DoorDash and Uber Eats Are Hot. They’re Still Not Money.

Author : mkaylie060
Publish Date : 2021-05-28 21:13:35


DoorDash and Uber Eats Are Hot. They’re Still Not Money.

Delivering food is an expensive logistical undertaking. Apps earn money by charging restaurants a percentage of the order, as well as by charging consumers a service fee. They then dip into those earnings to pay drivers, their biggest expense.

After accounting for advertising costs and refunds to customers, among other operational expenses, DoorDash on average is left with 2.5% of a customer’s overall bill, according to a Deutsche Bank analysis. That means DoorDash ended up with 90 cents on the average order during the height of the pandemic, worth around $36.

The math isn’t pretty, but it’s the best in the industry. While DoorDash hasn’t posted an annual profit in its eight years of operation, it slipped out of the red for one quarter last year, becoming the only food-delivery company in the U.S. to do so during the health crisis.

Analysts don’t expect the companies to turn profitable for at least a few more years. For now, they say, they’re looking for the industry to prove that it can continue to grow and improve profit margins, even as diners return to restaurants.

“This is a cost-intensive business that is low-margin and scale driven—that is absolutely correct,” said DoorDash Chief Operating Officer Christopher Payne.

Executives at DoorDash and Uber have spent the past year testing what they hope will be the secret sauce. They want to raise customers’ average order size by expanding into more lucrative offerings like groceries and alcohol; bundle nonperishable goods with food to drive down delivery costs; and use technology to reduce errors by restaurants and drivers, translating into fewer refunds.

Some rivals doubt that diversifying into new categories and slashing operating costs is the key to profits. Grubhub, which pioneered online ordering for restaurants for pickup or delivery by the food business’s employees and reluctantly embraced delivery to ward off competition from DoorDash and others, is set to be acquired by European giant Just Eat Takeaway.com NV next month. It says it intends to go back to its roots as an online marketing service for restaurants.

Food delivery “is and always will be a crummy business,” Grubhub Chief Executive Matt Maloney said. As restaurants recover, Mr. Maloney believes more orders will shift away from app delivery, but online ordering will remain popular, whether for pickup or for transportation by the restaurants’ own personnel. Grubhub’s advertising service, he said, will hold the key to its future profitability.

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Grubhub is skeptical about its competitors’ varying bets. “Everyone else in the industry is doubling down on their logistics plays and talking about how smart they are and what a great technology company they are,” Mr. Maloney, the CEO, said. “I think the right choice is to be a better restaurant company.”

A game of seconds and cents
Shaving seconds off a transaction can mean the difference between an order that adds to or subtracts from the bottom line. The companies have used lessons learned over the past year to improve efficiency and reduce some operational costs.

DoorDash driver Mark Ferguson says the app now makes more efficient use of his time—something he noticed when he started delivering food again in March after a yearlong hiatus. The app matches him with restaurants closer to the time orders are ready, cutting his waiting time.

The 47-year-old, who has logged more than 6,000 DoorDash deliveries since 2015, also saves time en route to deliveries because the company has integrated Google Maps into its app interface for drivers. Previously, if he wanted to use Google Maps he had to toggle between the two. Deliveries have become smoother, too: So-called Dashers are asked to upload photos, which customers can see, showing where they leave the food, reducing reports of missed orders.

“The way that I spend my time as a Dasher changed,” said Mr. Ferguson.

Deutsche Bank says that DoorDash drivers made 44% more deliveries in an hour at the height of last year’s pandemic lockdowns compared with three years earlier.

There are still plenty of roadblocks along the apps’ route to profitability.

While early data show that consumers who embraced the apps during the pandemic may stick around as the health crisis fades, growth is expected to slow from the breakneck pace of 2020.

More than 70 U.S. municipalities or states, seeking to help local businesses, temporarily capped what apps could charge restaurants last year during the pandemic, according to the Protect Our Restaurants advocacy group. Major cities are considering making those changes permanent, a move that would squeeze apps’ already slim margins.

As road traffic increases and restaurant kitchens run at capacity again, operational efficiency may decline despite the measures app companies have taken. Some big chains are reducing their reliance on delivery already, raising menu prices on apps and investing in high-tech pickup services to drive more direct orders.


At Chipotle Mexican Grill Inc., online orders accounted for nearly half of the chain’s $6 billion in sales last year, up from 11% in 2019. Delivery accounted for about half of those online sales, but emerged as the least profitable category.

Chief Technology Officer Curt Garner said Chipotle’s prices on delivery apps now average 17% higher than those in stores after company data scientists did market research on how much they could raise costs.

The company also found that more customers opted for online-order drive-throughs when they were available, Mr. Garner said. Chipotle is now building dozens of “Chipotlanes” across the country.



Category : business

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