[vkou]

Well... That's a viable business model, if you want to run a family pizza shop, and have a 50% chance of going out of business in two years.

I don't understand how anyone could think it has the margins to pay engineers, founders, and VCs.

[calbear81]

I can see how these businesses rationalize short term losses with a bet on a long term play that consists of one of the following outcomes:

1) Monopoly - If they can get enough lock-in on customers, they can outlast their competitors and then eventually move the prices up without losing customers (since there would be few viable alternatives).

2) Economies of Scale - In many businesses, the marginal cost does go down once you scale up significantly. They probably expected to cut the cost of food production significantly with volume pricing on raw materials and perhaps more automation of the cooking processes.

I think all of these services understand that this is a low margin business so you have to make up for it in high volume and short term losses are acceptable if you will win out eventually and increase the margins.

[vkou]

I have a hard time seeing how you can get a monopoly on restaurant food/fast food. There are few barriers to small-scale competition, and it's very easy for your competitors to differentiate their offerings.

If McDonalds were to buy up every competing fast-food franchise in an area overnight, it'd be just a matter of time before somebody would open a Kurger Bing across the street.

Speaking of economies of scale, those are the kinds of economies of scale you need to compete with to make it big. You need to own half of your supply chain - which seems to be an anathema to VC-funded businesses.

A better question to ask is: Why aren't established food franchises, who own their logistics networks, and can compete on price, not interested in getting into this game? Perhaps they are all missing the forest through the trees - or perhaps food delivery-as-your-core-business is a race to unprofitability.

Now, if you do think that they are missing the forest through the trees, why not have your startup aim for a partnership with Subway, where they handle the food, and you handle the distribution?

[calbear81]

I thought DoorDash was trying to be the behind-the-scenes logistic network for handling distribution for chains like Subway, etc. It's a smart move, why not let the stores own their own brand but use a 3rd party for doing the delivery?

[shrikant]

Are there any examples of (1) actually ever happening in practice?

[calbear81]

I believe this is Uber's strategy, no? Basically sell at a loss and force your competitors to follow suite (and lose money even faster) which in turn drives them out of business leaving only Uber as the dominant player in a market.

[yishanl]

Airport terminals where there is only one "cafe"/snack kiosk.

I met Sama at one once. He was incredibly humble.