So by now you’ve most likely heard that delivery apps like Grubhub, Door Dash, and Uber Eats are potentially harmful to restaurants, as evidenced by some of the most exciting dystopian developments in the food world. These delivery services take up to 30% of every order, often wiping out a restaurant’s profits entirely, or worse, driving it into the red. Delivery drivers are members of the gig economy, competing with other delivery people to grab as many orders as they can, and making a pittance for it.
So if restaurants are losing money, and drivers are making pennies, then it must be those third-party services themselves that are drowning in quarantine cash, right? Well, PBS NewsHour decided to get to the bottom of things, and you’ll never believe what they discovered...
...that’s right, folks, nobody is making any money off of third-party delivery apps! No one! The restaurants are losing money, the drivers are losing money, and the companies are collectively losing billions of dollars with an unprofitable business model. PBS asked an investor, “Why does this business model even make sense?” The investor’s response was, “I’m not sure that it does.”
If you were only able to make it through the first half of the above video before throwing your phone at the wall, the second half explains why this is all happening: For a number of years now, interest rates have been historically low (and were slashed again in March to a record 0%), which means those with large amounts of cash became desperate for a way to gain higher returns. Venture capitalists, hedge funds, and all sorts of other high-stakes gamblers began throwing around large sums of money and investing in whatever they could, praying for huge outcomes. This is how the modern world ended up with companies like Theranos, Juicero, and a glut of third-party delivery systems, which, according to Investment Management Associates CEO Vitaliy Katsenelson, “are still trying to figure out how to make money off of this.”
So what can we expect in the future? Some investors predict that the industry will consolidate into only one or two companies, and once most of the competition is eliminated, fees and commissions can be raised. (On June 10, Dutch company Just Eat Takeaway acquired Grubhub for $7.3 billion; Grubhub itself merged with Seamless in 2013 and since its founding has acquired Foodlers, OrderUp, Eat24, AllMenus, DiningIn, Restaurants on the Run, Delivered Dish, LABite, LevelUp, and Tapingo.)
Others believe that in the wake of the coronavirus pandemic, third-party delivery apps will be the final nail in the coffin for restaurants. Then, right before all the restaurants close and the drivers lose their low-paying jobs, investors will cash out, and then the third-party delivery services will also go out of business.
Enjoy your weekend, everybody!