22 votes

Doordash and Pizza Arbitrage

18 comments

  1. [3]
    rkcr
    Link
    I knew on-demand delivery was in a bad place, but I didn't realize it was such a clusterfuck. The article floats the question of "how does delivery pizza work anyways" without answering it. Having...

    I knew on-demand delivery was in a bad place, but I didn't realize it was such a clusterfuck.

    The article floats the question of "how does delivery pizza work anyways" without answering it. Having delivered pizzas in the early 2000s, I feel like I can shed light on this: it's all about efficiency.

    How many deliveries can a pizza driver do in an hour? The key here is that I would take out multiple orders at once, reducing downtime. It took ~10-15 minutes for driving/ringing doorbell, then another few minutes to get back to home base and reload. That all meant ~3-4 delivers/hour (and I was incentivized to go quickly, because the more deliveries I made, the more tips I got).

    On top of that, suppose it's a Friday night. You've got multiple drivers, so you organize the deliveries so it's more efficient for each driver. Now you're almost guaranteed 4 deliveries/hour, which lets you guarantee breaking even.

    At a 3-4 delivers/hour, charge a $2.50 surcharge and most of the time you've made the driver's minimum wage just through the surcharge alone.

    Compare that to Door Dash, where a single person gets a single order. The driver has to spend time getting to the restaurant (whereas I'd already be sitting there, waiting to go out). They take a single order out to a house. Then they have to figure out where to drive next (eating time just distributing the work). It's horribly inefficient by comparison. The surcharge would have to be wildly high, and on top of that, you'd make way less on tips because you're simply delivering fewer times/hour.

    11 votes
    1. [2]
      vord
      Link Parent
      I totally agree that batching and efficiency is a gigantic problem with the current setup of these services. Uber in particular is well suited to solve these problems. Have their cab fares...

      I totally agree that batching and efficiency is a gigantic problem with the current setup of these services.

      Uber in particular is well suited to solve these problems. Have their cab fares function as normal, but perhaps allow restaurant batches to be treated same way as a shared ride feature. After delivering a batch, they could pick up a new batch or a passenger. Efficiency could be far greater as with a collective pool of delivery drivers shared amoung every business, a single driver could potentially deliver for many different places for a single route.

      In doing this, they could eliminate tips entirely for a reasonable rate (base fee + mileage). I'd be comfortable paying on the order of a consistent $10 fee for a delivery over a fee + tip, which will arbitrarily scale based on items ordered, even if it still fits in a single bag. I think drivers would like this system as well, as it eliminates the 'bad tipper' problem and would insure a more consistent income.

      Uber, of course, has no incentive to do this as they don't suffer from this problem... their drivers and customers do.

      5 votes
      1. frostycakes
        Link Parent
        They do a form of that batch ordering already in Uber Eats-- if you open it, up, it (at least in my area) has a list of restaurants that other people by you have ordered from, and if you order...

        They do a form of that batch ordering already in Uber Eats-- if you open it, up, it (at least in my area) has a list of restaurants that other people by you have ordered from, and if you order from one of the same ones, you get the delivery fee dropped.

        3 votes
  2. onyxleopard
    Link
    The more I learn about any industry where companies come in with huge sums of venture-backed capital whose only end-game is monopoly, the more I wonder the same thing. It’s really frustrating to...

    The more I learn about food delivery platforms, as they exist today, I wonder if we’ve managed to watch an entire industry evolve artificially and incorrectly.

    The more I learn about any industry where companies come in with huge sums of venture-backed capital whose only end-game is monopoly, the more I wonder the same thing. It’s really frustrating to see people who actually think about economics every day not wise up to this sooner. Dan Lyons’ “Rat Race” was really enlightening on this to me. Startups whose business model is literally to sell dollars for ¢0.75 each should not be a thing that we tolerate.

    9 votes
  3. [2]
    patience_limited
    Link
    Why aren't there regional delivery cooperatives where there's a sufficient density of restaurants and customers? Is the software to handle such an arrangement too difficult or expensive to...

    Why aren't there regional delivery cooperatives where there's a sufficient density of restaurants and customers? Is the software to handle such an arrangement too difficult or expensive to build/manage?

    A while ago, the spouse and I were speculating about whether there was a niche business in analytics for predicting where new small businesses could be opened most profitably.

    I'm sure that vast chains and conglomerates do their own market research to accomplish this for new locations, but small businesses like restaurants and specialty stores must be relying on local knowledge and purest hope. If a delivery co-op can ensure that all of the potential customers within economical driving distance are available, why wouldn't restaurants band together to run their own?

    5 votes
    1. cfabbro
      Link Parent
      While not exactly what you're suggesting, your comment does make me wonder if LibreTaxi would be open to the idea of including food delivery into its ride-sharing functionality, or even if one of...

      While not exactly what you're suggesting, your comment does make me wonder if LibreTaxi would be open to the idea of including food delivery into its ride-sharing functionality, or even if one of its forks may already be attempting that.

      https://libretaxi.org/
      https://github.com/ro31337/libretaxi

      1 vote
  4. Deimos
    Link
    Matt Levine wrote about this story in his newsletter yesterday. A fair amount of it was just re-describing the story and why it's ridiculous, but I thought these sections of his comments were...

    Matt Levine wrote about this story in his newsletter yesterday. A fair amount of it was just re-describing the story and why it's ridiculous, but I thought these sections of his comments were funny and accurate about how weird some of these growth-based companies that just burn VC money are:

    The actual nerdy economics joke there is in the second paragraph, which takes the form: Two economists are walking down the street. One of them sees a $20 bill on the ground. As she bends to pick it up, her colleague says “don’t bother, if that was a real $20 bill someone would have picked it up by now.” She replies, “no see this was left here by a consumer tech startup trying to maximize user growth; their Monthly Active Picker-Upper numbers are doubling every two months.” She picks up the $20 bill and the startup raises money at a $2 billion valuation.

    If restaurants and drivers complained about DoorDash but DoorDash was raking in juicy profits, you could be like “what do you want, innovate or die, the market has spoken.” But in fact restaurants and drivers complain about DoorDash, and it lost $450 million in 2019 on about $1 billion of revenue. Arguably the market has spoken and said “stop it, come on, this is dumb.”

    In the old economy of price signals, you tried to build a product that people would want, and the way you knew it worked is that people would pay you more than it cost. You were adding value to the world, and you could tell because you made money. In the new economy of user growth, you don’t have to worry about making a product that people want because you can just pay them to use it, so you might end up with companies losing money to give people things that they don’t want and driving out the things they do want.

    Meanwhile MoviePass itself is up for auction in its Chapter 7 bankruptcy, with bids due next month. Naively I would think that a pandemic would be good for MoviePass: If your business is buying movie tickets for $14 and selling them for $10 a month, months when all the movie theaters are shut down should be relatively profitable.

    4 votes
  5. [4]
    ohyran
    Link
    From the article: "A few months ago, in the pre-pandemic times, I was at an East Village pizza place and watched as the owner was arguing with a Doordash driver. The owner insisted the driver take...

    From the article:
    "A few months ago, in the pre-pandemic times, I was at an East Village pizza place and watched as the owner was arguing with a Doordash driver. The owner insisted the driver take the pizza in a heated bag so the customer didn’t get cold pizza, but leave an ID so the driver would be compelled to return the bag. The driver argued the amount of time it would take to come back to return the bag would mean he couldn’t make enough deliveries to “pay my rent”. #Innovation."

    3 votes
    1. [3]
      vord
      Link Parent
      There's an easy solution to that problem: force gig economy companies provide all neccessary tools for their employees to do their jobs. Delivery drivers get warming bags. Anybody using their car...

      There's an easy solution to that problem: force gig economy companies provide all neccessary tools for their employees to do their jobs.

      Delivery drivers get warming bags. Anybody using their car should have a reasonable wear and tear stipend.

      Eliminate the whole concept of 'part time contractors'. That is just a legal loophole that lets thes gig companies pay low wages and avoid capital expenditures.

      Uber and Lyft solved the worst parts about taking a taxi: getting one easily and knowing exactly how much your trip would cost beforehand. Being able to pinpoint pickup and destination is an amazing feature. The problem is they were, despite obviously being a taxi company, permitted to skirt regulations and drop prices to rock bottom and squeeze out competition.

      Doordash, Grubhub, Uber Eats and the like solved two major problems: Ordering food online, and delivering food that otherwise wouldn't have been delivered. The problem is when they don't partner with the company in question (especially DoorDash) and customers get a terrible experience they then blame the restaurant for. Part of the reason for thsse terrible experiences is this lack of quality handling, and terrible pay...especially when DoorDash was taking their payment out of driver's tips.

      All of these companies could have facilitated the end of America's terrible tipping problem, and fixed the whole tip+fee nuisance as well. Uber in particular was genius in pairing taxi service with food delivery.

      But all of these companies also took dispicable steps to make their inroads. It now is completely immoral to order from these amazing advancements because they treat their employees like garbage. It's still hard to resist the temptation to use them, and people who are ignorant of the problem only make it worse.

      12 votes
      1. ohyran
        Link Parent
        But thats not so easy. Or parts of it are, but other parts - not so much. I don't know how it is in the US but there would be a lot of political punch-ups if someone suggested it and managed to...

        There's an easy solution to that problem: force gig economy companies provide all neccessary tools for their employees to do their jobs.

        But thats not so easy. Or parts of it are, but other parts - not so much. I don't know how it is in the US but there would be a lot of political punch-ups if someone suggested it and managed to pull it through. So it will be one hell of a project in practice.

        and fixed the whole tip+fee nuisance as well

        YES! Ok so as someone who have visited the US a few times having to ask "So how much am I supposed to tip?" over and over is awkward. I mean most are awesome and nice, and we spent an hour in New York talking to this girl working behind the counter of some yogurt place about tipping and differences between where we come from and the US (the end tally was "its sort of the same, but not").
        Oh and we once tipped too much which was even worse! A woman working in a laundromat helped us since we had never been at a laundromat (she must have thought we couldn't use a washing machine at all which was embarrassing) - she was so nice even though we couldn't talk to each other (neither of us are very good at Spanish, her English wasn't great and that was our only shared languages) so we tipped her 20 bucks only to realize anything over small coins put in to this papercup on the counter was just absurd to her so she seemed to assume that we where either idiots and tried to give the money back, OR rich prats and treat us like lords while we skulked out of the laundromat.

        The idea that I am supposed to pay someone elses wages instead of their work-buyer/boss is odd - I mean I don't blame people in that situation, of course they want me to pay tips. At the same time I wanna start forming militant unions. And at the third THAT is probably the highest level of smug-basterdism I can think of, refuse tipping and leave a pamphlet like "How to form a union" instead uuuuggggggh.... :D

        6 votes
      2. Icarus
        Link Parent
        That would make it more difficult for these companies to classify these people as contractors. From the DOL site: The DOL states that if the business provides the equipment/facilities to perform...

        There's an easy solution to that problem: force gig economy companies provide all necessary tools for their employees to do their jobs.

        That would make it more difficult for these companies to classify these people as contractors.

        From the DOL site:

        The U.S. Supreme Court has on a number of occasions indicated that there is no single rule or test for determining whether an individual is an independent contractor or an employee for purposes of the FLSA. The Court has held that it is the total activity or situation which controls. Among the factors which the Court has considered significant are:

        • The extent to which the services rendered are an integral part of the principal's business.
        • The permanency of the relationship.
        • The amount of the alleged contractor's investment in facilities and equipment.
        • The nature and degree of control by the principal.
        • The alleged contractor's opportunities for profit and loss.
        • The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
        • The degree of independent business organization and operation.

        The DOL states that if the business provides the equipment/facilities to perform the work, the worker may come to rely on them to the detriment of their ability to provide services to others, which increases their economic dependence on the business. Classification of contractor/employee can be a very messy process.

        I'm of the opinion they should be classified as employees, but there are consequences for the workers if they are labelled as such. An alternative may be to opt-in to employment status for some while making others contractors to off-set the load delivery drivers may have. In my opinion it is all a logistical nightmare where its hard to see how any of these companies can maintain quality and still make profit.

        3 votes
  6. [7]
    joplin
    Link
    I feel like these companies solve a non-problem. I have never used them because it was always been pretty obvious that it would either inflate my cost or deflate the restaurants margins (probably...

    I feel like these companies solve a non-problem. I have never used them because it was always been pretty obvious that it would either inflate my cost or deflate the restaurants margins (probably both). I have no problem picking up the phone and calling my local pizza place directly to get a delivery. I would prefer to do it all via their own website or their own app, but I know a lot of small businesses don't know how to set that up, so I'm not too torn up about having to pick up the phone and call.

    I'm getting really tired of money sucking middlemen trying to insert themselves into transactions between me and the businesses I frequent just so they can skim some change off of my transactions and then try to sell me to other businesses I don't want to be involved with. As mentioned above, they don't really add any value to the equation. And, it turns out, many of them are baiting and switching customers by falsely claiming to be the owners of various restaurants on Google, Yelp, and these apps. I doubt that's even legal.

    3 votes
    1. [6]
      Greg
      Link Parent
      Done properly, they provide delivery as a service - restaurant owners don't need to employ dedicated delivery staff, there's no barrier to entry, and economies of scale come from picking up across...

      Done properly, they provide delivery as a service - restaurant owners don't need to employ dedicated delivery staff, there's no barrier to entry, and economies of scale come from picking up across a range of restaurants that wouldn't otherwise be working together.

      The problem that I see, as with Uber and Airbnb, is that they've taken the kernel of a very good idea and then ruthlessly deployed billions of dollars to turn it into an exploitative monopoly.

      6 votes
      1. [3]
        NaraVara
        Link Parent
        The problem is, the delivery service itself is a business with negligible margins. Even in places without the density of a Chicago or New York, the restaurants that offer it charge a pittance in...

        Done properly, they provide delivery as a service - restaurant owners don't need to employ dedicated delivery staff, there's no barrier to entry, and economies of scale come from picking up across a range of restaurants that wouldn't otherwise be working together.

        The problem is, the delivery service itself is a business with negligible margins. Even in places without the density of a Chicago or New York, the restaurants that offer it charge a pittance in delivery fees and tips don't extend much higher than what you would tip a server in a restaurant despite the fuel/time costs being significantly higher. And that's despite the fact that dedicated restaurant delivery personnel get extremely high efficiencies by being able to batch their orders in ways these services have trouble with.

        The only way I can see a service like this work is if it's plugged into a sort of catering/commissary kitchen with no actual restaurant involved. Lots of food-trucks work this way, where they contract out space in a big commercial kitchen where they do most of the initial prep and then they complete the cooking in the truck. This way you would get some actual returns to scale since you have a centralized pick-up area, the menus will actually be designed to travel well, and they'll package it up properly. It would functionally be like an API for a food court. But, of course, that would mean running and maintaining a commercial kitchen and having, GASP, actual skilled workers to do the cooking. Workers to whom you are required to pay a wage and comply with labor regulations on. Who has time for that!?

        2 votes
        1. [2]
          Greg
          Link Parent
          Yeah, the delivery companies as they exist now are insisting on a scale that's unsustainable, driven by prices too low to maintain. Bump the delivery fee up to $8-10 per drop and it becomes much...

          Yeah, the delivery companies as they exist now are insisting on a scale that's unsustainable, driven by prices too low to maintain. Bump the delivery fee up to $8-10 per drop and it becomes much more viable, but in doing so they'd have to accept lower volume, which the VC "grow and monopolise" strategy will not tolerate.

          I'm not sure if you're aware, but the second half of your post pretty much perfectly describes ghost kitchens, which have become serious business in the last few years (with some even being directly owned by the delivery companies). Another solid idea (a low risk, low overhead entry to the food industry), that's already being used to exploit workers (hey, let's stick a bunch of kitchen staff in a cheap, poorly ventilated shipping container and have them pump out hundreds of meals for us to sell at a premium).

          1 vote
          1. NaraVara
            Link Parent
            Very interesting. I had heard of operations that do this locally, but didn't know there was a term for it. The ones I know of mostly make fresh prepared meals for local specialty grocers though,...

            Very interesting. I had heard of operations that do this locally, but didn't know there was a term for it. The ones I know of mostly make fresh prepared meals for local specialty grocers though, so it's only bulk orders.

      2. [2]
        joplin
        Link Parent
        Restaurants have been hiring delivery workers for decades and it hasn't been a huge problem. Why is this a problem that needs to be solved? I don't understand how this scales to give us the...

        Restaurants have been hiring delivery workers for decades and it hasn't been a huge problem. Why is this a problem that needs to be solved? I don't understand how this scales to give us the economies of scale you mention.

        What seems more likely to me is that restaurants no longer have the ability to predict how long deliveries will take and no way to control the quality of their deliveries. If a different driver shows up every day or every hour, you have no real recourse when something goes wrong with a particular driver. It's kind of like these companies that wanted to do "Uber for maids." In my experience, customers don't want a random different person coming to clean their place every week. They want to find a good housekeeper and keep using that person preferably without an ongoing payment to a middle man who adds no additional value. It might work for one-off cleanings, but beyond that, not so much.

        1. Greg
          Link Parent
          The problem, for the consumer, was wanting food at home from a restaurant that didn't offer delivery: the vast majority of them, five to ten years ago. For the restaurant owner, the problem would...

          Restaurants have been hiring delivery workers for decades and it hasn't been a huge problem. Why is this a problem that needs to be solved?

          The problem, for the consumer, was wanting food at home from a restaurant that didn't offer delivery: the vast majority of them, five to ten years ago. For the restaurant owner, the problem would be wanting to sell to those consumers, but not expecting enough delivery orders to make it worth employing someone to handle them - or even just not knowing whether to take the risk on it.

          Not the end of the world, by any means, but a space where things could be made a little more pleasant and a little more efficient. Looking at the number of restaurants listed on Deliveroo that never offered delivery in the past, I would say that the demand is absolutely there.

          Hopefully it goes without saying that all of this should be opt-in for the restaurant. The impersonation, unauthorised listings, and general fuckery from DoorDash et al are totally unacceptable - but I do think it's a shame that they're tarnishing what could otherwise be a solid idea.

          I don't understand how this scales to give us the economies of scale you mention.

          If a small restaurant expects only a handful of delivery orders per night, they likely wouldn't offer delivery at all - the threshold to employ someone hasn't been met. By pooling tens or hundreds of restaurants and handling all the deliveries centrally, it becomes worthwhile in aggregate even where the individual restaurants don't meet the threshold.

          They want to find a good housekeeper and keep using that person preferably without an ongoing payment to a middle man who adds no additional value.

          The quality issue is an absolutely reasonable one. The question there would be whether the delivery company is guaranteeing a good enough service from their employees (none of this independent contractor bullshit), and whether the restauranteurs who don't have the scale to hire dedicated drivers would rather forego delivery altogether. Either decision could be entirely reasonable there - it depends totally on the restaurant and delivery service in question.

          As for finding trustworthy people and sticking with them, that could be a great addition to a well designed delivery service. A restaurant could pick certain drivers to prefer or avoid, and the app could update costs and delivery times accordingly - the restaurant still controls quality even when they aren't positioned to hire drivers directly.

          3 votes