EATER DOES NOT UNDERSTAND FOOD DELIVERY

by Andrew Chalk

EATER, a reliable source of economic error, goofs up again with a poorly thought-through and apparently unedited hit piece on DoorDash. Writer Jaya Saxena, who doesn’t appear to have run a food delivery company or read a profit and loss statement, condemns DoorDash as ‘bloodsucking’ off the restaurants that contract with it, and ‘the exploitative nature of third-party delivery apps.’ And the delivery companies “keep delivery customers locked into a relationship with them”.

Emotive stuff! If only she had facts instead. The relationship she describes should have resulted in large profits for delivery companies, but look at the top three. The ‘evil Doordash’ lost $450m on revenue of $900m in 2019, and despite a revenue boost from the pandemic in 2020, still lost $461m on revenue of $2.9bn. Competitor Grubhub didn’t do nearly as well in the revenue area but still lost $68mn in 2020 ($4.2m in 2019). Uber Eats (which bought Postmates in 2020) is yet to make a profit.

As ‘exploiters’ go these three majors are doing a lousy job of exploiting.

And if they did a good job then any restaurant (or consortium of restaurants) could choose to leave them and do their own deliveries, or not deliver. In fact, many do. Using a third-party delivery company is optional on the part of the restaurant.

It is also optional on the part of the customer. Ordering directly from the restaurant is available.

With both sides having an option to leave at any minute it is difficult to see how the relationship between restaurants and delivery companies is ‘exploitative’ on the part of the delivery companies. Rather, it looks like a business with little ‘moat’ against competition.

So why are delivery prices so ‘high’ as to offend Ms. Saxena? Well, that is simply the cost of doing delivery nowadays. It is just very expensive, particularly in cities like New York with high gasoline costs and all kinds of fees for doing business. Ms. Saxena can prove me wrong: start her own restaurant delivery company and make a profit with substantially lower fees. My bet is that she will end up in bankruptcy court.

It is amazing EATER has this as their most qualified economic analysis. If they had better they would, for example, notice the large long-term value investors place on DoorDash and could analyze that. For example, are they betting that DoorDash will be profitable doing delivery of a much broader range of products in the future and that consumers will expect delivery of almost everything as the norm? That would be game-changing - including for EATER.