Food delivery is a terrible business. M&A won’t make it better.
I worked at LivingSocial in 2012/2013. We used to joke that “we lose money on every transaction but make it up in scale.”
Takeout and Delivery was one of the last bets the company made. Basically food delivery. The customer service load is huge, the services aren’t really differentiated, and you have to both pay the driver enough for it to be worth it and keep prices low for the consumer to think it’s worth it.
Attracting customers on either side of the market means spending money to undercut your competition. As soon as you stop giving free delivery promotions or introductory no-fee periods for restaurants, they can instantly churn with little to no pain. Not to mention reaching small restaurants is incredibly time consuming. They’re not all just hanging out online. They’re running a business. They take a lot of expensive (human) outreach.
Margins are terrible, if they’re ever positive. It’s just a bad business.
And yet people keep trying. None of these companies have made a net dollar. But it’s a simple enough pitch and a common enough use-case that investors think, “yeah, that makes sense!”
What's Postmates moat? Having never used it, I don't necessarily see the 2.6b$ value in a smaller delivery app that is only really used in some areas of the US. Though I'm sure there is something I'm missing and 2.6b$ is probably less expensive than the cost of pricing Postmates out of the market especially considering it's an all stocks deal. It's just that delivery seems to be easily scalable and easy to just dump money in to gain users (free delivery / delivery fees are much stronger factors than brand loyalty in my experience) so why acquire relatively minor players?
What's also interesting is that Postmates seems to have raised around 700m$, so chances are it's investors are probably the first to make an actual realized profit from food delivery ;).
I use Grubhub most of the time, and I’ve found the thing that keeps me on the platform is 1) The $10 monthly credit on American Express Gold cards and 2) The 2% cash back from the Rakuten portal, which stacks with the 4x points from the Amex card.
Of course, a lot of restaurants end up increasing their prices on Grubhub to make up for their fees, and rightly so (I phone in using the number listed on Apple Maps). I still don’t understand how anyone expects these food delivery apps to be profitable. I’m also 95-99% certain once we feel safe dining at a restaurant again we wouldn’t be using these apps anymore.
Of all the services I've tried in this space, only Postmates lets you request items from businesses they aren't partnered with. This was a huge win once when I needed groceries delivered quickly.
They don't have a moat. They are one of many similar players in the same space, which are interchangeable both to their workers and their customers, and they can only compete on price.
Drivers often work for several of these companies at the same time, and customers will use whichever one is cheapest at the time they feel like placing an order.
At the moment, with so many similar companies in the space, I don't see how any of them could become profitable, especially while being engaged in a race to the bottom on prices (because price is all that customers actually care about; the experience of a guy in a car bringing stuff to your door is pretty much the same with all of these companies).
Network effects are the moat here, much like for ride hailing apps. More drivers signed up on the app means that the service times for customers are improved, and more customers using the app means less waiting time and dead mileage for drivers.
I am bullish on this as a recent shareholder. We are now in the consolidation phase of delivery service where fewer companies mean less competition, more efficiency and better economics.
This is where Dara’s strength is. He has a history of great dealmaking and acquisitions. I expect Uber to thrive as the industry consolidates.
A more cynical take on this might be that it's hard to actually turn a sustainable profit in this market unless you have monopolistic pricing power, and hence, consolidation. Less of "the strong get stronger" and more of "the unprofitable become few enough to become profitable"
I'd like to provide an personal take on this - this will be a bad deal until Uber can be a super app doing 100x more things than it's doing today. So maybe never.
Why? Because exactly in China there was consolidation of food delivery apps into like 3 or 4 of them from 100+. But all of them are still burning lots of money from investors, except one - Meituan-Dianpin which built on this super app (first think of it as uber+yelp+groupon+tripadvisor+more) handling all kinds of life needs from food to labor service. Yet this super app barely started making profits recently after grabbing so much aspects of daily life, while its food delivery unit is still burning money, though contributing to the profiting units like ads.
This is the same model that Uber at large is following with the taxi service. The underlying premise is that if Uber can just get a monopoly they’ll finally stop losing a billion dollars every month.
I doubt that Uber will be allowed to monopolize this industry. And if they did, I doubt that customers would be willing to pay the premium.
I doubt the validity of the food delivery model anywhere but the most dense urban areas. And in those areas competition is fierce and regulators are quick to pounce.
Just because Amazon lost money for a decade doesn’t mean every single company will follow that same trajectory.
This merger might trigger an antitrust case. Although people who order stuff might have lower fees through economies of scale, restaurants and drivers could be negatively impacted (more of a monosopy). At some point we need to start considering gig workers as part of antitrust considerations.
I am awaiting a Steve Jobs-like re-entry of Travis Kalanick back into Uber when Uber purchases CloudKitchens to complete its kitchen-to-door vertical integration. It's all very hypothetical, but I give it a 1% chance of happening.
The future of Uber is clearly diversification. Drivers doing everything. I absolutely love that I can order food from distant restaurants because they have driver routes programmed to cover large distances and a business model that supports longer wait times for the customer in exchange for cheaper prices, wider restaurant selection, and of course more customers served. The local establishments can't compete with the 1 driver to 1/2/3 customer(s) model.
I'd say the future of Uber is perfecting their crown jewels first.
I'm a huge fan of the business model, but the app crashes, the customer service is non-existent, payments get rejected inexplicably and when you reach customer service they respond "I'm sorry you are having difficultly logging in."
I couldnt make it worse if I tried. Every rule of SWE-UX is violated. Got a problem? No code, no incident ID, you need to call a number with no context and re-contextualize. No follow-thru, nothing.
What I find interesting about the food delivery business is that there's clearly a market for this but nobody's happy.
- Restaurants (rightly) complain that the drivers provide a poor service. For example, pizza delivered cold because the drivers have no heat bags. I've even heard of a pizza box mounted vertically on a delivery bicycle.
- Customers are unhappy because food can be delivered cold through no fault of the restaurant. To save money, multiple deliveries can be scheduled at once. You can see this as your assigned driver drives passed the restaurant when your food is ready, clearly they're on another delivery. They come back 20 minutes later and turn what should be a 10-15 minute delivery (from the time the order is ready) to a 45 minute disaster;
- And drivers don't seem happy, complaining about low pay.
Yet... people want food delivered. Is this really just a case of people not willing to pay what the service truly costs? If so, no consolidation will help. I imagine fairly small delivery areas is really the only thing that can be economical.
I foresee a future where the entirety of listings on food delivery apps will be ghost restaurants - those whose menu and processes are optimized for delivery.
Many high street brick-and-mortar restaurants will shut, but those that remain will likely make being "not available on any food delivery app" a unique selling proposition.
> Is this really just a case of people not willing to pay what the service truly costs?
I think so. If a driver spends an hour on delivery, they have to make $15 in NYC or ~$8 elsewhere (USA) to be worth their time. For a single person, that can be the price of the whole meal again.
I've run into this when seeing the fees reflected on a final checkout page, and decided to cook for myself instead.
Still surprising that they have managed a ~3x exit. They were raising money at a 1.3b$ valuation as recently as 2018 and to me it seems like Postmates is further behind it's competition in terms of growth and market share than it was 2 years ago.
This is one of those cases where the pandemic saved a company. A few companies like post area and this “uncooked food by mail” companies got saved big time.
What do you mean by execution? As a user, I've used them all, and like Uber Eats overall UX the best. But I suspect you were talking more about business operations?
The Indian "dabbawala" maybe is where it has to go: some kind of standardized service where one driver can deliver to many people in a single traveling-salesman minimized trip. The packaging is designed to keep the food warm for a long time to allow this. But this probably only works for pre-arranged food delivery, not call for food now.
The only difference between Postmates and Uber Eats is that Postmates customers overwhelmingly tip the delivery driver. The Postmates app and systems is horrifically engineered. Uber Eats is an exceptionally better system.
But surprisingly enough, both have similar revenue. And I guess Uber didn't want a bidding war over GrubHub after the very generous Just Eats bid (7.3b$). The difference between Uber's original bid and Just Eat's is almost the entire price they paid for Postmates.
Grubhub is mostly big in NYC. Doordash has the most marketshare at around 45% and good coverage in the US. Postmates and Uber Eats were battling for 3rd place. Postmates seems to have more restaurants on board along with branching out into drinks and convenience stores, and I believe general shopping in certain regions.
Clearly private industry has run out of profitable investments. Better to shift spending to public investments (science, education, err, the current public health emergency) than to waste more money on delivery boondoggles.
Unfortunately the recent trend of tearing down public statues probably doesn’t instill confidence that these kinds of corporate investments will be properly protected.
For insider background info: Postmates had to do a "pay for play" at one point, wiping out investors who wouldn't put more money into the company because it was so desperate for cash.
The company also was shopped around for years by Frank Quattrone, who runs the "most" successful M&A advisory business - QATALYST. They didn't get anywhere with a deal, this was led by a different bank after they were fired.
Weird that people keep saying that food delivery can't be profitable when Grubhub has already been profitable and only became unprofitable due to the Doordash/Uber Eats price user acquisition wars. It's the same thing that happened in ride-hailing, which already proved to be profitable.
[+] [-] tyre|5 years ago|reply
I worked at LivingSocial in 2012/2013. We used to joke that “we lose money on every transaction but make it up in scale.”
Takeout and Delivery was one of the last bets the company made. Basically food delivery. The customer service load is huge, the services aren’t really differentiated, and you have to both pay the driver enough for it to be worth it and keep prices low for the consumer to think it’s worth it.
Attracting customers on either side of the market means spending money to undercut your competition. As soon as you stop giving free delivery promotions or introductory no-fee periods for restaurants, they can instantly churn with little to no pain. Not to mention reaching small restaurants is incredibly time consuming. They’re not all just hanging out online. They’re running a business. They take a lot of expensive (human) outreach.
Margins are terrible, if they’re ever positive. It’s just a bad business.
And yet people keep trying. None of these companies have made a net dollar. But it’s a simple enough pitch and a common enough use-case that investors think, “yeah, that makes sense!”
But it doesn’t. It just doesn’t.
[+] [-] mardifoufs|5 years ago|reply
What's also interesting is that Postmates seems to have raised around 700m$, so chances are it's investors are probably the first to make an actual realized profit from food delivery ;).
[+] [-] acwan93|5 years ago|reply
Of course, a lot of restaurants end up increasing their prices on Grubhub to make up for their fees, and rightly so (I phone in using the number listed on Apple Maps). I still don’t understand how anyone expects these food delivery apps to be profitable. I’m also 95-99% certain once we feel safe dining at a restaurant again we wouldn’t be using these apps anymore.
[+] [-] cglong|5 years ago|reply
[+] [-] bhahn|5 years ago|reply
https://www.crunchbase.com/organization/postmates
[+] [-] twblalock|5 years ago|reply
Drivers often work for several of these companies at the same time, and customers will use whichever one is cheapest at the time they feel like placing an order.
At the moment, with so many similar companies in the space, I don't see how any of them could become profitable, especially while being engaged in a race to the bottom on prices (because price is all that customers actually care about; the experience of a guy in a car bringing stuff to your door is pretty much the same with all of these companies).
[+] [-] ThrustVectoring|5 years ago|reply
[+] [-] deminature|5 years ago|reply
Grubhub has been profitable for years now, pulling in $23m in income in 2018, see: https://www.cnbc.com/2019/12/13/grubhub-uber-eats-and-doorda...
[+] [-] habosa|5 years ago|reply
[+] [-] 0zymandias|5 years ago|reply
This is where Dara’s strength is. He has a history of great dealmaking and acquisitions. I expect Uber to thrive as the industry consolidates.
[+] [-] Ozzie_osman|5 years ago|reply
[+] [-] fallmonkey|5 years ago|reply
Why? Because exactly in China there was consolidation of food delivery apps into like 3 or 4 of them from 100+. But all of them are still burning lots of money from investors, except one - Meituan-Dianpin which built on this super app (first think of it as uber+yelp+groupon+tripadvisor+more) handling all kinds of life needs from food to labor service. Yet this super app barely started making profits recently after grabbing so much aspects of daily life, while its food delivery unit is still burning money, though contributing to the profiting units like ads.
[+] [-] arcticbull|5 years ago|reply
[+] [-] cwhiz|5 years ago|reply
I doubt that Uber will be allowed to monopolize this industry. And if they did, I doubt that customers would be willing to pay the premium.
I doubt the validity of the food delivery model anywhere but the most dense urban areas. And in those areas competition is fierce and regulators are quick to pounce.
Just because Amazon lost money for a decade doesn’t mean every single company will follow that same trajectory.
[+] [-] hardtke|5 years ago|reply
[+] [-] kumarvvr|5 years ago|reply
Can you explain this sentence? I always thought more companies, implies more innovation, and thus more efficiency.
[+] [-] jameslk|5 years ago|reply
[+] [-] wittekm|5 years ago|reply
[deleted]
[+] [-] schoolornot|5 years ago|reply
[+] [-] TuringNYC|5 years ago|reply
I'm a huge fan of the business model, but the app crashes, the customer service is non-existent, payments get rejected inexplicably and when you reach customer service they respond "I'm sorry you are having difficultly logging in."
I couldnt make it worse if I tried. Every rule of SWE-UX is violated. Got a problem? No code, no incident ID, you need to call a number with no context and re-contextualize. No follow-thru, nothing.
[+] [-] cletus|5 years ago|reply
- Restaurants (rightly) complain that the drivers provide a poor service. For example, pizza delivered cold because the drivers have no heat bags. I've even heard of a pizza box mounted vertically on a delivery bicycle.
- Customers are unhappy because food can be delivered cold through no fault of the restaurant. To save money, multiple deliveries can be scheduled at once. You can see this as your assigned driver drives passed the restaurant when your food is ready, clearly they're on another delivery. They come back 20 minutes later and turn what should be a 10-15 minute delivery (from the time the order is ready) to a 45 minute disaster;
- And drivers don't seem happy, complaining about low pay.
Yet... people want food delivered. Is this really just a case of people not willing to pay what the service truly costs? If so, no consolidation will help. I imagine fairly small delivery areas is really the only thing that can be economical.
[+] [-] Mengkudulangsat|5 years ago|reply
Many high street brick-and-mortar restaurants will shut, but those that remain will likely make being "not available on any food delivery app" a unique selling proposition.
[+] [-] atupis|5 years ago|reply
[+] [-] mushufasa|5 years ago|reply
I think so. If a driver spends an hour on delivery, they have to make $15 in NYC or ~$8 elsewhere (USA) to be worth their time. For a single person, that can be the price of the whole meal again.
I've run into this when seeing the fees reflected on a final checkout page, and decided to cook for myself instead.
[+] [-] minimaxir|5 years ago|reply
Not a 10x exit.
[+] [-] nordsieck|5 years ago|reply
I suspect that many of the investors are just happy to record a profitable exit.
[+] [-] mardifoufs|5 years ago|reply
[+] [-] yalogin|5 years ago|reply
[+] [-] habosa|5 years ago|reply
[+] [-] bruceb|5 years ago|reply
Hard business.
[+] [-] jboydyhacker|5 years ago|reply
UberEats and Postmates have the worst execution in the space compared to Caviar (owned by DoorDash), DoorDash and Grubhub.
Dara is a banker, he doesn't know anything about operations. This will end bad.
[+] [-] didibus|5 years ago|reply
[+] [-] slugiscool99|5 years ago|reply
[+] [-] jhallenworld|5 years ago|reply
So there must have been demand for food delivery... I wonder if they accomplished it with slaves?
Well there is some history:
https://www.thevintagenews.com/2019/01/08/food-delivery/
The Indian "dabbawala" maybe is where it has to go: some kind of standardized service where one driver can deliver to many people in a single traveling-salesman minimized trip. The packaging is designed to keep the food warm for a long time to allow this. But this probably only works for pre-arranged food delivery, not call for food now.
https://en.wikipedia.org/wiki/Dabbawala
[+] [-] gigit_phd|5 years ago|reply
[+] [-] rchandna|5 years ago|reply
[+] [-] DanCarvajal|5 years ago|reply
[+] [-] chrisjarvis|5 years ago|reply
[+] [-] unknown|5 years ago|reply
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[+] [-] donsupreme|5 years ago|reply
[+] [-] mardifoufs|5 years ago|reply
[+] [-] manigandham|5 years ago|reply
[+] [-] viburnum|5 years ago|reply
[+] [-] AndrewUnmuted|5 years ago|reply
[+] [-] aritraghosh007|5 years ago|reply
[1] https://news.crunchbase.com/news/postmates-raises-225m-more-...
[+] [-] SEJeff|5 years ago|reply
[+] [-] mrnobody_67|5 years ago|reply
The company also was shopped around for years by Frank Quattrone, who runs the "most" successful M&A advisory business - QATALYST. They didn't get anywhere with a deal, this was led by a different bank after they were fired.
[+] [-] baby|5 years ago|reply
[+] [-] rreichman|5 years ago|reply
[+] [-] uptown|5 years ago|reply