First is the point that Steven Moody made, which is that Dan's P&L doesn't account for any increased in revenue driven by the restaurant discovery marketplaces, which seems unfair and unrealistic. Second is the "insects" comment; I clicked into the article this referenced, and the quote actually comes from a delivery worker saying that the *restaurants* treat his compatriots like insects, not the delivery networks. Dan didn't explicitly say otherwise but the thrust of this section of the piece was all about mistreatment by Eats/Grubhub/etc. Third is that Dan has invested in various businesses on one side of this debate, which is fine, but I'm glad he disclosed it. Fourth is that Dan may feel that the treatment of delivery workers is a national embarrassment, but the California voters seem to not agree, as Prop 22 passed by a very significant margin (59-41).
Still, I enjoyed this article & comments a whole lot. Very thought-provoking. At the end of the day this feels like more of a battle for competing interests in a low-profits sector than a battle of Davids vs Goliath. If DoorDash/Eats kill their golden geese (or not-so-golden geese) by abusing their restaurant-partners, then they will fail, and they will have deserved to have failed.
The P&L assumptions keep fixed costs for labor and rent, while assuming sales are flat. Of course it looks bad, when have you seen a company keep sales flat, expenses fixed, and hand over variable expenses to a third party without any benefit? Unbundling 3PL doesn't solve this.
30% has been an industry norm for 3PL delivery going back to 2003, and the arguments have been the same: if 3PL adds customers, it is a good deal at 30%, and if it takes customers, it is probably not a good deal. Covid simply gave everyone a glimpse of an extreme future.
The author fails to note that cloud kitchens are going to replace restaurants, and the real threat isn't from 3PL but from the commoditization of their product in a globalized media environment where offering delivery of premium mediocre is easy and growing on the intangibles of a family-owned restaurant experience is difficult.
If/when we return to the old normal, delivery demand will collapse in the short term as people clamor for connection and third places. Restaurants that use delivery to reinforce the feeling that can only be found in their space will thrive, and those that use delivery to deliver warm food will struggle.
Software is eating commoditized food services, and whether it is bundled or not is a red herring.
Another interpretation of this trend is that it will create a bifurcation between ops-heavy, delivery-only, low-brand “food makers” and experience-providing, sit-down, high-brand restaurants. In suburbs it will squeeze out quick-service restaurants in expensive locations that won’t be able to compete. And in high density downtown locations, delivery is too slow/expensive during lunchtime to be a large share of orders post-pandemic.
Hmmm, I can follow your arguments but I somehow I feel that aggregation could be permanent. Why do you think this will play put differently than in the hotel / travel sector, where low margin business still pay ~15% towards booking com et. al.?
Very different markets. Hotels are highly dependent on new customers, restaurants on repeat customers. You go to booking.com etc. when you don't yet know a town or specific hotel, that gives you options of dozens of familiar hotel brand names (and others) who all offer essentially the same product, and you just select your preferred location and quality level. The hotel aggregator websites also offer the consumer the same price as going direct, and offer them tons of market information which they wouldn't otherwise know, and appreciate having. The takeaway food market is dominated by consumers buying from local businesses which they probably already know, and they could therefore switch frictionlessly to direct ordering. You're essentially choosing between your go-to meals from each of a relatively small variety of cuisine types. The consumer has most of this information already and the aggregator sites offer the consumer little of value, and the prices are higher than going direct too. I have never used UberEats etc. Just don't get the point. If I want a pizza, I can go to Google and call that pizza shop I already know, or have seen in my area, in fewer clicks than opening an app and faffing around, tell them what I want and then pay by cash or POS.
Thanks guys, interesting questions around what's sustainable.
A few thoughts:
The industry is still in flux and early in its development.
Just Eat for example always felt subsidized delivery made no sense (so they focused on the pure marketplace instead).
Just Eat now feels it needs to offer delivery to maximize customer choice, but, critically, in doing so is looking to do well by drivers and treat them as employees.
In time people will have to pay for delivery, and other forms of supply will emerge (cloud kitchens etc. celeb burgers etc.).
Here is a collection of notes and presentations of what someone with c, €700m at stake has to say about the ecosystem:
Other marketplaces that looked like they have had too much power are still going strong (Auto Trader, Rightmove, Booking Holdings, Apple App store https://www.matthewball.vc/all/applemetaverse ).
For a great exploration of what a healthy marketplace looks like, Sarah Taval at Benchmark is excellent:
Agree with the point on Cloud Kitchens. It seems like the real strategic move by Doordash and UberEats would be to backwards integrate into food preparation via cloud kitchens so they could own the full value chain and deliver a better end user experience than the modular supply chain outlined in this article ("New York pizza in Bozeman, Montana").
In terms of how restaurants with unbundled logistics providers take share of demand from Doordash and UberEats, it seems they would need to maintain parity in terms of cost + customer experience (people love refunds for incorrect orders) and figure out how to make a scaled emotional appeal to the altruism of customers. This is difficult because collective action amongst small suppliers is difficult (see the fall of local news) but one idea would be a mass campaign where every restaurant in NYC (or another major market) turns off Uber Eats and Doordash complete with a media blitz (out-of-home, internet, TV) where restaurant employees talk about the raises they are getting from this decision.
Thanks for this. Great read. Well-written article. Tough times for independent restaurants. Adapt or die. I couldn’t help but draw a comparison to Apple’s 30% rake for payments made to apps operating on its platform. How much is rational and how much is exploitative?
Definitely liked the EBITDA excel sheet to play around with, but I feel like it is missing the other half of the story: how did using GoParrot, Bikky, and Relay to replace Doordash/Uber Eats magically restore full profitability? Don't those products have a cost too?
I'm sure this is different based on restaurant/app/cities, but at my store we do not pay fees for any third party apps that do not send delivery people. There is a $1 fee for the customer added to every order placed. If you order on these platforms, we get 100% of the profits and the app gets the $1.
I think a $1 fee for order processing and whatnot seems quite reasonable, but most of DD/UE's value-add is the delivery, which is much more expensive. The restaurant here apparently used Relay, but how much did that cost? Is it better than DD/UE?
Good stuff Dan! It’s been great to see Square used Igor pickup, delivery, and low contact service as well by many of the small cafes and breweries that rely on it - their integration of Wix seems like a big step up for folks that were already relying on the platform for POS / Service and had to transition to online.
Dan & Packy, Terrific article and analysis. Enjoyed reading it. I didn't see Packy get into ghost kitchens and any opportunities offered to these "apps" to manage the food prep and menu side of the equation! But then, does that just make them restaurants of yore?
A few aspects of this article seem one-sided.
First is the point that Steven Moody made, which is that Dan's P&L doesn't account for any increased in revenue driven by the restaurant discovery marketplaces, which seems unfair and unrealistic. Second is the "insects" comment; I clicked into the article this referenced, and the quote actually comes from a delivery worker saying that the *restaurants* treat his compatriots like insects, not the delivery networks. Dan didn't explicitly say otherwise but the thrust of this section of the piece was all about mistreatment by Eats/Grubhub/etc. Third is that Dan has invested in various businesses on one side of this debate, which is fine, but I'm glad he disclosed it. Fourth is that Dan may feel that the treatment of delivery workers is a national embarrassment, but the California voters seem to not agree, as Prop 22 passed by a very significant margin (59-41).
Still, I enjoyed this article & comments a whole lot. Very thought-provoking. At the end of the day this feels like more of a battle for competing interests in a low-profits sector than a battle of Davids vs Goliath. If DoorDash/Eats kill their golden geese (or not-so-golden geese) by abusing their restaurant-partners, then they will fail, and they will have deserved to have failed.
The P&L assumptions keep fixed costs for labor and rent, while assuming sales are flat. Of course it looks bad, when have you seen a company keep sales flat, expenses fixed, and hand over variable expenses to a third party without any benefit? Unbundling 3PL doesn't solve this.
30% has been an industry norm for 3PL delivery going back to 2003, and the arguments have been the same: if 3PL adds customers, it is a good deal at 30%, and if it takes customers, it is probably not a good deal. Covid simply gave everyone a glimpse of an extreme future.
The author fails to note that cloud kitchens are going to replace restaurants, and the real threat isn't from 3PL but from the commoditization of their product in a globalized media environment where offering delivery of premium mediocre is easy and growing on the intangibles of a family-owned restaurant experience is difficult.
If/when we return to the old normal, delivery demand will collapse in the short term as people clamor for connection and third places. Restaurants that use delivery to reinforce the feeling that can only be found in their space will thrive, and those that use delivery to deliver warm food will struggle.
Software is eating commoditized food services, and whether it is bundled or not is a red herring.
I feel like I just read an ad for the author's investments..
Would love your take on Dan’s points from the aggregator POV (looks like you’re at DoorDash)!
Another interpretation of this trend is that it will create a bifurcation between ops-heavy, delivery-only, low-brand “food makers” and experience-providing, sit-down, high-brand restaurants. In suburbs it will squeeze out quick-service restaurants in expensive locations that won’t be able to compete. And in high density downtown locations, delivery is too slow/expensive during lunchtime to be a large share of orders post-pandemic.
Hmmm, I can follow your arguments but I somehow I feel that aggregation could be permanent. Why do you think this will play put differently than in the hotel / travel sector, where low margin business still pay ~15% towards booking com et. al.?
Very different markets. Hotels are highly dependent on new customers, restaurants on repeat customers. You go to booking.com etc. when you don't yet know a town or specific hotel, that gives you options of dozens of familiar hotel brand names (and others) who all offer essentially the same product, and you just select your preferred location and quality level. The hotel aggregator websites also offer the consumer the same price as going direct, and offer them tons of market information which they wouldn't otherwise know, and appreciate having. The takeaway food market is dominated by consumers buying from local businesses which they probably already know, and they could therefore switch frictionlessly to direct ordering. You're essentially choosing between your go-to meals from each of a relatively small variety of cuisine types. The consumer has most of this information already and the aggregator sites offer the consumer little of value, and the prices are higher than going direct too. I have never used UberEats etc. Just don't get the point. If I want a pizza, I can go to Google and call that pizza shop I already know, or have seen in my area, in fewer clicks than opening an app and faffing around, tell them what I want and then pay by cash or POS.
Thanks guys, interesting questions around what's sustainable.
A few thoughts:
The industry is still in flux and early in its development.
Just Eat for example always felt subsidized delivery made no sense (so they focused on the pure marketplace instead).
Just Eat now feels it needs to offer delivery to maximize customer choice, but, critically, in doing so is looking to do well by drivers and treat them as employees.
In time people will have to pay for delivery, and other forms of supply will emerge (cloud kitchens etc. celeb burgers etc.).
Here is a collection of notes and presentations of what someone with c, €700m at stake has to say about the ecosystem:
https://justeatmustdeliver.com/letters
Other marketplaces that looked like they have had too much power are still going strong (Auto Trader, Rightmove, Booking Holdings, Apple App store https://www.matthewball.vc/all/applemetaverse ).
For a great exploration of what a healthy marketplace looks like, Sarah Taval at Benchmark is excellent:
https://sarahtavel.medium.com/
Finally for marketplace/platform nerds this is a nice summary of some of the best books on how to build a sustainable marketplace.
https://blas.com/wp-content/uploads/2016/12/On-Platforms.pdf
Agree with the point on Cloud Kitchens. It seems like the real strategic move by Doordash and UberEats would be to backwards integrate into food preparation via cloud kitchens so they could own the full value chain and deliver a better end user experience than the modular supply chain outlined in this article ("New York pizza in Bozeman, Montana").
In terms of how restaurants with unbundled logistics providers take share of demand from Doordash and UberEats, it seems they would need to maintain parity in terms of cost + customer experience (people love refunds for incorrect orders) and figure out how to make a scaled emotional appeal to the altruism of customers. This is difficult because collective action amongst small suppliers is difficult (see the fall of local news) but one idea would be a mass campaign where every restaurant in NYC (or another major market) turns off Uber Eats and Doordash complete with a media blitz (out-of-home, internet, TV) where restaurant employees talk about the raises they are getting from this decision.
Thanks for this. Great read. Well-written article. Tough times for independent restaurants. Adapt or die. I couldn’t help but draw a comparison to Apple’s 30% rake for payments made to apps operating on its platform. How much is rational and how much is exploitative?
can't wait to short $DASH post lockup
Definitely liked the EBITDA excel sheet to play around with, but I feel like it is missing the other half of the story: how did using GoParrot, Bikky, and Relay to replace Doordash/Uber Eats magically restore full profitability? Don't those products have a cost too?
I'm sure this is different based on restaurant/app/cities, but at my store we do not pay fees for any third party apps that do not send delivery people. There is a $1 fee for the customer added to every order placed. If you order on these platforms, we get 100% of the profits and the app gets the $1.
I think a $1 fee for order processing and whatnot seems quite reasonable, but most of DD/UE's value-add is the delivery, which is much more expensive. The restaurant here apparently used Relay, but how much did that cost? Is it better than DD/UE?
Good stuff Dan! It’s been great to see Square used Igor pickup, delivery, and low contact service as well by many of the small cafes and breweries that rely on it - their integration of Wix seems like a big step up for folks that were already relying on the platform for POS / Service and had to transition to online.
Excellent. Let’s not forget how exploitative these platforms are to the delivery drivers. Most average below poverty level
Dan & Packy, Terrific article and analysis. Enjoyed reading it. I didn't see Packy get into ghost kitchens and any opportunities offered to these "apps" to manage the food prep and menu side of the equation! But then, does that just make them restaurants of yore?