Posted on November 29, 2020 by Scott Shuda
It seems that we have all grown accustomed to the business model that loses money with every order, but makes it up on volume. Said another way, we’ve all seen how newly-innovated business models use venture dollars in a race for market share. Early losses are seen as the price necessary to achieve the upper-hand by becoming the recognized leader in a new category. Uber beat Lyft; Constant Contact beat Vertical Response, etc.
So now come the food delivery companies.
And it is hard to imagine anything better for this emerging business model than the shutdowns and lockins associated with Covid.
Zachary Davis, owner of The Glass Jar restaurant group in Santa Cruz, Calif., said he intentionally avoided working with food-delivery apps before the COVID-19 pandemic because the costs to his business just seemed too high.
But when his county issued shelter-in-place orders, “we were effectively shut down. We closed for a couple of days, took stock and realized it was the only way to keep our business open,” he told MarketWatch.Market News (tdameritrade.com)
Food delivery has skyrocketed in 2020:
DoorDash Inc.’s seeks to capitalize on its current leadership position in the rapidly-growing $5.5 billion revenue sector, filing for an initial public offering. While the companies are seeing a surge in business, their costs remain too high to post any sustained profit. And the other stakeholders involved, such as the restaurants, drivers and cities, are looking to either cap the fees the companies are allowed to charge or to get their fair share of the companies’ revenues.
Beyond takeout, Uber and DoorDash are doubling down on delivery on multiple fronts, increasingly competing with Amazon Inc. (AMZN), Walmart Inc. (WMT) (which has unveiled Walmart Plus, a subscription-delivery service) and other stores that deliver. Perhaps to highlight the growing ubiquity of local delivery, or to buildup goodwill, Project DASH was launched at Thanksgiving with the goal to team up with and empower community organizations to leverage DoorDash logistics to increase access in their communities all year round. Earlier this year, smaller Louisiana-based food delivery company, Waitr, partnered with the United Way of Acadiana in helping to feed families affected by Hurricane Laura.
Still, the current wisdom is that most restaurants hate the delivery apps.
“The worst thing that has ever happened to us is them,” said Mathieu Palombino, owner of a small New York City-based pizza chain. Palombino used to do just fine with his own delivery fleet, he said. But now, he feels that opting out of Seamless is not an option. If you’re not on Seamless, “you no longer exist online. You’re not there.” Because so many people order through the app, turning it off would mean losing about 80% of his business overnight, he said.
Restaurant operators complain that third-party delivery providers like Seamless, DoorDash and Uber Eats are prohibitively expensive….[charging] restaurants around 30% per order. But profit margins in the restaurant industry are often razor-thin, so these fees can wipe out the restaurant’s profits or put them in the red. And if they choose to outsource delivery to these platforms, restaurants also hand off valuable customer data and control over how delivery orders show up at their customers doors.Restaurants hate delivery apps like Grubhub and Uber Eats. So they’re turning to these alternatives – CNN