be located. It seems like it would be very hard to make that sustainable.

Of course, Domino's and lots of other places do it, but they probably aren't paying $15/hour and they also have one central location and more predictable demand. It's more feasible if drivers always go back to one central hub rather than having to get orders from random different restaurants all over the city.

MattGaiser18• 6 years ago

Domino's and lots of other places do it, but they probably aren't paying $15/hour and they also have one central location and more predictable demand.

One thing to note about Dominos is that people pay at the door, so they would need to look the delivery guy in the face as they stiff him on the tip. Not required for the delivery apps and fewer people tip there.Because people tip, you can pay lower wages.

I had a relative who worked as a Chinese food delivery guy for a while and he did it exclusively for tips. The restaurant did not pay him at all.

colejohnson66• 6 years ago

When ordering with the app, a lot of pizza places now (since social distancing started) allow adding the tip (or lack of) when placing the order.

jon-wood• 6 years ago

In the UK tipping delivery drivers is basically unheard of, except maybe if they're delivering on Christmas Day or something. Despite that people I know who've worked as drivers for Dominos say its one of the best unskilled jobs available, the pay is good, it comes with some benefits if you're working enough hours, and they generally take care of their employees.

steveklabnik• 6 years ago

As someone who delivered pizza for a long time, I can assure you that folks who don't tip absolutely do not care about having to look you in the face or not.

pottertheotter• 6 years ago

If it's an existing restaurant that has excess kitchen capacity they probably don't need that many deliveries per hour as he customer isn't paying for a table and that margin can go towards paying the driver.

6nf• 6 years ago

A bunch of delivery 'drivers' here in sunny Sydney just use a bicycle - and they're often just students or backpackers etc making a couple of bucks in the afternoon while getting fit. They're happy to make $10 an hour which would normally be illegal under Australian employment laws.

It's hard for a local pizza shop to compete with this kind of thing and the sheer scale of Uber Eats.

imgabe6• 6 years ago

Unfortunately in the US you get people screaming that those drivers are criminally underpaid and are being exploited by heartless capitalists. Because of course random Internet commenters are better able to judge the drivers' priorities and desires than the drivers themselves.

foxrob92• 6 years ago

It's hard for a local pizza shop to compete with this kind of thing and the sheer scale of Uber Eats.

I mean, Uber Eats is losing cash at a phenomenal rate. So, more accurately:

It's hard for a local pizza shop to compete with obscene amounts of venture capital subsidised delivery

kevmo314• 6 years ago

they're often just students or backpackers etc making a couple of bucks in the afternoon while getting fit

I did this in lieu of going to the gym daily a while back ago. Adds a bit of gamification and social interaction, although takes a bit longer for the same intensity. I can't imagine having to live off that wage though.

neximo64• 6 years ago

It's also 30% - 40% of the order not just a delivery fee

argonaut• 6 years ago

Restaurants have two advantages:

1) Drivers can do other work during down time (wash dishes, clean, etc.). I think some places don't even hire drivers, they just have whoever is free deliver the order.

2) They can eat the loss because it will be less than the 20-30% that delivery platforms take from the restaurant.

hnick8• 6 years ago

I know you probably realise this but I think you missed a few important factors that can justify losing some money on deliveries.

- Takeaway/delivery food costs less to produce than dining in - no cleaning, no turning away customers who want to eat in because the place is full, no hiring wait staff, less fixed rental space cost, etc.

- Delivery reaches people who are too lazy to come to the restaurant. Ask most businesses if they will take a dollar or two profit less and make the sale, compared to losing it. Most will say yes.

- Delivery/convenience puts the brand top of mind for people feeling lazy (plus others see the car driving around). This is marketing.

- People are usually willing to wait for deliveries. At least here in Australia, if I order pickup it's ready in 15 minutes or up to an hour for delivery. This allows some flexibility with scheduling in the kitchen around the driver's schedule.

I think it is a lot more expensive than a lot of us give credit for (I visited Canberra and was aghast at the $9 delivery fees), but there are some benefits and savings to offset this.

Dylan168076• 6 years ago

$15/hr plus tips plus mileage is overkill. Let's say you cut out the awful feature that is tipping and make it $15/hr plus mileage, which is a perfectly good wage.

If I was previously paying $6-7 in fee+tip for a limited selection of restaurants, I'd be okay paying $10 for places that don't normally have delivery.

If that means two trips per hour, and you're not in one of the ten worst cities for traffic in the entire country, then that actually sounds pretty viable.

sneak• 6 years ago

You forgot wear and tear on the car, and gas. 15/hr is decent without additional expenses. Take out gas and tires and brakes and maintenance and it's poverty level.

gwd• 6 years ago

Of course, Domino's and lots of other places do it

They kind of go into this in the article -- that since Domino's has made delivery work for decades now, it must be possible to do it sustainably; and that although most of the author's restaurant friends considered it "not worth the effort", individuals had managed to make the economics work for their very specific circumstances.

BUT -- that the fact that it can be made to work in specific circumstances sort of undermines the whole idea of DoorDash, which is a generic "food delivery wrapper" around any restaurant. DoorDash by definition can't do the kind of integration that Domino's does.

DagAgren2• 6 years ago

The business model is to charge both a delivery fee and a commission on the sales price. That way, you can make it profitable, even when paying a fair price to couriers, as long as you can keep your business lean and your delivery routing efficient.

inquiryaccount7• 6 years ago

This reminds me of a post I submitted a few weeks ago on HN.

A friend of mine works for a restaurant group in NYC and they like many they have had to respond by offering delivery to folks in order to keep some revenue flowing. He and I were chatting and he mentioned that lately, a large majority of high value ($500+) orders were fraudulent with the fraudster ordering things that can be resold such as high-value wine, liquor, etc that isn't necessarily perishable. He says that the scams work like this:

1. The order comes in via Caviar usually with a ridiculous amount of booze. It is usually a courier delivery but he says looking back, some have been picked up by 'customers'.

2. There are some instances where the order gets canceled either by the scammer within the 2 min grace period post ordering of from the actual customer who had their account phished/received some sort of alert/and stopped the transaction.

I am intrigued by this because there is obviously someone on the receiving end that's ending up with a boatload of high-end booze and then offloading it somehow while Caviar eats the dispute later on and still pays the restaurant out.

Literally, thousands of dollars a week of fraudulent booze orders are being fulfilled to people fraudsters using phished accounts with valid cc's. The consumer eventually realizes the charge, disputes it, and gets their money back leaving Caviar with the bill.

slimsag• 6 years ago

Consumers often don't realize the charge, I believe, until it's too late. Tech-illiterate old folk getting hit by the latest leak of information from <take your pick of large company>.

kbaker• 6 years ago

Well, since DoorDash is listed as the copyright holder on the bottom of www trycaviar com it looks like DoorDash is just bleeding their $400mm series F out under a different name.

Maybe have them try the arbitrage themselves per the article and put the profit _and_ the booze directly in their pockets... (/s?)

martey• 6 years ago

DoorDash purchased Caviar from Square last August: https://techcrunch.com/2019/08/01/doordash-is-buying-caviar-...

I assume DoorDash doesn't want to alienate loyal Caviar customers and so is continuing to operate it independently, similar to how Grubhub and Seamless merged seven years ago but still run two different websites (albeit with identical design).

walrus012• 6 years ago

I bet the person physically receiving the wine/goods is some gullible, naive person who has been social engineered into thinking they're working for a legit business.

It's like the 419 emails where they are trying to "recruit a remote working employee in our finance department" where your job is actually to receive fraudulent ACH wire transfers and send the money to some overseas destinations, go to a bitcoin ATM and buy bitcoin to send to the scammer, etc.

If the scammers are reasonably intelligent and have put a degree of thought into how to not get caught doing this, they'll introduce multiple layers of abstraction between the physical delivery of $450 bottles of liquor, and the point at which that booze is turned into (gift cards, bitcoin, ethereum, etc) and ultimately in their hands. They're probably calculating on taking at least a 20-35% haircut on the revenue before the somewhat-cleaned-up cryptocurrency or gift cards makes it to them.

MattGaiser18• 6 years ago

Or, it is the age of social distancing. Just order it to a random address and steal it off the porch/lobby area.

inquiryaccount7• 6 years ago

From what I can gather, it is a ring of people behind this operation likely getting a commission for each 'drop' back at base

https://www.google.com/maps/place/101+bowery+st/@40.7176021,...

wil4212• 6 years ago

There are fences (shady stores) in shady locations that will buy booze, baby formula/diapers, and over the counter medicine like daily Anti-acids. If you order liquor or wines that people sing/rap about you can find a place to sell it.

The scammers just need to find a fence which is pretty easy if you know where to look. They’ll even tell you what is the best stuff to get.

inquiryaccount7• 6 years ago

Yeah, the scammers ordering their stuff are only getting the good stuff. Don Julio, 1942, Johnny Walker Blue, high-end wines, etc.

jeromegv• 6 years ago

Last week I noticed that my credit card number had been stolen. But only for UberEats, I had tons of UberEats transaction of $30-$50. It's not my UberEats account that was stolen because I logged in in my account and I had not ordered anything. So looks like there's a market to get those stolen CC and use it to order a bunch of stuff from restaurants. Perhaps you're right, it's to order things that can be resold (wine, etc).

And because it's the pandemic, i'm sure lots of people wouldn't notice those extra charges to their credit card right away because they already order through those apps. I haven't used UberEats in a year so it was easy for me to notice.

bvandewalle• 6 years ago

I said this in another post about Grubhub but similarly to this article I really don't get it. Those apps are all 25%+ expensive than ordering take out directly with the restaurant, they screw the restaurants and all those delivery companies lose millions.

Did everyone really become THAT lazy that driving 10 minutes to get your meal is that much trouble?

adenta• 6 years ago

Not everyone has a car.

com2kid• 6 years ago

Did everyone really become THAT lazy that driving 10 minutes to get your meal is that much trouble?

Depends on density, and traffic.

Getting to a nearby restaurant to pick up dinner, even a close by one, would easily take 30 minutes+ round trip. If I want food from someplace more than a couple miles away, make that 45 minutes or more round trip for dinner.

Or I can order from an app and have food delivered.

The question then becomes, is saving almost an hour of time worth $20?

mumblemumble• 6 years ago

For me, it's sometimes laziness, but usually not. The long and short of it is that delivery only happens when it's hard to leave the house for whatever reason. If getting myself to the restaurant is an easy option, then dining in generally is, too. Takeout only happens when I've been tasked with picking up burritos on the way home from work.

0xffff23• 6 years ago

I've probably only used each of the major delivery apps once or twice, so I'm not representative of their customer base, but yeah, every now and then I'm having a specific day where I'm feeling that lazy (and of course driving anywhere in the bay area around dinner time is likely to take a lot longer than 10 minutes round trip). Then again I'm living in the bay area and not making anywhere near FAANG money. I can definitely see the delivery fees being negligible compared to the value of my time if I was making 2-3x my current salary.

perseusmandate5• 6 years ago

Meal delivery doesn't just exist because people are lazy. It has been around a long time via the much more inefficient process of calling a restaurant that you already knew about, having someone spend time with you on the phone getting your order and credit card # and then dispatching a delivery person they employed directly to deliver the order to you.

rightbyte• 6 years ago

My experience is that calling for pizza is faster and easier than using an app.

TuringNYC• 6 years ago

I used to think this, until:

1. We had a child

2. We had multiple children

3. We realized getting children (who may be sleeping) into a car for even a 10minute drive becomes a big production

4. We got rid of our car

Also, other reasons:

A. It is 8:30pm, you're at the office, have another 3hrs of work to do and cant spare even 10min to get away. Very common in my Junior Analyst days. In fact, we had a company sponsored SeamlessWeb account that we could use anytime.

B. You are on a business trip at a random city/hotel w/o a car

C. Your car is in street parking and you dont want to lose the spot (wicked, i know...)

trixie_3• 6 years ago

It's the opposite. People are so busy that they can't spend 10 minutes to get food.

Also the fact that they can afford the premiums in the first place implies that they're not lazy ;)

WrkInProgress• 6 years ago

I'm in Toronto, so we have Skip (Skipthedishes) instead of GrubHub along with UberEats and Doordash

1.) Skip doesn't allow the restaurant to jack up the price, so to the customer the total cost is the same 2.) These companies toss out tons of coupon codes and referral codes that bring the overall cost down (sometimes even cheaper than ordering directly from the restaurant) 3.) In dense urban centers, a ten minute "drive" is way more challenging/time consuming/effort than it would be somewhere else. In fact, these services use bicycle couriers in these areas.

ngngngng• 6 years ago

I don't understand why doordash, uber eats, deliveroo, and similar business are starting to exist. Restaurants have been running successful delivery operations independently for ages. And there are many software offerings to help businesses get set up with delivering food.

Why do we need a centralized on? Is it just the benefit of being able to browse in one app/website everything available for be delivered to you?

chrisseaton3• 6 years ago

Is it just the benefit of being able to browse in one app/website everything available for be delivered to you?

Yes I think that’s a big part of it.

That’s a big part of Uber as well - I can fly into a city not knowing anything about how they do taxi and get an Uber.

masonic2• 6 years ago

   I can fly into a city not knowing anything about how they do taxi

What airports are you flying into where you could avoid signage/references to local taxis/buses/transit if you wanted to? Heck, most have taxi stands right outside baggage claim, if not all exits.

spurdoman774• 6 years ago

Majority of times I order from these centralized sites becauae of convenience. Id like to support my local restaurant by ordering via phoning the restaurant directly, but it is pain in the arse compared to the convenient web ordering process.

mikekchar• 6 years ago

Given that, I wonder if there is an opportunity to provide the ordering service and leave the delivery up to the restaurant... It would be dramatically easier to start up, require far less capital, require almost no human resource challenges, etc, etc.

Edit: Just noticed lower in the comments that this is exactly what GrubHub was doing before Doordash showed up.

peteretep2• 6 years ago

I've spent many thousands of dollars on app-delivered food over the last few years (Foodpanda, Uber Eats, Grab Food, Lineman, and Deliveroo). I use the apps because:

- GPS tracking of the driver, and helpful notifications

- Discovery of new restaurants

- Detailed menu (and occasionally useful suggestions of menu items)

- I don't have to create a new account or fuck around with giving some restaurant my credit card

- I don't have to speak to a human

I'm hungry right now. I can pick up my phone, and in 30s, without needing to do anything other than click on the food I want to eat, in 25m I will have a human with food at my building's lobby.

judge20203• 6 years ago

- I don't have to create a new account or fuck around with giving some restaurant my credit card

In case you need to in the future, i'd recommend privacy.com for merchant-locked cards.

eitally2• 6 years ago

That last bit only applies in dense downtowns. In the Bay Area, if I'm hungry right now and that happens to be roughly dinner time, I'm waiting 50-70 minutes for a food delivery.

chongli• 6 years ago

Is it just the benefit of being able to browse in one app/website everything available for be delivered to you?

It's not just that, it's also a centralized payment system. You set up your account and you can order from any restaurant on the app without having to give them your address+payment info. Couple that with very simple, centralized dispute resolution and refunds as well as notifications of special offers. It's very, very convenient.

The economy of scale for the drivers is also much better with a centralized model. Instead of every mom and pop restaurant having to hire their own delivery staff there is one centralized pool of drivers available to everyone. A lot of restaurants just don't get consistent enough demand to hire a full-time driver.

MattGaiser18• 6 years ago

Restaurants have been running successful delivery operations independently for ages.

Crappy phone call driven ones with few checks for information accuracy.

Is it just the benefit of being able to browse in one app/website everything available for be delivered to you?

Yes, that is a large part of it. I can be hungry and just pick up the DoorDash app and browse for food. I also have a single point of complaint for any issues with the food, can be confident that DoorDash got my address correct do not need to deal with a credit card at the door, and when I am in a new city, can instantly know what is available.

valuearb• 6 years ago

And still your order is wrong half the time.

joshvm4• 6 years ago

One selling point is ordering from places that don't offer deliveries, like McDonald's or Burger King. Essentially pay someone else to order and collect for you.

That can backfire, as with the article here...

McDonald's is now partnering with Uber Eats, but in the wild west days there were a few apps which let you order from pretty much anywhere.

icebraining6• 6 years ago

One app in my area (Glovo) still lets you do a free-form request: just write whatever you want delivered from any shop within a certain radius of your house. I never tried it, though.

wyattpeak• 6 years ago

One reason I haven't seen mentioned, maybe because it's not the case in America, but in Australia before Uber Eats your options for takeaway were somewhat limited. You could have all the Italian/Chinese/Indian you wanted delivered, but if you wanted a burger, or Mexican, or French food it was probably 50/50 there'd be anyone around who delivered.

Uber Eats vastly expanded the range of cuisines available, if they simultaneously lowered the quality (since these restaurants had no experience preparing food for delivery, and the delivery was usually slower since they didn't have in-house drivers).

Spivak6• 6 years ago

It’s why I do order on DoorDash too. My local Indian place doesn’t do delivery, neither does my local deli, and my favorite pizza place won’t deliver to my address.

I’m more than happy to cut out the middleman and order direct but they turned me down when I offered to pay more to deliver to my address. I’m literally 50 ft outside their posted delivery area.

kabacha2• 6 years ago

Restaurants have been running successful delivery operations independently for ages

Have they? Because in my experience delivery from anything but major chains like dominos, mcdonalds etc. has always been awful everywhere in the world.

With delivery services I can get my favorite dish from my favorite small shop hassle and cash free.

jjevanoorschot• 6 years ago

In the UK before Deliveroo you could only order food from traditional take-away restaurants (Chinese, Indian, Pizza, etc). Delivery time could easily take north of 1.5 hours. Deliveroo takes 20-30 minutes. And you can order from really good restaurants.

DagAgren2• 6 years ago

A company focusing on delivery can do the job more efficiently and competently. Just the fact that they can route deliveries more effectively instead of going restaurant-customer-restaurant is a big win.

craigc• 6 years ago

This is the sad state of VC funding in this day and age.

I can’t help but wonder if movie theaters could have exploited a similar loophole with MoviePass before they went bankrupt. Something like this:

1. Movie theaters buy up MoviePass subscriptions

2. They use those subscriptions to pick different movies to see every day at their location

If they picked 30 movies a month that would be approximately $450 a month in revenue (at $15/ticket), $440 of which would have been pure profit.

slg• 6 years ago

Theaters still have to report tickets sold and kick back roughly 50% of the ticket price, so you would need to cut that revenue number in half. Also I don't remember the exact timeline for Moviepass's various restrictions, but there was a limit on the upside at various times due to policies like preventing users from watching movies multiple times (which would generally cap the max tickets below 30 since most theaters don't get 30 new movies a month), limits on how many tickets can be purchased for a single theater that would lock users out from using that theater for the rest of the day, and users being suspended for "fraud" that was often reported to be just heavy use.

ww520• 6 years ago

Perverse incentive drives odd behaviors. People would have shipped bricks to themselves if the arbitrage warrants it.

xwdv• 6 years ago

Initially I thought this may have gone the other way, setup a business with no physical location, get on Doordash, and when you get orders you place orders at other restaurants not on the platform, then pick up and deliver their food, while charging some kind of markup on their prices.

inquiryaccount7• 6 years ago

Oh, one other interesting thing I've heard happens regularly. Couriers have multiple cellular devices. The second account usually get batched orders from the same restaurant they are already at which leads to a host of problems for the customer and restaurant. This leads to the order that was ready first to just sit and die in the courier bag while they work to maximize their earnings. Couriers sometimes leave before the second-order is ready and return well AFTER it's been ready to retrieve it because they are out and about delivering other orders.

JMTQp8lwXL• 6 years ago

With location services, should be simple to detect this occurring. The apps could do something about it, if they wanted.

balls1872• 6 years ago

Keep reading the level of skullduggery these companies go through and keep saying to yourself "Tech is a meritocracy."

Yeesh.

MattGaiser18• 6 years ago

Merit for businesses is defined by consumer acceptance and consumers love these apps.

balls1872• 6 years ago

Perhaps because ignorance is bliss.

I recall blowback when it was uncovered that DoorDash was not providing 1:1 amount of tips to their dashers.

_bxg13• 6 years ago

It's because the consumer experience is so subsidized. Consumers would also love an app that sends them $1.10 for every $1.00 they spend in it.

Apocryphon4• 6 years ago

That's equating merit with user acquisition, which is the very thing that's fueling the (hyper-)growth of unsustainable unicorns!

pkaye• 6 years ago

We have extended a tech company to mean any company that uses computers.

karagenit• 6 years ago

One thing I'll point out is that we don't actually know if delivery services (for restaurants such as pizza places that the article mentions) are profitable period. It's entirely possible that businesses offer delivery at a loss (i.e. cost of delivery is more than the delivery fee, so it hurts their overall profit margin) because they expect the increase in revenue due to added convenience for customers to offset the lower profit margin.

MattGaiser18• 6 years ago

Companies like Dominos are mostly delivery, so I would imagine they must profit.

x3blah• 6 years ago

"Which brings us to the question - what is the point of all this? These platforms are all losing money. Just think of all the meetings and lines of code and phone calls to make all of these nefarious things happen which just continue to bleed money. Why go through all this trouble?

How did we get to a place where billions of dollars are exchanged in millions of business transactions but there are no winners? My co-host Can and my restaurant friend both defaulted to the notion "delivery is a shitty margin business" when discussing this post.

You have insanely large pools of capital creating an incredibly inefficient money-losing business model.

It's used to subsidize an untenable customer expectation.

Third-party delivery platforms, as they've been built, just seem like the wrong model, but instead of testing, failing, and evolving, they've been subsidized into market dominance.

The more I learn about food delivery platforms, as they exist today, I wonder if we've managed to watch an entire industry evolve artificially and incorrectly."

A contrary view, from 4 days ago, arguing third party food delivery market is not created by VC, the startups are not over-funded and that they are delivering splendid returns to investors.

https://news.ycombinator.com/item?id=23171915

crazygringo• 6 years ago

That’s what is so odd to me about third-party delivery platforms. The business of food delivery clearly is not intrinsically a loser. Domino’s figured it out. Every Chinese restaurant in New York City seemed to have it figured out long before any platform came along. My friend is figuring it out.

Domino's and Chinese are very specific high-margin businesses. Basically the highest-margin restaurant businesses.

That doesn't, in any way, prove that food delivery in general is not a loser. In fact, if you have to specifically pick the two highest-margin examples as your examples... maybe the industry in general isn't all that sustainable.

ChuckMcM• 6 years ago

I love this story, especially about ordering dough pizzas.

It reminded me of this twitter thread: https://twitter.com/meslin/status/1225834920611848192?lang=e...

In which the author tries to order the Uline "box of boxes", a box of twenty-five (25) 6" x 9" x 6" boxes, only to have Amazon deliver a 6" x 9" x 6" box containing some random product. The collection product from Uline has the same bar code as the box itself, so the pick up robot would scan the shelf for the box, find something that SOME OTHER VENDOR had put into a 6x9x6 Uline box, and pick that to satisfy the query.

Adding automation to a process that any human with visibility to the whole process would say, "Wait, that can't be right." ends up in misbehavior.

joshvm4• 6 years ago

The automated system should say "weight, that can't be right". Works fairly reliably in supermarkets, especially if you allow a bigger margin of uncertainty on sku weight. Or verify the volume/shape - or both, like volumetric weight that shipping companies use. I'm guessing amazon has some system to automatically assign boxes based on the dimensions of stuff that's being picked.

beart2• 6 years ago

Not all distribution centers validate weight, don't recall if Amazon does but I would be surprised if they don't. High speed scales are expensive.

j7ake• 6 years ago

Weight can easily be gamed by adding a bag of water.

Verifying shape would be difficult without knowing what to expect beforehand, but can also be gamed.

You won’t get the precision of supermarket weighting if you are dealing with diverse restaurants with a dynamic menu.

hrktb4• 6 years ago

Works fairly reliably in supermarkets

No it doesn’t.

Not just because they can be badly calibrated, but also because the range of weight they have to deal with must make it hard to manage any sane range.

The only SCO I’ve seen doing a decent job at dealing with weight use a binary check (“was there any product at all added to the to total weight of the basket ?”) and they still miss products like lollipops or anything too light to pass the range.

Sure much more reliable system could be built, especially at Amazon’s engineering scale. But so far supermarkets are mediocre at best at this game.

wnissen• 6 years ago

I just had a package from Amazon that literally weighed less than the product that was supposed to be in it. I peeled off the shipping label and found another one underneath that was labeled "weight error". Someone had apparently intercepted it, overridden whatever check was going on, and sent it out anyway.

Weirdly, Amazon still made me mail back the underweight one (I would happily have paid the correct amount for the smaller quantity to save the trouble of remailing) and a few days later sent out the correct one. You'd think in this case they have a record of the actual weight of the package and could sort things out instantly, but apparently not.

hnick8• 6 years ago

Hah that box story is hilarious.

The actual automated fix should be during stock intake I assume. We ship international parcels with DHL etc and it's a clear stipulation there are NO BARCODES at all on the box apart from the mailing barcode that we generate. Being Amazon, nothing probably happened because they have more money than they need, but I assume they have similar rules and would be justified to ding the suppliers for this cost.

quickthrower22• 6 years ago

But Amazon isn't intentionally trying to lose money here.

timvdalen• 6 years ago

I hadn't realized that cardboard boxes were that expensive!

olalonde• 6 years ago

I'm surprised a guy in finance can't see the potential efficiency gains and economies of scale a delivery company could have over all restaurants having to operate their own delivery service. I don't know about DoorDash specifically (not in the US) but it seems obvious to me that those services are here to stay and they can be run profitably.

et2o• 6 years ago

Something just doesn’t make sense with this story. Ok, it’s possible doordash has accidentally mispriced a pizza. But why would they misprice a pizza but then pay the correct price to the restaurant?

icebraining6• 6 years ago

Because the person calling the restaurant to place the order gets the correct price. Why isn't it detected and fixed then? Probably a mix of bureaucracy and undermotivated employees; the call center people don't really know or care if DD is making a loss on purpose or not, even if they know how much the final customer actually paid.

salimmadjd• 6 years ago

Some background -

In my past life I started Crazymenu.com The idea initially started as a central place to host all the restaurant menus with the idea of eventually expanding it to SAAS tech layer for everything restaurant related. The idea ultimately pivoted into google maps for restaurant menus. Meaning companies would just pay me a service fee to incorporate these menus into their services (ordering food, review sites, restaurant apps, etc.)

I self-funded the idea and after my first beta launch (2006, I believe) I was pitching an angle investor (Mr. X) who years later became an early investor in Doordash.

Right away, Mr. X said why not go into online food ordering business and then may be do delivery, etc. I never liked the idea of dealing with all the transaction headaches and told him I wasn't sure about the idea and dealing with so many fragmented restaurant softwares. From what I could gather attending a few National Restaurant Association events in Chicago and speaking with lots of restaurant owners, I noticed two categories. Very small mom and pop operations, or small medium chains. All the small to medium chains already had invested into some technology layer (some were closed off) and unless you could integrate with them, there was no interest to working with you and the smaller mom pop entities were either too busy or they were so bombarded by all types of tech solution offerings that they didn't want to listen to you.

Years later when Mr. X had invested in Doordash I had private chat with him.

I told him in my opinion, restaurant delivery is restaurant business. Meaning that it'll be very hard to compete. On top of one huge exception. You never crave DoorDash, you crave pizza or burger or Chinese food.

When the OP says Dominos figured out the model as did lots of family owned Chinese restaurants. I can understand that.

I believe this is a very vertical business. For one thing it's mostly around the brand, and the brand experience. This is the same reason Starbucks avoided franchising (if you think about it, DoorDash is a bit like franchising a delivery business) as did In-N-Out. These smart people had already figured out the nature of building a food brand experience.

Getting a cold food, soggy pizza destroys the brand.

This is very different than Amazon or UPS delivering books. Because delivery of books or jackets doesn't impact the brand at the same level it does with food. Not to mention when you don't deal with risk of food getting cold you can really scale delivery by mastering routing and all the different things UPS can do with scale.

Ultimately, we either see a very vertical experience. Uber buying several popular food category chains (pizza, burgers, fried chicken, etc.) or the reverse, PEPSI's parent company buying UberEats/Grubhub or if there is a massive consolidations and Uber or Grubhub can charge in an economically sustainable way.

cletus• 6 years ago

Wow, that was great. And honestly good on them for profit-taking on this arbitrage.

The author likes to pin this on zero-interest rates ("ZIRP") and that certainly explains why the system is awash with cash but I'd say he's missing a key point here.

When I moved to NYC (~10 years ago) I didn't order delivery at all. Honestly it's a huge pain. To call someone up and try and communicate an order to someone who probably doesn't have the best grasp of English (no offense intended here). I just couldn't be bothered.

What changed was Seamless came along and suddenly I could order food and not have to talk to anyone. It was (and is) amazing. In NYC at least the restaurants are still handling deliveries (with Seamless anyway) so there's still that control. Seamless/Grubhub seem to charge exorbitant fees but that's another issue.

As an aside, this is a key factor in my use for Uber/Lyft: the fact that the process is seamless (pardon the pun). You order a car without talking to anyone, it arrives and it drops you off. There's no awkward payment step. No dealing with a machine that's broken. No card skimming. It just reduces friction.

This is the promise of food delivery platforms: they benefit the consumer in terms of discovery, convenience and the seamlessness of ordering and payment. You might point out that people get cold pizza because UberEats drivers don't have the bag and you're right. But that's not an unsolvable problem.

Oh and this is the first I'd heard of Grubhub replacing Yelp phone numbers with their own call center. More evidence that Yelp is a cess pool that needs to be flushed. It's sad Grubhub is engaging in this. We have enough rent-seekers. Thanks anyway.

Barrin92• 6 years ago

I honestly don't know if I'm living in a different world than everyone else but I've been ordering food and taking cabs all my life and I've never had to deal with any friction. Like, you call the pizzeria, tell them what you want and then some college student delivers your stuff, and if you order for more than 20 bucks it doesn't cost you anything. Not even being facetious, but what problem do these apps solve?

I also don't know how "not having to talk to someone" is a perk.

johntiger1• 6 years ago

Yeah, it seems like you didn't grow up in a big city?

LawnGnome• 6 years ago

I bet you have the same accent as most of the people you deal with. I do not, having moved halfway around the world, and doing things over the phone is often surprisingly painful.

xapata• 6 years ago

taking cabs

It all depends on where you're hailing and where you're going to. Also on what you look like. Drivers don't like some locations and appearances.

judge20203• 6 years ago

"Not having to talk to someone" is generally a perk for introverts.

hnick8• 6 years ago

I dunno, even at physical restaurants or cafes I often have issues where they didn't hear my order correctly. Just today I had a guy repeat my order (thank you to people who do this, it's the only way) and he'd forgotten the cheese. Phone calls to ethnic restaurants (as with GP, no offense intended) are another layer of trouble. With my local noisy Indonesian restaurant we had a 50% miss rate on our orders so usually just go in person now.

Written text is just so much nicer. And I can send the link to family still in the office or whatever and co-ordinate.

MattGaiser18• 6 years ago

I also don't know how "not having to talk to someone" is a perk.

For us introverts it is.

drewg123• 6 years ago

Not even being able to talk to somebody is a negative feature if you have dietary restrictions. A friend is vegan, and she often skips over items which could be vegan with a slight substitution which is not offered via the app, but which would be easy to ask for if she could just talk to a human.

Spivak6• 6 years ago

Being able to get food delivered from places that don't deliver.

I don't think the apps really add anything substantial for restaurants that have their own delivery network.

nicbou• 6 years ago

Yes. I used Yandex Taxi in Kazakhstan. I don't speak Kazakh nor Russian, but was able to get around in Almaty that way.

I have done the same with Uber in Poland, and with countless services in Germany before I learned German.

I really appreciate consuming a service at my pace, especially when there is a language barrier, a large order or alcohol involved.

Traster2• 6 years ago

This is like the iPhone SE conversation - there was always a big group of people who would tell you that the reason they buy the iPhone SE is because it's the smallest iPhone. But its very clear that the company making iPhones is certain that people buy the iPhone SE because it's cheap.

It's the same here. Everyone will always tell you that these knew gig economy companies are so much better! Their service is better, they're quicker, you don't have to deal with people, you can order whenever you want etc. etc. But actually, it's probably going to turn out it's just cheap.

It's very likely these services are basically used by 90% of people because they're cheap, and they're cheap because they're losing money to gain market share. The problem is that once they need to turn a profit, they have to drive up margins and now that $16 pizza needs processing fees and costs for the delivery driver - now it's $22. Or more importantly, your $8 starbucks order is now $13. So the second that the prices reflect the true costs these businesses are going to shed customers like you wouldn't believe. Oh and in order to try and curb those costs you're going to see some guy in a broken down car do a tour of the city delivering everyone else's food before yours gets to you.

cameronh90• 6 years ago

People here (UK) use these apps even though they're more expensive than when the restaurant handles the delivery. I never paid for a delivery in my life before Deliveroo/UE, but the user experience is so much better with them that it's hard not to.

For example, it's a little bit confusing how to find my place, so something as simple as not having to explain it every time I call up (and inevitably have it transcribed incorrectly) makes a huge difference in friction.

TeMPOraL3• 6 years ago

I think you're both right, there are two separate types of customers making the same choice. One group is more price-conscious, the other is more effort-conscious. I'm personally in the other group - I have less time and patience than money to spend on deliveries, so I'll pick an option based on seamlessness. E.g. I've been ordering food for years on aggregator websites instead of calling the restaurants, because this way I can input my order on a computer (vs. talking to a busy person in a noisy room over crappy cellular connection, which often enough ends in errors), and I can prepay the order. I don't carry much cash on me, and I don't enjoy the hassle of using it. And while some restaurants will allow paying by card on recepit, it usually involves one or two payment terminals shared between a bunch of drivers, which leads to longer delivery times and all sorts of other problems (I've had drivers forget or not be informed about the need to take a terminal with them). I'll gladly accept 10-20% higher price to avoid dealing with any of that.

It's a similar story for rideshares; I think the major benefit they offer over regular taxi is seamless payment that (almost) always works, and is always available.

deegles• 6 years ago

I'm happy to pay delivery fees to the restaurant. I'm less happy to pay fees to drive returns for growth-obsessed venture funds.

wdb3• 6 years ago

My Uber experience in London is never seamless you always end up calling them as they can't find you or wait on the wrong side of the road. Suddenly cancel when they are nearly where you are waiting. Black cabs is seamless with the right app

_bxg13• 6 years ago

This whole sphere of economic activity is a gigantic farce. It would be hilarious if it weren't so pestilent. The only upshot I can see is that it feels like people are finally catching on to it.

geofft• 6 years ago

How did we get to a place where billions of dollars are exchanged in millions of business transactions but there are no winners?

Simple. Capitalism is broken.

In order for capitalism to work, there has to be a meaningful profit/loss incentive. People who are doing the work must get rewarded if the work is done well and penalized if the work is done poorly.

We already started moving away from this many years ago with the growth of large corporations. When was the last time that you at your "capitalist" firm were aware of revenue and costs for the things you were working on in a more-than-superficial way? When was the last time you saw someone make a buy-vs.-build decision based on the actual numerical cost of the employees needed to run the project and not just handwaving? (When was the last time you even knew what the cost of the employees on your team was, given the widespread taboos about compensation?) When was the last time that someone who said "I saved the company X million dollars" got some proportion of those X million dollars? When was the last time that someone who needlessly made the company spend X million dollars in the first place paid for it?

The function of a big company is to abstract away the cold, unfeeling invisible hand of the market and protect people/groups who make unprofitable decisions. This is actually totally fine and good in the short term - nobody makes consistently good decisions, and insurance is a thing for a reason. You want people to take bigger risks on behalf of the company than they're willing to subsidize with their own paychecks, which is why individual artisans and professionals team up to form a company in the first place. But it's grown past that. As the article points out, some regional director somewhere is able to convince other people at the company that their work is profitable - with no hard link to whether the work is, in fact, profitable. And that scenario is entirely plausible for all of us; it's not specific to this one company in any way. If you're in the unlucky position where both you want to draw good charts and everyone around you wants to see good charts, there's no real way to figure out if you're wrong unless the company as a whole is dying, and there might be a host of reasons why it's not dying that have nothing to do with your decision-making.

And now venture "capitalists" have decided that this model needs to scale out from protecting teams to protecting entire companies. You can run a business for years without even attempting to make a profit and get acquired based on the potential of the business. No more messy realities of the market determining whether you are in fact profitable or not - what matters is whether you look profitable. And, again, this is genuinely good at small scale, because it allows new ventures to ignore bumps and potholes that would otherwise have ended a small company. But if you scale it up, it also allows new ventures to ignore driving straight off a cliff.

I expect capitalism to work very well if implemented right. But I don't know how we go from where we are today to actual, functioning capitalism.

somatic• 6 years ago

You say that capitalism is broken, but the capitalists are all doing very well, even as everyone else feels the pain.

If the capitalists are doing very well, then how can you say that capitalism is not doing very well?

To answer this question may require you to undergo a paradigm shift.

Think about it.

econcon• 6 years ago

Where I live in India, nearly 90% of the restaurants and hotels get their food from one place at rock bottom price.

And the restaurant/hotel the customer is dealing is responsible for arranging delivery and serving.

SergeAx• 6 years ago

If capitalism is driven by a search for profit, the food delivery business confuses the hell out of me.

The modern Silicon valley venture capitalism is not about operational profit, it's about company valuation.

abrookewood• 6 years ago

There's an episode of Silicon Valley where Pied Piper bankrupt an unrelated start-up using this method so that they can hire their developers.

tempestn• 6 years ago

Yep, this is the real world Sliceline.

JumpCrisscross3• 6 years ago

I cut this deal with my neighborhood Italian restaurant!

I texted the owner about being miffed they hadn’t told me they were on DoorDash. He replied. They aren’t. We compared pricing, and found the prices advertised are way off from what the restaurant charges.

So I placed a $5,000 order to the neighbourhood homeless shelter. DoorDash paid him over $20,000, and I get free pasta for the rest of the year. (My neighbours have also partaken.)

Glad to know it’s scaling. SoftBank has assembled a unique concentration of stupidity for itself.

ornornor2• 6 years ago

What was the deal? You pay 5,000, the owner gave you back your 5,000 and kept the 15,000 as profit from door dash? The owner made a massive profit and the shelter gets free food and it didn’t cost you anything?

JumpCrisscross3• 6 years ago

The owner made a massive profit and the shelter gets free food and it didn’t cost you anything?

We’re in the midst of a pandemic. The restaurant stays afloat, nothing more. The shelter got a donation, and I got promises of comped deliveries and catering.

It cost me $5,000; it cost DoorDash over twenty thousand.

curiousgal• 6 years ago

15000 minus the actual cost of the food.

pacamara619• 6 years ago

This reminds me of the scene in Silicon Valley where Richard bankrupts a similar delivery service that's not profitable in a specific use case by ordering a huge amount of Pizzas.

jimbob45• 6 years ago

This really makes me happy but I hope you delete this before it becomes mainstream and DD catches on.

taurath2• 6 years ago

I hope it goes mainstream and they all go under because nobody wants to pay their crazy prices while not actually supporting a restaurant

swyx2• 6 years ago

delete this before it becomes mainstream

ignoring the fact that this post itself is top of HN and going viral?

eru4• 6 years ago

That's capitalism as its finest.

Saudi money (via SoftBank) is paying for poor people's food (and also subsidizing their transportation, via Uber).

dvfjsdhgfv• 6 years ago

Frankly, after all these years I still don't get it. Are the Saudis that gullible? How much more they need to lose to understand they're being duped?

zappo2938• 6 years ago

The place where these companies intend to make their profit is on charging for the credit card transaction.

doublesCs2• 6 years ago

I've always dreamt of having a post of mine read in court.

Hi judge!

petee4• 6 years ago

In this case DD is essentially acting like a ticket scalper. And since DD screwed themselves, is there even a law broken?

SimonPStevens• 6 years ago

I don't understand how this works.

If your order to doordash cost $5000, why did they pay the restaurant $20,000? That would suggest their prices are 4 times cheaper to the customer. But I thought everyone complained they were more expensive.

Surely DD are still keeping their commission from your order?

What have I misunderstood?

patmcc• 6 years ago

Doordash seems to provide two different services.

1) Doordash has some deal with the restaurant, gets a commission on sales, fees, whatever.

2) Doordash has no deal with the restaurant, charges customer $x+y, buys food from restaurant at $x.

In the second case, Doordash may be charging much more than the menu price, if it things it can find customers who will pay it.

distances• 6 years ago

Did you read the article? This was covered there, though as a less extreme price difference.

swyx2• 6 years ago

if you ever apply to YC, this is your YC story.

morrbo• 6 years ago

I wish I could vote a hundred times. What a great thing to do.

asjw• 6 years ago

How much do you pay for pasta?

5,000$ of pasta would last me and my family until the end of my days.

At ~1-1.2 euros for half a kilo it's around 90 years worth of pasta (based on an average of 28 kilos per person per year in Italy)

wil4212• 6 years ago

I doubt he ordered dry pasta. Most likely he ordered 10 or so of every pasta dish on the menu.

What restaurants let you order dry pasta beside the ones in food halls?

ryanianian• 6 years ago

Shrimp scampi at the deli by me is like $16. Ordering for a family of 4 with just 2-3 meals a week would easily cost $5k+

bufferoverflow• 6 years ago

Why wouldn't the pizza place order $100K worth of pizza from themselves to themselves? They don't even have to make it.

gambiting• 6 years ago

I can only assume that such a large order would be eventually flagged by the system. But I imagine ordering 50 pizzas every night can be relatively "normal"(feeding the night shift or whatever).

mikeryan• 6 years ago

A Doordash delivery guy actually has to pick up the food though right?

This also does probably provide some legal cover as well.

lonelappde4• 6 years ago

texted the owner about being miffed they hadn’t told me they were on DoorDash.

Why would someone do this?

mattkrause• 6 years ago

If you knew the owner well enough to have their number, it doesn't seem totally crazy.

"Had no idea you did delivery! Boss just put in an order for a work event! See you Friday?"

setgree• 6 years ago

I've been thinking about this comment a lot today. It's cool that you have relationship with the owner of a local restaurant! I know the owners of a local coffee shop pretty well and it's been really interesting (and a bit depressing) discussing the economics of owning a small business with them.

And when you know your local business owners by name, opportunities like this emerge.

eli_gottlieb• 6 years ago

... so you basically used Doordash's algorithms to make Softbank donate $15k to your local homeless shelter?

That's fucking awesome. Way to go, man.

tripzilch• 6 years ago

It's funny when this happens in our industry. It's called a security vulnerability. And if someone were to write a blog article about finding it, but also exploiting the fault several times over for their own financial gain, we'd be all up in arms over it, right?

Even if the exploited party itself it shady as hell. Say they were a credit card scammer, someone found a way of conning them for money, does that for a while to make some $$$, and then proudly writes a blog article exposing them.

Maybe I'm missing something though. That's looking at it rationally (?), but part of me also feels like, screw Doordash.

pclmulqdq• 6 years ago

Nobody intentionally includes security vulnerabilities in a product. This is something that Doordash knows they are doing and have decided to do, not something they are doing accidentally.

Even taking a negligent security posture is not the same as intentionally including a flaw.

nie100sowny• 6 years ago

We really need a true crisis. Free market economy needs to let such companies to buncrupt. Lesson must be learned.

Unfortuanetelly looking what FED is doing, it won't happen soon :(

three14• 6 years ago

The real arbitrage opportunity is for a competitor to DoorDash to place orders through DoorDash, and pay the delivery person a small fee plus let the delivery person collect the DoorDash fee. You could scale this up to huge numbers.

Curious if doing so would survive a lawsuit. On the one hand, DoorDash could argue that it's unfair competition, but only by admitting that their deliveries are priced too low, which itself is unfair competition. I don't know how unfair competition is regulated.

quickthrower22• 6 years ago

What if you set up a fake Pizza website "Super Pizzas", that advertises the Pizza for $16. That site then places the order with DoorDash automatically.

Then Doordash will scrape "Super Pizzas" and sell those for say $12.

Then set up another site "Supper Pizzas 2" selling the $12 Pizzas, buying from Doordash, and then Doordash will scrape that and sell them for $9.

Repeat until you have a site selling $1 Pizzas, then get that posted on Lifehacker!

yoaviram• 6 years ago

Or serve a different version of the pizza place's website to the Doordash scraper with lower prices?

deadly_syn• 6 years ago

Wouldn't be too hard to do, use a PNG for your human menu and embed a "door dash" priced menu below.

blueblisters• 6 years ago

How would the competitor get customers to pay higher than what DoorDash charges?

roystonvassey• 6 years ago

Interesting. I always suspected this to be true but not the extent, especially the overall profits generated by food delivery cos. For e.g. one of India’s largest delivery co reported a loss that was double the revenue! [1]

The other way to look at this is to think of it as a global capital transfer mechanism, from the super rich to the “real” economy. Sure, it is not sustainable in the long run but while it lasts there is significant transfer of capital which appears difficult to otherwise do, thanks to resistance to capital taxes. I really do not know what to make of the incentives for fraud though.

1 - https://yourstory.com/2019/12/foodtech-startup-swiggy-loss-r...

azinman2• 6 years ago

Isn’t this fraud? What’s unclear to me is if it’s illegal, or just unethical.

lambentor• 6 years ago

the only viable endgame is a promise of monopoly concentration and increased prices

This is it! I've been involved with Foodpanda and Delivery Hero. The name of the game is, indeed, becoming the #1 player in the market. The tool of the game was M&A. That's what you see everywhere with Delivery Hero, Takeaway Group, Just Eat trading positions across the world. They are effectively cutting and slicing the world into countries and regions where each of them is #1 and the others don't compete. Such "collusion" creates incredibly profitable markets, as the #1 doesn't need to share 30% of top-line with Facebook and Google, can charge a 15% take rate to restaurants AND additionally, a delivery fee to consumers.

saos3• 6 years ago

Amazon just bailed on restaurant delivery in the U.S.

Yeah and Amazon just plugged £500m into Deliveroo in the UK. They are going for UK food delivery market and potentially Europe with that investment. Deliveroo is pretty amazing.

1. I can track my driver in real-time 2. Communicate with drivers via Whatsapp 3. Great range of resturants 4. Super convenient. Order comes usually within 30 minutes

TulliusCicero• 6 years ago

Are they? They were in Munich but then pulled out. Looks like only Lieferando still exists here, as far as I can tell.

saos3• 6 years ago

https://uk.deliveroo.news/news/amazon-leads-series-g.html

But it seems there has been some issues getting the funding past the CMA – https://www.gov.uk/cma-cases/amazon-deliveroo-merger-inquiry

I believe you're correct. Deliveroo did pull out of Germany.

nelaboras2• 6 years ago

so they have two possible endgames:

1) find a sucker (aka retail investors) that buy a loss-making stock

2) become a monopoly and squeeze everyone to get higher margins (kind of how booking.com pushes hotels to increase their standard prices so that booking can offer a discount; which you also get if you call the hotel itself).

RobLach• 6 years ago

I think I finally understand "growth hacking".

yftsui• 6 years ago

This reminds me of the SliceLine episode of Silicon Valley Season 5. https://www.youtube.com/watch?v=Txl90NEl92U

Its even better, DoorDash is doing this without even switching boxes.

tcarn• 6 years ago

So true. So many of these apps need to do some basic math and not "try and make it up with volume" if their gross margin is negative...

raverbashing• 6 years ago

I don't see why it's hard.

Probably because Grubhub and Doordash are approaching this with the "holistic mindset" of a "visionary" mind like the WeWorks founders. Hence we get behaviour like this which is probably illegal in multiple ways.

Provide your work at a fixed price per order. Or you might take a (transparent, explicit, of those who actually signed up for the service) commission, fair enough.

Providing a good service is hard on itself, but it won't distract you from all the other crap and won't alienate the people that actually make your service work.

simias• 6 years ago

I knew Doordash scraped restaurant websites. After we discussed it more, it was clear that the way his menu was set up on his website, Doordash had mistakenly taken the price for a plain cheese pizza and applied it to a 'specialty' pizza with a bunch of toppings.

If that's really what happened (sounds plausible) that means that you should be able to trick DD even more by designing a website specifically in order to confuse the scraper. Have some cheap dish listed at $50 but in a way that would be scrapped as $5 or something. As long as a human would have no issue parsing the menu and understanding the actual price I don't really see how you could get into trouble, it's DD's fault for having crappy parsers.

bootlooped• 6 years ago

I'm not sure I would call a scraper crappy if it was fooled by a site deliberately designed to fool it. It would be like calling somebody's vision crappy if they were fooled by an optical illusion.

Scraping can be an adversarial exercise, but not typically in that manner.

bambax3• 6 years ago

Now suddenly each trade would net $75 in riskless profit ⇒ $240 from Doordash minus ($160 in costs + $5 in boxes).

If you do this over and over, obviously you can use the same dough and boxes, so costs are just what you pay Doordash.

novalis78• 6 years ago

Reminds me of the discussion in ‘The Bitcoin Standard’ about zombie industries directly or indirectly build on top of unsound monetary policies. One could argue this capital burning colossi exist by virtue of access to a populations purchasing power / wealth. Instead of multiplying productivity and increasing living standards they stall progress.

vivab0rg• 6 years ago

Source please?

gandutraveler• 6 years ago

I remember the time when I self referred the shit out of doordash, caviar few years back only to stop because I started feeling bad about it.

burroisolator• 6 years ago

How does the author know it isn't the driver that will get the short end of the stick here? To put it differently, what would happen if the restaurant mistakenly charged the driver who is picking up the food more than listed and then the driver pays that mistaken amount with Doordash's credit card? Will they be penalized/fired once Doordash discovers the accounting error?

grumple• 6 years ago

It would be illegal to penalize the drivers, at least financially. I doubt the driver is given the choice of not buying the food based on price. If Doordash did have some way to penalize them, they could just bounce over to Grubhub or others. Doordash is advertising food at a given price - they must sell it at that price, regardless of price of purchase.

zeckalpha• 6 years ago

In another form of arbitrage with “substitute goods”, we’ve noticed restaurants with completely different menus on delivery sites than directly. We ordered anyway and the packaging was totally different. Someone is fulfilling orders for a fancier restaurant with generic food. I ended up throwing it out because I wasn’t comfortable with it.

ram1981• 6 years ago

The part of the article that shocked me was the Google hijacking. It seems Google is allowing it as a policy. Why screw these poor restaurants?

https://support.google.com/business/answer/6218037

mietek• 6 years ago

How did we get to a place where billions of dollars are exchanged in millions of business transactions but there are no winners?

“(…) What sphinx of cement and aluminum bashed open their skulls and ate up their brains and imagination?

Moloch! Solitude! Filth! Ugliness! Ashcans and unobtainable dollars! Children screaming under the stairways! Boys sobbing in armies! Old men weeping in the parks! (…)”

https://www.poetryfoundation.org/poems/49303/howl

overthemoon• 6 years ago

> Uber Eats is Uber's "most profitable division” . Uber Eats lost $461 million in Q4 2019 off of revenue of $734 million. Sometimes I need to write this out to remind myself. Uber Eats spent $1.2 billion to make $734 million. In one quarter.

These might be stupid questions, but... can this go on forever? No, right? Is there precedent for this? How long of a horizon do companies like this expect to be a money toilet? What happens to everyone else if companies like this collapse? Why hasn't it happened yet?

gvb• 6 years ago

The foundation is immense "VC" funds that are throwing money at (often "unicorn") businesses that are using the money to grow their currently unprofitable businesses. The premise is that, once they are big enough to drive all the competing businesses out of business, they will be able to transition to being profitable.

The poster child of these "VC" funds is Softbank.

The foundation is crumbling. https://www.cnn.com/2020/05/18/tech/softbank-earnings-intl-h...

When these companies collapse, the investment funding them will have to write down the losses the "unicorns" have built up, and there will be a lot of investors that will be sharing in that hurt.

OwlsParlay• 6 years ago

I don't get the opening story. If his restaurants weren't delivering, who was Doordash picking up from? Did they just get doggy-bags to go?

rhodysurf• 6 years ago

yes

linsomniac• 6 years ago

"Isn't business supposed to solve problems?"

This is a common misconception... Capitalism is only designed to solve one problem: maximizing shareholder value.

neap242• 6 years ago

I've noticed the opposite phenomenon at a popular restaurant in Austin. The menu through DoorDash is priced higher than the normal price. Curiously, the restaurant's own, in-house delivery system is the same price as dining in. This is when I stopped using DoorDash...when I discovered that using the restaurant's own delivery system is just as easy and maybe cheaper.

fokinsean• 6 years ago

Which restaurant? (I live in Austin)

neap242• 6 years ago

Tarka

blackboxlogic• 6 years ago

Sounds like the driver is the loose end. I wonder if the author considered becoming a Doordash driver just for the arbitrage transactions.

kyleblarson• 6 years ago

My initial response to this headline was anger as I assumed that the arb would inevitably screw over the small business owner. That anger quickly turned to glee upon reading the first couple of paragraphs!

lonelappde4• 6 years ago

Saying that delivery can work for most food in most places just because dirt cheap pizza and super dense NYC can do it, strikes me quite naive.

spv• 6 years ago

It's kind of hard to imagine how DoorDash execs are going to explain to those investors who find this on HN / elsewhere and ask them what the eff is going on ?

foobaw• 6 years ago

i know no lawyer wants to provide conclusive opinion here, but this has to be illegal

vowelless• 6 years ago

So funny how this mirrors the pizza app thing from HBO Silicon Vally.

akeck• 6 years ago

Since at a high level this seems like mis-assigning VC funds, could someone who does this arbitrage eventually be sued by Softbank to recover VC funds?

victor106• 6 years ago

The owner insisted the driver take the pizza in a heated bag so the customer didn’t get cold pizza, but leave an ID so the driver would be compelled to return the bag.
Doordash was causing him real problems. The most common was, Doordash delivery drivers didn't have the proper bags for pizza so it inevitably would arrive cold

What this means is that the restaurants really care about their customers. The delivery really really don't care.

I spoke with a few restaurant owners in NYC and they all universally hate the delivery companies. The restaurants are charged anywhere between 30% - 40% which is a ridiculous amount.

There's another company in India called Swiggy. I used to travel to India and would frequent a few bars in Bangalore and Hyderabad. All of them absolutely hated them for the same reason.

blackrock• 6 years ago

Is there really a monopoly play here for food delivery?

Granted, DoorDash can possibly be used for other kinds of delivery, like medicine and groceries.

It seems the cost of labor and transportation is too high to make it feasible.

But the actual play, might be robotic. To first take over the manual market, and then, conduct research into automated delivery services, like aerial drone delivery, or robotic dog delivery.

Once that technology is viable, then phase out the human delivery people, and replace them all with robots.

I actually never thought something like this would ever be economically viable. And then one day, a pandemic hit the entire world.

WorldPeas• 6 years ago

Maybe they should rebrand as sliceline.

monkeydust• 6 years ago

Nice - this made BBC news! https://www.bbc.co.uk/news/technology-52724062

Doordash and Pizza Arbitrage

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