[jpdaigle]

I'm kinda surprised that food delivery apps and ride-hailing apps are all money-losing. Why?

It's a modernization of an already-proven business model. Chinese food and pizza was orderable by phone, and delivered for free or a small fee, 30 years ago.

So, the pizza restaurants proved that there's enough margin in a 25$ pizza to pay a minimum wage driver to drive it to your house. Delivery platforms come in and break this up: instead of the restaurant having someone on payroll to deliver orders, you just outsource that to another party (and pay them a fee, which is passed-through to the customer, and replaces money you would've paid the on-staff driver otherwise).

Why can't the food delivery companies provide delivery services for basically the same total cost as before, and subsist on extracting a small percentage of the value, which is freed up by the massive economy of scale that they can create by aggregating orders from several restaurants into a single pool?

Ditto for Uber... it's possible to operate a taxi company profitably, and has been for a hundred years. Shouldn't Uber have basically the same economics / cost per mile as a traditional taxi company, except be more efficient thanks to top-notch demand prediction that no local taxi company could ever build?

[com2kid]

> It's a modernization of an already-proven business model. Chinese food and pizza was orderable by phone, and delivered for free or a small fee, 30 years ago.

Different business model.

Drivers went back and forth to a single location, and had a fixed delivery radius. A driver who wasn't delivering could also be helping out at the restaurant.

Orders could be batched up, go and deliver multiple pizzas in a row.

Uber Eats is super inefficient, drivers aren't based at a restaurant, the delivery radius is much larger, density isn't taken into account, and orders aren't batched up from a single location.

Or to put it another way, I live in a major suburb of Seattle. All the years prior to Uber Eats, my only delivery options were Pizza from a handful of places. That is it, they had the scale, and I was in their delivery radius, those small # of restaurants had determined it was profitable to deliver to me.

Uber Eats comes along, and now restaurants that, honestly, are far enough away that I wouldn't consider driving to pick up food from them, are available to deliver to me.

Of course none of that is economically feasible. As stated above, Uber Eats is already less efficient than directly dispatching from a restaurant. In super dense areas (e.g. NYC, SF) maybe couriers can be kept so busy that bouncing from place to place all night long to pick up and drop off food makes sense, but in the suburb of a third tier city? No way is that a good business model.

[arrosenberg]

No, not really surprising. Uber used classic anti-competitive pricing tactics to drive competitors out and consolidate market share. As the marginal acquisition cost of a customer declined, they had to start burning more and more cash to keep their market share. In order to stay solvent, that money had to come from somewhere. Some of it comes from VCs, but alot of it comes from the "efficiency" of squeezing drivers, offloading the cost of maintenance and insurance, etc.

The only innovation was exploiting regulatory sluggishness to nationalize the taxi monopoly instead of a series of regional (and heavily regulated, for this and other reasons) taxi companies. I'm also not sure that Uber has a significantly better idea of what demand is compared to the New York taxis who have been doing that business for ~100 years now. None of this is to defend the taxi companies either - Uber blew up in popularity for a reason, but they aren't profitable because their economic model doesn't work if they have to pay their workers fairly.

Food delivery seems more straightforward as a largely unnecessary middleman, but comes from the same broken, VC-subsidized model. They acquired customers using anti-competitive pricing models, then they lost customers as they started charging the full cost of service. In addition, the food delivery companies have less incentive to perform, because the restaurants take the blame when something goes wrong. None of that is efficient, or worth the tax being placed on them. I don't think very many restaurants are benefiting from an increase in business, and the companies aren't making money by lowering costs - they add huge fees to every order, so things cost 50-60% more than they would if you picked it up yourself.

[kqvamxurcagg]

"their economic model doesn't work if they have to pay their workers fairly." Bingo. Enjoyed reading your take on this. You should consider publishing an essay on this.

[simonh]

I think the reason is that some foods are cheap enough in materials, quick enough to prepare and maintain their edibility in transit that they are conducive to home delivery. Those foods have therefore been available for home delivery for some time.

Pizza has very cheap ingredients and has a consistent highly transportable form factor. A kebab (Schwarma) contains a lot of expensive meat and will fall apart in transit. Therefore pizza has long been available for home delivery and kebabs haven’t.

I suspect a lot of restaurants are willing to stay open using deliveries just to stay open, even if they get no profit of make a loss, just to stay open. At least they get to pay some of the rent, keep staff and hopefully keep a customer base until they can open properly again.

[oldgradstudent]

It is not clear companies like Uber have any economies of scale or lower costs.

Hubert Horan made this claim in a (very long) series of articles starting in 2016. He based these claims on the history of the taxi business.

https://horanaviation.com/publications-uber

It agrees with my biases so I think he's right.

[stefan_]

Notice that Uber is facing much the same, just at more than twice the amount. The UK correctly decided they are a transportation provider and they will have to pay VAT on the services provided, not the pseudo small businesses of their fake contractor drivers:

https://www.icaew.com/insights/viewpoints-on-the-news/archiv...

[908B64B197]

> Ditto for Uber... it's possible to operate a taxi company profitably, and has been for a hundred years. Shouldn't Uber have basically the same economics / cost per mile as a traditional taxi company, except be more efficient thanks to top-notch demand prediction that no local taxi company could ever build?

Owning taxi medallions was a pretty profitable business. Driving? Not so much.

Basically the medallions were often rented to middlemen who would also maintain cars and then rent them for the day (or night, a lot of these cabs were on the road 24/7). All paid upfront each night by the driver who then had 12 hours to try to break even and get a profit. No guaranteed minimum wage here.

[bpicolo]

Managing an enterprise doing it at scale requires a larger-than-small percentage of revenue. Catch 22.

Also note that plenty of delivery workers have, historically, been paid under-the-table. Can't get away with that if you're uber

[ghaff]

And deliveries were historically mostly for a small class of food items where it made sense--mostly pizza and Chinese--for various reasons.

[bpicolo]

I definitely don't understand the demand for soggy fries and burgers at 60% upcharge, but to each their own ;)

[ghaff]

I have a free subscription through one of my credit cards to one of these delivery services--which I've never used. I noticed they have a Five Guys listed. But they're 20 minutes away. Whenever I've entertained the thought I've told myself to just pick up a pound of burger meat and grill it because I'd hate the result of the delivery.

[kqvamxurcagg]

It is possible to do this profitably. However the app companies are more interested in spending marketing dollars on discounts with the end goal of becoming a monopoly over the market. The end goal is to restrict customer and restaurant choice so they can charge both parties and take their cut.

They will spend big over the next couple of years to see which markets they become dominant in. Once the land has settled they will do deals with competitors to exit certain markets so each can extract margin from that geography.

[stefan_]

Ding ding ding. It isn't even just the app companies; there were a ton of S-1 postings on HN this and last year of companies with cost of revenue a multiple of revenue. They were spending $3 to get $1 in revenue and claiming customer lifetime would make up for it.

[kqvamxurcagg]

For things like SaaS I don't see that as too harmful to society. However when the goal of spending more than revenue (funded by VC or PE) is to achieve a monopoly over that market by driving out competitors it sounds like a case for regulatory intervention.

[staticcaucasian]

I think this is making clear how many restaurants were only making margin on the up-sells like beverages. At the high-end it's alcohol and dessert and at the low-end it's soft drinks and packaged snacks. It's extremely often discussed that your fancier restaurants live or die by their bar.

[mc32]

I had the same question.

I guess when you pay a part timer to deliver you’re not paying for the added overhead for a whole new division of highly paid engineers, marketing folks, advertising, expansion budget, underselling, etc.

[cameronh90]

You'd think that the economies of scale would work in its favour though.

Or would literally just running a giant call centre that manually routes orders/drivers be more efficient, like in the old days.

I just can't figure out how Uber Eats and Deliveroo charge higher fees, underpay their drivers and have 10000x the scale, use technology to reduce costs - yet still can't make a profit in a proven market. It's mind boggling.

[com2kid]

> yet still can't make a profit in a proven market. It's mind boggling.

Because they let me order food from a restaurant that is 20 minutes away, w/o traffic, in a suburb.

First time I visited Manhatten I was blown away by what I could delivered. Economy of scale, amazing! I could get a single chocolate chip cookie delivered at 2 in the morning! But that only works because the bakery that makes it was only a few blocks away.

Food Delivery companies try to bring the convenience of living in a big city to low density suburbs.

Of course that failed.

Some delivery services offer order a head of time where you place an order a day in advance and they batch up deliveries from one restaurant going to a given area. That is a sane model.

Even better, pre-pandemic, services like chow-bus that did orders and then large pickup sites in cities. You'd walk a few blocks from your work place to a pickup site where your food was waiting for you.

An actual innovative business model! Using technology to improve logistics. It was great, Seattle's business district has horrible food choices, being able to be part of a mass group order of food from a good restaurant was great! Wonderful idea.

Uber Eats is, outside major metros (of which America has very few) not a great idea.

[mc32]

Pizza delivery has worked in big cities and the suburbs.

Yes I acknowledge that density is on your side, but the pizza business has been able to make things work even in low density localities.

[vinger]

TV Ads for one.

[dahfizz]

There is no incentive for startups to actually profit. The whole goal is to throw enough money at the problem until you can IPO and dump your shares.

I honestly think companies should have to be profitable / trending towards profitablity to IPO. Otherwise you get situations where investors pay people to use the service, and then go public saying "look how many users we have". No proven business model and not a single cent of profit.

[madeofpalk]

Because they have hundreds or thousands of HQ employees to pay and justify the hiring of. Really, that's it.

[cocoa19]

Because unicorns are playing price dumping with venture capital