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PaperclipPerfector  4mo ago (text post)   2432 thread views

Small-Scale Question Sunday for December 22, 2024

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Does anyone have insight into the business model of food delivery apps? (Doordash, UberEats, Deliveroo, etc.)

Right now, I can order restaurant food delivered at half price with a coupon deal, maybe 60% after the driver's tip. In order to qualify for the deals, I must have it delivered, so if I want half price food from the Thai place on my block, I have to go through one of the apps and get some international student (always an international student) to go in and pick it up, then ride his (always his) scooter ~100m around the block and hand it to me.

I would prefer to pick it up myself, but this invariably voids the deal, and it doubles in price.

Who is paying for this absurdity?

  • It can't be the restaurant. Restaurant margins are notoriously thin, and if they could be doing a pad see ew at $7, not $15, I'm sure the normal price would be lower. I can't get the deal direct through the restaurant either. Has to go through the app.
  • It can't be the delivery person. Even if they're getting paid literally nothing but tips, I'm still saving money on the food. Also, my area has a minimum wage law, which means they must be getting at least that much when they're on the clock.
  • Must be the app companies, right? I'm eating VC capital for dinner every night, and it's cheaper than cooking for myself. But how is this at all sustainable? The restaurants and delivery drivers use all the apps, so they're not capturing market share. They're just burning money. Are they stupid?

A lot of it is VC, a lot of it is customers at more expensive delivery times who are less price sensitive, a lot of it is restaurant markups.

Consider that food is routinely marked up by restaurants on these apps by 35-40% plus that there are high service fees (which is where the apps make their money) plus delivery fees and tips (which is where drivers make theirs), and you can see why these 30-40% discount codes are ubiquitous. At most the restaurant might make 10-20% less than from an in-person takeout order, but for bulk slop food (which most delivery food is) margins are both higher and fixed costs like rent, salaries for kitchen staff etc are being paid anyway. Raw ingredients are a modest part of the cost of a meal. Takeout apps also let restaurants switch on or off delivery whenever they’re busy or even to do dynamic discounting; on a quiet Tuesday night, a hundred extra delivery orders sold for somewhat less revenue is great.

Say the app’s usual cut is 30% of the menu price plus the 10% service fee. When they issue you the discount code for 40% off, they’re not really burning money so much as not making it (ie Uber Eats will waive a huge chunk of their fee on the restaurant side). The rider is still being paid; the restaurant agrees to a slight discount (nowhere near 40%) in exchange for more sales, the ride share app is revenue-mostly-neutral and hopefully hooks a new customer.

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