Why Do Food Delivery Companies Lose Money?

Photo: Andrew Harrer/Bloomberg via Getty Images Ranjan Roy has a great Medium post about DoorDash and “pizza arbitrage”: Roy’s friend was first annoyed to discover that DoorDash was providing delivery services for his nondelivery pizzeria: taking web orders without his knowledge, phoning in for takeout and sending a DoorDash delivery worker to pay and pick up the food, and often delivering to a customer who would be annoyed that the pizza arrived cold.

A mental model that a lot of people have for these businesses is that they are waiting to establish a dominant market position, at which point they can raise prices to a level where they will be profitable. That is, in the future, restaurants and customers will pay even more in delivery fees, and DoorDash will make money. The problem with this view is that “the future” never seems to come. Uber has been providing rides for ten years.

Consider a few examples. In the traditional model, restaurants use their own employees to deliver food. DoorDash and its competitors offer a different approach: DoorDash contracts with the delivery person, sending him or her to whatever restaurant has orders at any moment.

Source: News Formal (newsformal.com)

jbarro Isn't it obvious? The delivery companies, like their ride-share counterparts, are trying to stay in business long enough for automated/robotic workers to lower their costs.

jbarro Easy: because customers think delivery should be free and won’t pay enough for its actual cost, so companies don’t charge enough.

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