[dewitt]

The price seems high for something Square presumably needed to unload. Who else would have been bidding it up? And why are food delivery businesses still in a bubble?

That's not a slam on businesses in a bubble phase, either. Many industries go through one before settling into a steady, sustainable state. Just surprised that delivery is still in one, while related industries, like ride-share are cooling off.

[dheera]

It's probably a mostly equity deal, i.e. most of the $410M is not real money. They recently raised $600M and I doubt they'd spend $410M of that on an acquisition.

It would be more interesting if we knew how much they actually paid in hard cash; the rest is effectively just promises of money in the form of a valuation that hasn't materialized in liquid form yet.

[ec109685]

The same promises of money that their investors paid money to acquire, so it doesn’t seem right to just dismiss the equity value.

[dheera]

Sure, not dismissing it, but it's not the same value. It's not hard cash that the founders/employees can spend, so it's mostly useless in terms of value for research, charity, self-funding new ventures without VCs, investing in other companies, side projects, or whatever else you would do with hard cash.

If you're an early employee of Caviar and got $1M in AMZN stock or options? You could sell it for cash. DoorDash stock? It could be $0 in a few years for all you know, and you quite possibly have no avenues to liquidate it for anything now.

[4ntonius8lock]

I'm guessing like most things in the US: investors are looking to consolidate so they can get into monopolistic positions and extract resources from the market once they have it cornered. The risk of legislative intervention into such anti-competitive market manipulations is virtually zero.

If they get big enough, next time they steal wages, they won't have to back down. Heck, if they get big enough, they can steal wages, drive the company broke, and then get a bail out to pay the higher ups that are making the decisions that drove the company into the ground in the first place.

We then have the gall to blame Adam Smith, who didn't even believe in separation of funding and management (i.e. he didn't believe in joint-stock companies)

[wpietri]

I'm not sure why you're getting downvoted. The valuation of quite a number of hot companies doesn't make any sense unless they can extract oligopoly rents.

As an example, take Uber. The Economist recently asked whether it can ever make money. [1] And events in the months since don't make it any clearer. [2]

I think tech's wave of quasi-monopolies (Google, Facebook, Amazon) gave investors the notion that similarly dominant players could be established in non-tech fields if they were dressed up as technology plays. So we see absurd amounts of cash being poured into things like Uber and WeWork. Unlike the previous players, we also see them going to IPO while they're still losing money.

And sadly, I think you're right about regulatory laxness. Antitrust regulation has been out of fashion for a long time. And if we see it come back, it could well be more an authoritarian political tool than any actual attempt to ensure competitive markets.

[1] https://www.economist.com/business/2019/04/27/can-uber-ever-...

[2] https://www.economist.com/business/2019/04/27/can-uber-ever-...

[4ntonius8lock]

> And if we see it come back, it could well be more an authoritarian political tool than any actual attempt to ensure competitive markets.

I think for there to be political will to redistribute the power that concentrates in monopolies, there needs to be a clear rallying cry.

When you look at the trust busters of the 20th and 19th century, they had a clear rallying cry from the masses: improve working conditions.

I wonder if with automation taking over, the new rallying cry will be UBI? I mean, to pay for such a thing, you need to redistribute social wealth, which is now concentrating in monopolies.

People notice the concentration of money, and the lack in other parts, more than the particulars of how markets work. Then the rallying cry brings about change in unexpected ways, maybe? I don't know, but I'm hopeful.

As to getting downvoted, I'm not surprised, my take: Many people in tech now are very idealistic and have a lot vested into the companies they work with. They truly believe door dash is about 'empowering small businesses' (or whatever pretty words their employer has on the about us).

And the thing is, doordash does do that. But the reason for it's valuation, and the ultimate purpose of the investors, is rent seeking. Providing service is the way to get people hooked, it's a secondary consideration for these investors. So anything that directly or indirectly highlights this discrepancy between what the workers are trying to achieve and what the ultimate company beneficiaries are trying to achieve, will be viewed with hostility by those who so truly want to make the world a better place. Which I think is the majority here. :)

[rolltiide]

What are you talking about? Its awesome

Intervention? The government only discourages anticompetitive practices. Literally buying a competitor is not one, its subject to approval at some amounts, but is not anticompetitive behavior, as in predictably by the rules.

There should be enough role models by now to dissolve whatever egalitarian promise you were fed in elementary school. Why even waste any breath on these completely ineffective set of rules, when you already know the playbook, you spelled it out! Play those cards man, generational wealth is knocking at your door

[mylons]

food delivery service is blowing up because it's still extremely inefficient in the USA. you can get _anything_ delivered in Hong Kong for about $1. some hong kongers don't even have kitchens and live like that for years.

travis kalanick is investing millions of his own cash into this space.

[henryfjordan]

The density of HK is not comparable to basically anywhere in the US, except maybe just Manhattan. The labour sources are also a lot cheaper.

There's room to improve in the US, like making kitchens without the attached restaurant more prevalent, but as long as you have to get in a car to deliver the food, there's going to be the same problems the rideshare industry faces.

[pradn]

New types of restaurants are popping up:

1) Ghost kitchens that only serve via delivery apps. You can save on rent by setting it up in an area with no foot-traffic. You can also get economies of scale.

2) Restaurants with dedicated entrances for delivery drivers. Baar Baar in NYC has a separate place where delivery workers can wait. In other restaurants, they have to wait in the limited dining area. One hopes that the workers still get to use restrooms & get some water, etc.

[notyourday]

> 1) Ghost kitchens that only serve via delivery apps. You can save on rent by setting it up in an area with no foot-traffic. You can also get economies of scale.

You can't. This is the kind of a mistake that all first time entrepreneurs make. Delivery costs too much money. Logistics of getting your labor force to your kitchen is a nightmare.

> 2) Restaurants with dedicated entrances for delivery drivers. Baar Baar in NYC has a separate place where delivery workers can wait. In other restaurants, they have to wait in the limited dining area. One hopes that the workers still get to use restrooms & get some water, etc.

This was tried in NYC during first dot com. Remember purple shirts? They had a competitor with green shirts. That's the unproductive spaces. Rent hikes wiped those out.

Edit: Blind downvotes are laughable. Go walk into your local pizza place and talk to the owners. They will tell you why they are slowly dropping off all the apps. They are giving equivalent of a 20-30% discount in fees for the area they already deliver in.

Ghost kitchens are mostly scams. The ones that aren't are ran out of commissary commercial kitchens that cost an arm and a leg. The "ghost kitchens" are mostly not really legal, sometimes ran out of a house, marketing same stuff under different names. Most of the restaurant overhead for small places does not come from the rent of the floor space. It comes from the rent of the kitchen and compliance with the health codes. And, unlike say taxi commissions, health departments take no crap, which is why the ghost restaurants disappear rather quickly.

It is the "no one did it before" idea of people who have never ran restaurants. It always flops. If it did not, Union Sq Hospitality would have been doing it for years.

[wpietri]

I'm not sure why you're getting downvoted. A beloved restaurant near my house is closing down, and the owner is pretty clear about how ugly the economics of delivery are: https://missionlocal.org/2019/05/custards-last-stand-mission...

[pkulak]

Whoa, I had no idea the commissions were that high.

[chipotle_coyote]

I'm not sure why all the downvotes here, either. In the SF Bay Area, several companies have tried to be "delivery only restaurants" and they've mostly all been failures -- some spectacular VC-assisted flameouts, some quiet fades.

[bardworx]

Ghost kitchens may be scams but I know at least of one QSR in Manhattan that does them successfully. In some instances they are quite profitable if you generate the volume.

Your commission is also a bit off, perhaps you speak from full service experience?

While true that base comm is 20-30, those numbers are always negotiated down. Grub/Seamless will take as low as 12 from high vol regional leaders while UberEats made some deals that are supposedly really low (McDonalds). I don’t have exact numbers but from my recollection they mentioned it in their S1.

While Danny Myers is quite smart, USH isn’t a barometer for the entire industry as his focus is more on full service.

[notyourday]

> Ghost kitchens may be scams but I know at least of one QSR in Manhattan that does them successfully. In some instances they are quite profitable if you generate the volume.

It is a temporary fluke. If Chinese take out operators that are able to do razor thin margins and nearly completely unpaid labor force cannot make them work then no one can make them work

> While true that base comm is 20-30, those numbers are always negotiated down. Grub/Seamless will take as low as 12 from high vol regional leaders while UberEats made some deals that are supposedly really low (McDonalds). I don’t have exact numbers but from my recollection they mentioned it in their S1.

It is a creative lie by omission. Same kind of lie that Grubhub had when it forgot about the $$ it charged restaurants for answering phones that Grubhub setup.

There are maybe a dozen chains (McDonalds/Burger King/Chipotle/Qdoba/Subway/White Castle, etc) that can negotiate $1 fee. Your pizza place, your taco place, your take out sushi joint don't have this ability. If they did then the VCs would not fund DoorDash or GrubHub.

> While Danny Myers is quite smart, USH isn’t a barometer for the entire industry as his focus is more on full service.

Have you heard of Shake Shack?

[mytailorisrich]

> Ghost kitchens are mostly scams.

They are not. They are just a different model than a standard restaurant.

What I have observed in my area (UK) is that instead of expanding by setting up a new branch in the costly centre of town, some chains work with Deliveroo to open a ghost kitchen in the industrial area.

That allows them to expand to a new town while saving on capex.

[notyourday]

> They are not. They are just a different model than a standard restaurant.

They are not. It is called commissary kitchen. Has been around forever. Those are the kitchens that support food trucks. Or the kitchens that support prepared food not made on premises in supermarkets. They don't work for a-la minute production even if a-la minute is just used to load it into driver's gear.

> What I have observed in my area (UK) is that instead of expanding by setting up a new branch in the costly centre of town, some chains work with Deliveroo to open a ghost kitchen in the industrial area

That simply means real estate has not adjusted to it. It will.

[arbitrary_name]

Can you elaborate on the delivery costs and employee travel aspect?

Surely by selecting a location that balances low rent versus proximity to residential areas you could lower operational costs while still ensuring staff could get to work and keep delivery costs low? I get that running a restaurant is a complex and risky business, but i dont think youve really addressed why a delivery only kitchen would fail consistently.

[notyourday]

> i dont think youve really addressed why a delivery only kitchen would fail consistently.

It would fail consistently because it has a worse dwell time compared to a comparable restaurant that also does take out while providing no real advantages. There are just no margins for error in a restaurant business. If your competitors dwell time is 10 minutes and yours is 30, you are done.

Here's is why the proximity to the residential area is important: kitchens are staffed by the group of people on the lowest tier of the economic ladder. These people use public transportation to get to places, not cars. The industrial zones where the rent is cheap aren't accessible easily via public transportation which means the kitchen staff has problems getting there, which in turn means that it selects other places.

If an industrial area is easily accessible by a car from the residential areas which is what is necessary for it to be a good source for deliveries then the rent in that area is only slightly lower than the rent in the residential area so there's really no win at putting the kitchen there. To get a win on rent one needs to put it 20-30 minutes away where the rent could be significantly cheaper. Except that it means that it takes at least 30 minutes to get to the border of the residential area with the food, plus additional 10-15 minutes inside the service area, which means the delivery only saving money by putting the place in the cheaper industrial area restaurant has the following minuses:

1. Difficulty to get kitchen staff 2. 45 minutes of driving to get from its kitchen to an average customer if the driver is immediately available at the location [ the drivers is not at the location: the driver is probably at the transit somewhere in or around the residential area so the turn around becomes at best ~1 h ]

It's competitors located in the residential areas:

1. Don't have the logistical problem at hiring staff 2. Can get food delivered in sub 25 minutes of driving

The only positive for the outskirts kitchen is ~20-30% at best save on the rent.

[arcticfox]

Dismissing things in 2019 by referencing that they were tried in the dotcom bubble ... Two decades ago ... Is not a very powerful argument

[notyourday]

> Dismissing things in 2019 by referencing that they were tried in the dotcom bubble ... Two decades ago ... Is not a very powerful argument

Cost structure has not changed in restaurants that do take outs.

Delivery services in the areas where they ( delivery services ) could be popular and are popular solve a non-existent problem for restaurants ( delivery ) by eating into restaurant's profit margins. Not only that, by longer-term delivery services are terrible for restaurants because suddenly every restaurant in 1-2 mile radius even in the most high density city becomes a competitor while the margin is lower.

[setr]

Isn’t the whole point of history... to learn from it?

[wpietri]

Are you suggesting that something changed to make this different? If so, what?

[mylons]

HK was just an example. it's true for most/all chinese cities.

[spullara]

Most/all Chinese cities are denser with cheaper labor than any US city so the point stands.

[dannyr]

Metro Manila is not as dense but delivery here is so cheap. Grab and Lala are huge in Manila.

[threezero]

Labor costs in Manila are much lower than Europe or the US.

[monomyth]

Are you sure about the first point?

https://en.wikipedia.org/wiki/List_of_United_States_cities_b...

Neither Shanghai or Beijing would make top 20 on this list

[xmprt]

Did you even click on one of the "cities" on that page? The size of Guttenberg is 0.196 sq. miles. It's a tiny part of a city in a small state. You're comparing apples to oranges. A more reasonable comparison would be all of New York City or all of Los Angeles to Shanghai which would be more interesting.

[chimeracoder]

> HK was just an example. it's true for most/all chinese cities.

Chinese cities have access to incredibly cheap labor, far more so than most cities in the US or Europe.

[dheera]

Yep, where I am $15 meal on UberEats costs about $22.50 delivered as of right now.

[anbop]

Hong Kong is a cube and the US is a plane. Delivery costs are not comparable

[pkaye]

The fact that Hong Kong is one of the most densely populated areas of the world does help in this regard.

[simonebrunozzi]

I think you meant to say that Travis is investing millions of his fund's cash, NOT his personal money. Is that correct?

[deminature]

His fund is entirely funded from personal cash, so it's broadly the same thing.

[simonebrunozzi]

Ah, I didn't know that. I thought there were other LPs in the fund.

[mruts]

A man gotta have a hobby I suppose..

[paulcole]

Talk about a HUGE misunderstanding about a HUGE amount of the United States.

A variety of restaurants just doesn’t exist in many places. It’s fast food, fast casual, and maybe a couple of local pizza/taco places.

Beyond that, good luck.

[ethbro]

Presumably we're not talking about Shoney's country, if we're talking about food delivery service models.

Incidentally, that was my first estimate for how far in the country I was when I travelled a lot for work: "How many reviews does {insert fast food restaurant} have on Yelp?"

Turns out, people only leave lots of Yelp reviews for Taco Bells when that's the only thing around.

[loceng]

They make a lot of profit, recycling it buy up and coming startups to maintain market share and the business model.

[MegaButts]

> They make a lot of profit

I have always heard food delivery as a business is a great way to lose money. Do you have any examples of companies doing it profitably?

[AmericanChopper]

Different market, but Gojek does it profitably. They do delivery, ride hailing, and a bunch of other stuff, and all of their segments are profitable, except ride hailing. They also have a slightly different model, which might not work in other markets. They don’t need to onboard merchants in the same way, because with them the driver pays for the order, and then the customer pays the driver, either in-app or with cash.

[bduerst]

Interesting business model, but Jakarta is insanely dense (largest city in APAC) which is probably why its more profitable. In the U.S. you have urban sprawl and suburbs, which increase variable costs of delivery.

[AmericanChopper]

Jakarta has ridiculous urban sprawl, has worse traffic than any city in the US, and floods for months in the year. I lived there for years, it’s much harder to get around than LA or NY.

[bduerst]

That probably explains why their model has the driver taking on the liability then.

[bardworx]

Unit economics on food delivery sucks (if that’s your only business)...too many inefficiencies with travel to/from (time wasted w/empty hands).

Food delivery as part of a QSR can be profitable but most businesses don’t track margins efficiently enough to know the difference.

[SilasX]

Every pizza chain.

[jonknee]

They make money selling pizza (super high margin), not at delivery.

[SilasX]

It's a distinction without a difference. It's not like they lose money by offering the delivery service, so they've found some model where delivering food is profitable, it's just that the model involves a tight coupling with the food producer.

It might be more accurate to say that food delivery as a separate business from producing it is hard to profit on.

[JustSomeNobody]

Unless you’re Papa Johns and you tack on a delivery fee that doesn’t go to the driver.

[loceng]

Too late to edit my original comment to clarify: the incumbents are profitable, have enough revenue to recycle into buying up new competition in existing and different markets, keeping the their position and business model alive.