>DoorDash isn’t profitable and has struggled to keep some of its delivery staff, known as “dashers,” from remaining with the company for longer than a few months, raising costs to attract and train employees, according to people familiar with the matter.
>A DoorDash spokesman said the company is “cash flow positive” in its “earliest markets,” including applicable marketing and overhead expenses. He declined to name those markets. Overall the company operates in 22 urban areas in the U.S. and Canada, according to its website.
Perhaps the core underlying issue is that the service just isn't that good. Wait times of over an hour for cold food is awful. Is suburban delivery so hard to manage that restaurants and consumers are willing to let this go?
This is I think the core issue that almost all of the gig economy startups face, even the gigantic ones like Uber.
The trick with on-demand is that we're not the first into this space - low-tech versions have existed for years, but largely priced out of reach of the mainstream. This pricing was necessary because of the fundamental nature of on-demand.
After all, getting someone to drive to a restaurant, order for you, and bring you the food has some pretty immutable built-in costs.
Software can help reduce these costs, but IMO we've vastly overestimated the degree. It turns out in most cases the technology can't reduce costs enough to shift the economics from "upper class only" to "middle class".
There have been two responses to this reality - one is to force the issue by subsidizing the unit economics with VC money, and pray that you can actually figure out the economics of bringing on-demand to the middle class before the money train derails - this is the Uber strategy (specifically, UberX, which is heavily subsidized in many markets).
The other is to make the service suck - I'm not sure why any company thinks this is a viable strategy but we've seen many pursue it. Homejoy is the spectacular nuclear-explosion example but there are many others.
It turns out human labor is expensive, hard to scale, and has a lot of built-in costs that can't be eliminated by smart software.
The business model is called the "greater fool". The surprising thing is that when you have the sort of terms that VCs can insert it is actually a great model.
It's a straightforward and logical business model. Restaurants want a way to deliver food to their customers. They provide this service, and are compensated for it.
They ensure that the food is edible by working with restaurants that customers already dine-in at. Sure, they can't guarantee that the food is edible, but no delivery service can guarantee anything about the product that they are delivering. They have to rely on the reputation of the sender.
The problem is instead that this is too common of a business model. There doesn't appear to be anything particularly innovative about what DoorDash is doing, and they don't appear to be executing very well. It's not a fundamentally flawed business; it's just a uninspiring one that was probably overvalued.
It would be innovative if they had some super fast on-line optimization of delivery routes. Optimized routes would allow them to chain several pickups from restaurants with a chain of deliveries.
Given the fact that the optimization is global they would have the advantage of doing global optimization over each restaurant doing it locally. Therefore they could charge less for deliveries while paying their workers the same.
Unfortunately, a google search of the founders tells us they haven't got the slightest clue how to do that. What the investors can hope is that this money will allow them to find people that can make the extra effort to rise the business above all of the similar ones.
Deliveroo, Hungry House, Deliverance, Just Eat. That's the (well entrenched) competitive landscape in London alone. And I doubt those are sucking in numbers like 127m of funding (at god knows what valuation). These guys at doordash must have one helluva good pitch.
Doordash and Deliveroo's business model is different from hungry house or just eat. And to echo what laurentb said, Dilveroo is not only recently funded but also only just expanding into other big UK cities.
Like deliveroo recently went live in Nottingham (May 2015) and they have only fairly good restaurants who did not previously do delivery on their books.
Just Eat and HH added a centralised online booking service to existing takeaways. Dilveroo and Doordash aim to deliver restaurant quality food, it's a new market segment.
Companies that have partnered with DoorDash pay delivery fees and service charges for access to DoorDash's platform. For nonpartner merchants, consumers get a markup. Drivers get flat rate delivery bonus and tips.
What? We use delivery services all the time here in Beijing. It is quite reasonable and affordable. You don't really have to worry about the food, but the costs in the west would concern me (people and electric bikes are cheap in China, and they don't need insurance....).
I know this absolute jerk that's making a good living doing it.
What the secret? He subtly changes the resturant prices--the customers don't have a clue. When caught(one time), he claimed it was a mistake in the publication.
Workers/Drivers? There's a lot of desperate people in this sharing economy. (Some do sample the food though.)
Since I really can't stand the dude, I'll spill everything I know.
Lunch is a hard sell. I don't know why? Delivering dinner is where it's at. People eat a lot!
It's a good business for anyone. This guy started when he moved from the east coast to the west coast. On the east coast, they have had this service before computers. Just printed menus, and phones. Supposedly, it a common service in NY?
This guy is so successful, even without technology, he never bothered to revamp for Internet use. It's still just a 10 page booklet, with the scanned restaurant menus, with fluctualting prices. It all depends on his mood. Of course, restaurants always get the lowered, agreed upon price.
So, it's a good business model. I never thought people would pay so much for delivered food, but they do.
I did learn something from this guy, if you bend the rules, and work hard, you can make pretty much any business work.
There's going to be one company that wins the delivery space (probably the one with the name that rhymes with Hans Gruber), It simply makes too much sense for there to be an AWS of logistics.
But there's going to be a lot of M&A along the way and a lot of these companies seem to be building themselves as acquisition targets instead of independant businesses. Just like every tech giant has to have a music streaming service, a phone OS and an intelligent assistant, they'll pretty soon all have to have a food delivery and virtual laundry service too. So the downside is pretty derisked as long as you can stay as one of the top 3 or 4 candidates in your vertical and you don't burn too much cash before Daddy Warbucks takes you under their wing.
Plus, it was not a priori impossible that the company that wins the logistics-as-a-service space might come from food delivery instead of people delivery. Food complains a lot less, it's way more bursty and it benefits from economies of scale in way more attractive ways than people. As long as the food delivery startups remain valued at around the billion dollar mark, it's a 50:1 cheap bet that food might be a more attractive pivot point in the land grab than people.
Menu markups, discounts based on volume, sponsored listings, 1099s for drivers, delivery fees upwards of $10.
The business model isn't as bad as you'd think. For newcomers in this space, the major issue (that could very well thwart any innovation) is fraudulent orders.
All of these (other than 1099) require you can establish a monopoly in a delivery area. Given the low barriers to entry and the extreme locality of such a service it is very hard to establish and defend a monopoly in this niche.
You're not wrong. I'm wondering if certain providers ever try to push an exclusivity agreement.
Seems dumb to do from a restaurant's prospective, as I'm sure they see all these products as "the delivery app". But they're different to me: I won't order from DoorDash because I can't be confident my food will be hot — they do multiple deliveries per run, as opposed to an exclusive run.
Putting a third party between you and your customers when you are selling a highly perishable product in a highly competitive market is crazy risky.
One area I have thought might work is if these food delivery services act as the seller and take responsibility for quality. You could have a DoorDash sell the food and outsource the production to the restaurants. The customer would not know where the meal came from and any quality issues would be on the DoorDash services plate (sorry for the pun).
It works perfectly well in China. You can get eleme, sherpa, baidu waimai, and a dozen other services to pick up food for you, sometimes even from one person home kitchens. Payment happens either over Wechat Pay or Zhifubao, which are app based payment systems, or in cash, and I think you pay a small premium for delivery, on the order of a couple of RMB (~1USD). It's pretty amazing actually that they solved two "tech startup" problems that are investor graveyards in the states, namely food delivery and digital payment apps.
They do operate on pretty tight margins though, and its a competitive space.
> I don't see how delivering somebody else's food can be profitable
DoorDash marks up menu prices 15-25% or so, charges $5-6 for delivery, and an implied tip to the driver ensures they don't have to pay drivers much (the last point is speculation, but I suspect its true). A $25 pizza costs over $40 to get delivered from 5 miles away after all that. That is what is ultimately unsustainable about the business -- if they can't turn a profit with ~40% service fees, they are doomed.
I think I need to make my snark a little more obvious.
I am sure that there are some common stock holders in DoorDash looking to offload their stock, but I can’t think of a more certain way to lose all your money than to invest in the common stock of a startup who has just taken a down round.
Sometimes, the devaluation might be just due to a wider market correction and not specific to the company itself (which in this case appears not to be if its having the problems described). But if that's the case, then it would be an opportunity to invest, wouldn't it be? That is if the fundamentals of the business are on a strong base?
It might be if the earlier investors didn't have preference shares. Typically once you have a down round the common stock holders are wiped out if there have been a significant numbers of preference share issued.
> Typically once you have a down round the common stock holders are wiped out if there have been a significant numbers of preference share issued.
That all depends on several unknowns at that time. It definitely increases the chances of the holders of common stock to be left without compensation if and when the company sells or there is some other 'liquidity event', but it definitely is not a given.
A down round is simply the issuing of new shares at a different valuation than the previous shares. There could very well be a round at a higher valuation later on, the difference between the previous share issue and the current one could be small, the number of shares issued could be small to the number of shares already outstanding and so on.
Jacques all of these are true, but more typically once you go through a significant down round with a lot of new capital raised the common stock holder is wiped out. The holders of preference shares may be smart about it and make sure the current employees are protected, but you don't want to be a normal common stock holder.
Outside of even preferential shares, there are other reasons not to invest. The company isn't public, so the reporting requirements are minimal at best. There isn't anywhere near the oversight of a public company, so shady business shenanigans are very difficult to detect. And, of course, the kicker is that there isn't really a market for the shares, should you want to liquidate your holdings. It's an illiquid asset with minimal protections and no timeline for being able to sell it and no influence over the direction of the company; is that really something you'd want to invest your money in?
I was visiting Palo Alto one afternoon last year and as we were grabbing dinner one thing I noticed (from the tshirts) were all the "dashers" waiting for take away just like we were.
Considering all the time we had to wait I could not help but think that, surely, it would have been more efficient to schedule other deliveries in the mean time and just come pick up the food when it was ready? As a logistics company you want to minimize the time your couriers sit around...
The kitchen already knows roughly how long it's going to take anyway, and with enough data computers could do that automatically too, I guess all delivery services work the same but I never use them, do other incumbents do these things more efficiently nowadays?
This is the exact thinking that got all these companies and investors into this niche. Unfortunately, the restaurant business is too messy to automate (at least right now) and too prone to falling into profitless competition. There is a great business in this area waiting to be unleashed, but I have no idea how anyone can make a profit.
The "dashers" could also keep track of the wait times for each restaurant, and then work accordingly to the wait times. They could boost their delivery's, but it definitely would take several weeks to get the right amount of knowledge about each restaurant.
The listed wait times on the App are 60-70 minutes. As a former New Yorker (used to bike delivery of sub-30 minutes) it seems crazy that they could have a viable business. It's even more surprising given that they don't have food warmers, so the food arrives cold.
This tells me that they're not really in the Food Business - they're in the delivery business, and learning how to do it with food.
The trick with DoorDash is that many (most?) of the restaurants in the system aren't voluntarily participating with DoorDash.
A smart system that summoned delivery people when the food was ready/close to ready would require integration on the restaurant's part (see: Seamless/GrubHub/Caviar), but DoorDash seems to be going in a different direction.
This has been a point of controversy - DoorDash offers delivery for restaurants that do not participate in delivery by simply sending someone there, ordering, and bringing you the food. This is terrible for the delivery people obviously, and DoorDash has also been caught marking up the prices on these menu items without informing the customer.
Overall, highly doubtful about the sustainability of this business model. Or the ethics.
Side note: Postmates also does similar - some of the restaurants in their system are not official partners, and so the delivery person gets to make the order and wait around. This is a large part of why I stopped using them - they're getting paid peanuts as it is and now they're sitting on their ass for 20+ minutes to bring someone $20 of food and foregoing much needed tips.
(disclaimer: I work for DoorDash but have minimal exposure to our scheduling platform)
> it would have been more efficient to schedule other deliveries in the mean time and just come pick up the food when it was ready?
There are a lot of factors at play so it's hard to say what exactly happened in this instance, but some considerations:
* The wait time at a restaurant is probably not enough time to fit comfortably another delivery. Deliveries take a bit of time. I don't have the exact #'s, but you can imagine 5-20 minutes driving to restaurant (+ parking), 0-5 minutes waiting at a restaurant, 5-20 minutes driving from restaurant to customer, which ends up being around 10-45 minutes with high variance.
* We want food to be as fresh as possible for the customer, so on average we may prefer a dasher to wait a little rather than arrive the food is ready. Like the other replies mention, we try to measure how long food prep takes for a restaurant and we may err on the side of caution with restaurants with high variance by sending them to a restaurant assuming the shortest estimated food prep time.
* Restaurants don't always provide accurate estimates of how long the food is going to take to make.
* In your specific anecdote, we likely predicted the food to be ready much earlier (atleast earlier enough that you wouldn't have you felt they could have done another delivery) but some things may have changed from the original delivery. Eg:
The kitchen was especially backed up during this time and we didn't have examples of this in our dataset. Or perhaps we did have examples of this and it didn't happen enough to increase its weight in the food prep calculation.
Customer may have made an adjustment to the order, which caused additional wait time after we made the original dasher/delivery assignment.
Kitchen may have made a mistake with the order and had to remake it.
Our estimate for drive + parking time may have been too high. In other words, some of the time that you saw the dasher in the restaurant could have been time that we estimated for driving/parking instead.
There are a ton of other factors at play, but I hope this gives you some sense of complexity of the problem :)
sure, there is plenty to be skeptical about with doordash's business model but they just convinced some of the best-funded venture funds in the valley to invest in doordash. rather than simply tearing them down, it would be more fun to try to figure out how and what he said in those closed-door meetings, like...
* who could be a likely suitor waiting in the wings to snatch them up?
* what do the unit economics look like in their best and worst markets?
* have they actually found a novel solution to the massive logistics problem they face with individual deliveries?
* do they have a viable plan to pivot/expand to non-food deliveries?
* are they getting a big contract from a giant corporation to be their last-mile delivery service?
* is there a strategic partnership that changes their business for the better?
there is certainly something(s) that got previous and new investors excited about doordash's prospects. what is it? what could it be? the suspense is killing me! =D
48 comments
[ 3.5 ms ] story [ 107 ms ] thread>DoorDash isn’t profitable and has struggled to keep some of its delivery staff, known as “dashers,” from remaining with the company for longer than a few months, raising costs to attract and train employees, according to people familiar with the matter.
>A DoorDash spokesman said the company is “cash flow positive” in its “earliest markets,” including applicable marketing and overhead expenses. He declined to name those markets. Overall the company operates in 22 urban areas in the U.S. and Canada, according to its website.
The trick with on-demand is that we're not the first into this space - low-tech versions have existed for years, but largely priced out of reach of the mainstream. This pricing was necessary because of the fundamental nature of on-demand.
After all, getting someone to drive to a restaurant, order for you, and bring you the food has some pretty immutable built-in costs.
Software can help reduce these costs, but IMO we've vastly overestimated the degree. It turns out in most cases the technology can't reduce costs enough to shift the economics from "upper class only" to "middle class".
There have been two responses to this reality - one is to force the issue by subsidizing the unit economics with VC money, and pray that you can actually figure out the economics of bringing on-demand to the middle class before the money train derails - this is the Uber strategy (specifically, UberX, which is heavily subsidized in many markets).
The other is to make the service suck - I'm not sure why any company thinks this is a viable strategy but we've seen many pursue it. Homejoy is the spectacular nuclear-explosion example but there are many others.
It turns out human labor is expensive, hard to scale, and has a lot of built-in costs that can't be eliminated by smart software.
Maybe somebody can explain what the business model is here.
It sounds like the founders get to play big shot for a couple years while they bleed their VCs.
They ensure that the food is edible by working with restaurants that customers already dine-in at. Sure, they can't guarantee that the food is edible, but no delivery service can guarantee anything about the product that they are delivering. They have to rely on the reputation of the sender.
The problem is instead that this is too common of a business model. There doesn't appear to be anything particularly innovative about what DoorDash is doing, and they don't appear to be executing very well. It's not a fundamentally flawed business; it's just a uninspiring one that was probably overvalued.
Given the fact that the optimization is global they would have the advantage of doing global optimization over each restaurant doing it locally. Therefore they could charge less for deliveries while paying their workers the same.
Unfortunately, a google search of the founders tells us they haven't got the slightest clue how to do that. What the investors can hope is that this money will allow them to find people that can make the extra effort to rise the business above all of the similar ones.
Like deliveroo recently went live in Nottingham (May 2015) and they have only fairly good restaurants who did not previously do delivery on their books.
Just Eat and HH added a centralised online booking service to existing takeaways. Dilveroo and Doordash aim to deliver restaurant quality food, it's a new market segment.
What the secret? He subtly changes the resturant prices--the customers don't have a clue. When caught(one time), he claimed it was a mistake in the publication.
Workers/Drivers? There's a lot of desperate people in this sharing economy. (Some do sample the food though.)
Since I really can't stand the dude, I'll spill everything I know.
Lunch is a hard sell. I don't know why? Delivering dinner is where it's at. People eat a lot!
It's a good business for anyone. This guy started when he moved from the east coast to the west coast. On the east coast, they have had this service before computers. Just printed menus, and phones. Supposedly, it a common service in NY?
This guy is so successful, even without technology, he never bothered to revamp for Internet use. It's still just a 10 page booklet, with the scanned restaurant menus, with fluctualting prices. It all depends on his mood. Of course, restaurants always get the lowered, agreed upon price.
So, it's a good business model. I never thought people would pay so much for delivered food, but they do.
I did learn something from this guy, if you bend the rules, and work hard, you can make pretty much any business work.
But there's going to be a lot of M&A along the way and a lot of these companies seem to be building themselves as acquisition targets instead of independant businesses. Just like every tech giant has to have a music streaming service, a phone OS and an intelligent assistant, they'll pretty soon all have to have a food delivery and virtual laundry service too. So the downside is pretty derisked as long as you can stay as one of the top 3 or 4 candidates in your vertical and you don't burn too much cash before Daddy Warbucks takes you under their wing.
Plus, it was not a priori impossible that the company that wins the logistics-as-a-service space might come from food delivery instead of people delivery. Food complains a lot less, it's way more bursty and it benefits from economies of scale in way more attractive ways than people. As long as the food delivery startups remain valued at around the billion dollar mark, it's a 50:1 cheap bet that food might be a more attractive pivot point in the land grab than people.
The business model isn't as bad as you'd think. For newcomers in this space, the major issue (that could very well thwart any innovation) is fraudulent orders.
Seems dumb to do from a restaurant's prospective, as I'm sure they see all these products as "the delivery app". But they're different to me: I won't order from DoorDash because I can't be confident my food will be hot — they do multiple deliveries per run, as opposed to an exclusive run.
One area I have thought might work is if these food delivery services act as the seller and take responsibility for quality. You could have a DoorDash sell the food and outsource the production to the restaurants. The customer would not know where the meal came from and any quality issues would be on the DoorDash services plate (sorry for the pun).
They do operate on pretty tight margins though, and its a competitive space.
DoorDash marks up menu prices 15-25% or so, charges $5-6 for delivery, and an implied tip to the driver ensures they don't have to pay drivers much (the last point is speculation, but I suspect its true). A $25 pizza costs over $40 to get delivered from 5 miles away after all that. That is what is ultimately unsustainable about the business -- if they can't turn a profit with ~40% service fees, they are doomed.
I am sure that there are some common stock holders in DoorDash looking to offload their stock, but I can’t think of a more certain way to lose all your money than to invest in the common stock of a startup who has just taken a down round.
That all depends on several unknowns at that time. It definitely increases the chances of the holders of common stock to be left without compensation if and when the company sells or there is some other 'liquidity event', but it definitely is not a given.
A down round is simply the issuing of new shares at a different valuation than the previous shares. There could very well be a round at a higher valuation later on, the difference between the previous share issue and the current one could be small, the number of shares issued could be small to the number of shares already outstanding and so on.
Actually, please just keep it off HN. It distorts the discussion in all the wrong ways.
Considering all the time we had to wait I could not help but think that, surely, it would have been more efficient to schedule other deliveries in the mean time and just come pick up the food when it was ready? As a logistics company you want to minimize the time your couriers sit around...
The kitchen already knows roughly how long it's going to take anyway, and with enough data computers could do that automatically too, I guess all delivery services work the same but I never use them, do other incumbents do these things more efficiently nowadays?
This tells me that they're not really in the Food Business - they're in the delivery business, and learning how to do it with food.
A smart system that summoned delivery people when the food was ready/close to ready would require integration on the restaurant's part (see: Seamless/GrubHub/Caviar), but DoorDash seems to be going in a different direction.
This has been a point of controversy - DoorDash offers delivery for restaurants that do not participate in delivery by simply sending someone there, ordering, and bringing you the food. This is terrible for the delivery people obviously, and DoorDash has also been caught marking up the prices on these menu items without informing the customer.
Overall, highly doubtful about the sustainability of this business model. Or the ethics.
Side note: Postmates also does similar - some of the restaurants in their system are not official partners, and so the delivery person gets to make the order and wait around. This is a large part of why I stopped using them - they're getting paid peanuts as it is and now they're sitting on their ass for 20+ minutes to bring someone $20 of food and foregoing much needed tips.
> it would have been more efficient to schedule other deliveries in the mean time and just come pick up the food when it was ready?
There are a lot of factors at play so it's hard to say what exactly happened in this instance, but some considerations:
* The wait time at a restaurant is probably not enough time to fit comfortably another delivery. Deliveries take a bit of time. I don't have the exact #'s, but you can imagine 5-20 minutes driving to restaurant (+ parking), 0-5 minutes waiting at a restaurant, 5-20 minutes driving from restaurant to customer, which ends up being around 10-45 minutes with high variance.
* We want food to be as fresh as possible for the customer, so on average we may prefer a dasher to wait a little rather than arrive the food is ready. Like the other replies mention, we try to measure how long food prep takes for a restaurant and we may err on the side of caution with restaurants with high variance by sending them to a restaurant assuming the shortest estimated food prep time.
* Restaurants don't always provide accurate estimates of how long the food is going to take to make.
* In your specific anecdote, we likely predicted the food to be ready much earlier (atleast earlier enough that you wouldn't have you felt they could have done another delivery) but some things may have changed from the original delivery. Eg: The kitchen was especially backed up during this time and we didn't have examples of this in our dataset. Or perhaps we did have examples of this and it didn't happen enough to increase its weight in the food prep calculation. Customer may have made an adjustment to the order, which caused additional wait time after we made the original dasher/delivery assignment. Kitchen may have made a mistake with the order and had to remake it. Our estimate for drive + parking time may have been too high. In other words, some of the time that you saw the dasher in the restaurant could have been time that we estimated for driving/parking instead.
There are a ton of other factors at play, but I hope this gives you some sense of complexity of the problem :)