"The restaurants in particular are restive, not least because food is already a low-margin business."
Coupled with the recent survey from US Foods that 28 percent of food couriers admit to eating food from their deliveries(1) are some of the reasons for the consolidation in the food delivery industry.
If that's how the survey was worded, it's not super useful. At least with Ubereats, its supposedly not rare for someone to order and then pass out drunk/stoned/unable to go pick up food from driver. In those cases, Uber tells the drivers to do whatever they want with the food.
Shame. The article seems a bit weak - nothing on the actual costs and margins involved.
Homejoy is the poster child of why these "middle man for the gig-working class" type businesses are going to struggle (in general) with perhaps the occasional winner takes all. If borrowing money becomes more expensive most of these kind of businesses will die as funding dries up.
But if we make more companies at high valuations fast enough, foreign demand for dollars to buy into these companies will force the central bank to keep pushing the yield curve down in the process of creating more dollars to meet demand!
I've never understood how you could create a company that operates on the economies of scale by faking the scale part with VC. That seems like an expensive and high speed runway that has tons of risk for failure.
I presume the private equity industry has proven (repeatedly) what you can accomplish with plenty of Wall St capital and confidence alone, regardless of traditional business strategy. Now VCs want to do the same, but almost inverted.
The big question is why can't we just transition from actual operational cleaning/maid companies today, combining the old business + technology, until it goes into a 100% technology based market?
It seems Uber's business model is that the entire taxi industry missed the boat on using smartphones. Many city's taxi companies already had mostly contractors via 'broker' arrangements where drivers own the cars and the taxi companies do the phones/marketing (which most people don't know). I'm sure many of Homejoy's cleaners were independent or semi-independent already too, where it was a gig economy already, just not an efficient one.
So most of the innovation was just the technology part, so why not underpin the new businesses with some actual scale by buying up some traditional market businesses? I understand why old entrenched industries completely fail to adapt, especially those protected by regulatory agencies and city governments. I guess it doesn't make much sense to buy those companies with so much baggage included - or expect the innovation to come from within.
So we're only left with the option of x entrenched market + y technology market, until x doesn't exist anymore. Not some transition between x->y.
The biggest issue is that low margin, capital intensive businesses don’t scale well in terms of valuation.
It’s totally doable for a Chinese restaurant or pizza place to have a guy with a car delivering food. It is more difficult for McDonald’s to have 100,000 delivery drivers across its various channels and make money — which is why they didn’t do it.
Most of the value of scaling these services is branding. That’s why franchises for the Merry Maids, Firestone Auto Service, or Roto Rooter exist. The rest of these businesses are just obviously dumb ideas burning cash for the off chance that it will work out somehow.
Uber/Lyft are the big high risk ones that will either succeed or implode. As both companies race to the bottom, it’s a matter of time before people get killed by incompetent/unlicensed drivers or dangerous vehicles. Then the advantage of a national brand turns to poison.
>it’s a matter of time before people get killed by incompetent/unlicensed drivers or dangerous vehicles.
Unlikely. We're talking about driving cars over short distances, something the vast majority of people can do (and do anyway) well enough, not brain surgery.
As the rates continue to drop, the quality of drivers and vehicles will continue to decline. The average human can handle driving, the problem is that controls don’t really exist to prevent known bad drivers.
Even in commercial driving scenarios, the government expends a lot of resources enforcing driver and vehicle safety, and new, shitty operators emerge all of the time. (Google Chinatown buses) As a passenger of an Uber, you have no idea who is actually driving, if they are qualified (ie. licensed, sober, etc) or how safe the car is... and neither does Uber.
This is patently false...the driver meets all the regulation set by cities and states. They also pass background checks and have continuous 6-12 month reruns on all those checks.
You similarly have no idea if your taxi driver, bus driver, train operator is sober. Hell, most people recognize their friends or family are not sober and still knowingly get in the vehicle.
How do you know that the operator of the vehicle is the licensee? Do you compare the name on the app to the drivers license?
A taxi, bus, truck driver will instantly lose their CDL privilege under many circumstances, including DUI or suffer sanction operating an unsafe vehicle. Train operators get blacklisted. When a carrier like a bus company allows unlicensed drivers to drive, they get sanctioned as well.
Er. You don't know the answer do your two questions when you get in a cab either...Lyft and Uber both do real-time verification (selfies, take a photo of your drivers license). [1]
Drivers also have pictures attached to their profile which help passengers at a quick glance understand this as well. I would compare this to how taxi drivers have their taxi license on display. Not perfect, but doesn't seem like the Uber/Lyft issue is anyway less safe than taxis.
Homejoy was a bit different, once you use Homejoy to get a cleaner/plumber etc and you like him/her, you will just contact that person directly, no need to involve Homejoy again.
You dont really etablish a relationship with your food delivery person so you always need a third party like Ubereats.
“Struggle in general with an occasional winner takes all” sounds bad.
But think about a market like... search engines. They struggle in general; almost all of them from the 90s died. There was just the occasional winner, Google, that took it all.
If you think about it that way, a market that can support even a single “winner taking all” is pretty promising and exciting.
Agreed, that is a better article, but even so - every time I read about this space I get more confused. I get that very smart people are throwing large sums of money at it, so there's obviously some logic that I'm not getting.
For example, the Medium piece says that Uber has a lucrative monopoly, but then goes on to say that it loses 700M per quarter. How is that lucrative?
And self-driving cars are held up as the solution to thin margins but to me it seems that the only saving grace for these companies is that they get drivers to bring their own cars, do their own maintenance, pay their own insurance, etc. Considering how expensive driverless cars will inevitably be when they first appear and the sheer number that these companies will require to actually replace their contractors/partners/whatever they call their drivers, 2030 seems a very optimistic target for profitability.
But then I'm just some schmuck - surely the VCs have all had those thoughts and are ploughing on regardless because they know something else?
More detail and more examination of the difficulties but their concluding paragraph is still optimistic:
> In the emerging food delivery wars, the stakes are high, the margins are slim, and the competition is vast. Some will fail. Others will quit. But a few of them might just end up delivering the billion-dollar goods.
I doubt it. I think food delivery is something that can only work where the food makers are in control, not the food deliverers.
An anecdote from Indonesia. One of the large on-demand companies moved into food delivery a few years back. Originally, the only cost was the (subsidised) price of transport borne by the consumer. There was no contract with restaurants. A driver pulled up and ordered a takeaway just like a consumer would.
However after awhile, most businesses began to see a good proportion of their sales (& a lot of new customers) from these drivers. When the on-demand company started contracting restaurants with a mandetory 20% markup to the price of food, it was a no-brainer for the restaurants to go along with it. As a result, this food delivery business now subsidises the core rideshare business.
At the end of the day it's eyeballs that matter, to both the restaurant and the on-demand company. And this is where the great divide between the super-apps and the delivery startups come into play. Trying to compete with one of these big apps is like trying to compete with Amazon with some niche e-comm site. Its possible, its just very, very difficult. And of course doesn't have anywhere near the same potential value.
One of the best lessons I’ve learned: a 1% chance of making 10B is worth 100M. This took a disturbing amount of time for me to digest, but it’s absolute truth. Food delivery has a very slim chance of working, but oh baby if it works.
Here in China, consolidation continues but there remain quite a number of smaller players. It's a brutal space, very high capex, very low USP, thin margins, no return unless you scale. Basically the main players exist through VC and eyeball trading. You have to wonder what security they have against eg. Tencent/WeChat just sidestepping them. Especially as there is a lot of history of nasty backstabbing marketplace-takes-your-model in China, eg. we saw Qunar do this to hotel reservation networks (I used to run one). One area of resistance to commodified last mile delivery seems to be large chains, like KFC/McDonalds, who offer their own delivery drivers in a bid to retain control, customer ownership and margins. A major play right now for delivery operators seems to be ghost kitchen establishment and operator partnerships.
We anticipate entering the Chinese consumer food retail market within the next two quarters with closer-to-consumer, robot-produced, personalized cuisine cooked to order in an autonomous kiosk format (wholly owned and operated).
Maybe KFC, McD, etc. want to retain control of their product up to the time it delivers the items to the buyer/customer.
There was a recent investigation showing s considerable amount of food delivery drivers for hire (door dash, ubereats, etc.) helped themselves to some of their customers’ food.
I’m sure the chains want better control over who delivers their food and in what state.
I disagree with you, I don't think that a disclaimer here is necessary. The fact that he works for a company operating in a space relevant to the article does not mean that he needs to disclose that explicitly.
KFC and McDonald’s in China have their own delivery people, and grub hub doesn’t even exist. They are basically crew of those restaurants and all have company branded e-bikes.
43 comments
[ 3.2 ms ] story [ 91.6 ms ] threadCoupled with the recent survey from US Foods that 28 percent of food couriers admit to eating food from their deliveries(1) are some of the reasons for the consolidation in the food delivery industry.
(1) https://www.usfoods.com/our-services/business-trends/2019-fo...
Cars (or worse... bikes/mopeds) don't have hand wash sinks.
Homejoy is the poster child of why these "middle man for the gig-working class" type businesses are going to struggle (in general) with perhaps the occasional winner takes all. If borrowing money becomes more expensive most of these kind of businesses will die as funding dries up.
I’m being facetious.... or am I
I presume the private equity industry has proven (repeatedly) what you can accomplish with plenty of Wall St capital and confidence alone, regardless of traditional business strategy. Now VCs want to do the same, but almost inverted.
The big question is why can't we just transition from actual operational cleaning/maid companies today, combining the old business + technology, until it goes into a 100% technology based market?
It seems Uber's business model is that the entire taxi industry missed the boat on using smartphones. Many city's taxi companies already had mostly contractors via 'broker' arrangements where drivers own the cars and the taxi companies do the phones/marketing (which most people don't know). I'm sure many of Homejoy's cleaners were independent or semi-independent already too, where it was a gig economy already, just not an efficient one.
So most of the innovation was just the technology part, so why not underpin the new businesses with some actual scale by buying up some traditional market businesses? I understand why old entrenched industries completely fail to adapt, especially those protected by regulatory agencies and city governments. I guess it doesn't make much sense to buy those companies with so much baggage included - or expect the innovation to come from within.
So we're only left with the option of x entrenched market + y technology market, until x doesn't exist anymore. Not some transition between x->y.
It’s totally doable for a Chinese restaurant or pizza place to have a guy with a car delivering food. It is more difficult for McDonald’s to have 100,000 delivery drivers across its various channels and make money — which is why they didn’t do it.
Most of the value of scaling these services is branding. That’s why franchises for the Merry Maids, Firestone Auto Service, or Roto Rooter exist. The rest of these businesses are just obviously dumb ideas burning cash for the off chance that it will work out somehow.
Uber/Lyft are the big high risk ones that will either succeed or implode. As both companies race to the bottom, it’s a matter of time before people get killed by incompetent/unlicensed drivers or dangerous vehicles. Then the advantage of a national brand turns to poison.
Unlikely. We're talking about driving cars over short distances, something the vast majority of people can do (and do anyway) well enough, not brain surgery.
Even in commercial driving scenarios, the government expends a lot of resources enforcing driver and vehicle safety, and new, shitty operators emerge all of the time. (Google Chinatown buses) As a passenger of an Uber, you have no idea who is actually driving, if they are qualified (ie. licensed, sober, etc) or how safe the car is... and neither does Uber.
You similarly have no idea if your taxi driver, bus driver, train operator is sober. Hell, most people recognize their friends or family are not sober and still knowingly get in the vehicle.
A taxi, bus, truck driver will instantly lose their CDL privilege under many circumstances, including DUI or suffer sanction operating an unsafe vehicle. Train operators get blacklisted. When a carrier like a bus company allows unlicensed drivers to drive, they get sanctioned as well.
Drivers also have pictures attached to their profile which help passengers at a quick glance understand this as well. I would compare this to how taxi drivers have their taxi license on display. Not perfect, but doesn't seem like the Uber/Lyft issue is anyway less safe than taxis.
[1] https://eng.uber.com/real-time-id-check/
In some places they do.
You dont really etablish a relationship with your food delivery person so you always need a third party like Ubereats.
But think about a market like... search engines. They struggle in general; almost all of them from the 90s died. There was just the occasional winner, Google, that took it all.
If you think about it that way, a market that can support even a single “winner taking all” is pretty promising and exciting.
> In the emerging food delivery wars, the stakes are high, the margins are slim, and the competition is vast. Some will fail. Others will quit. But a few of them might just end up delivering the billion-dollar goods.
I doubt it. I think food delivery is something that can only work where the food makers are in control, not the food deliverers.
However after awhile, most businesses began to see a good proportion of their sales (& a lot of new customers) from these drivers. When the on-demand company started contracting restaurants with a mandetory 20% markup to the price of food, it was a no-brainer for the restaurants to go along with it. As a result, this food delivery business now subsidises the core rideshare business.
At the end of the day it's eyeballs that matter, to both the restaurant and the on-demand company. And this is where the great divide between the super-apps and the delivery startups come into play. Trying to compete with one of these big apps is like trying to compete with Amazon with some niche e-comm site. Its possible, its just very, very difficult. And of course doesn't have anywhere near the same potential value.
Here in China, consolidation continues but there remain quite a number of smaller players. It's a brutal space, very high capex, very low USP, thin margins, no return unless you scale. Basically the main players exist through VC and eyeball trading. You have to wonder what security they have against eg. Tencent/WeChat just sidestepping them. Especially as there is a lot of history of nasty backstabbing marketplace-takes-your-model in China, eg. we saw Qunar do this to hotel reservation networks (I used to run one). One area of resistance to commodified last mile delivery seems to be large chains, like KFC/McDonalds, who offer their own delivery drivers in a bid to retain control, customer ownership and margins. A major play right now for delivery operators seems to be ghost kitchen establishment and operator partnerships.
We anticipate entering the Chinese consumer food retail market within the next two quarters with closer-to-consumer, robot-produced, personalized cuisine cooked to order in an autonomous kiosk format (wholly owned and operated).
There was a recent investigation showing s considerable amount of food delivery drivers for hire (door dash, ubereats, etc.) helped themselves to some of their customers’ food.
I’m sure the chains want better control over who delivers their food and in what state.
In many US markets, those national brands are all on Uber Eats.
How is this unclear?
I'm an employee at stuart.com and we handle a lot of their deliveries.