The crisis is a stark reminder that food delivery tech companies may have an unworkable business model
At first, the COVID-19 pandemic seemed like a perfect fit for food delivery apps. Restaurants in states with lockdown orders now depend completely on delivery and takeout, while public health authorities are telling consumers to stay indoors. The big four consumer-facing delivery apps—Grubhub, Uber Eats, Postmates, and DoorDash—offer a convenient solution for both parties, accelerating the move to the tech-centric, gig-economy-powered Delivery World of tomorrow.
It hasn’t quite worked out that way.
Instead, some consumers are walking away from delivery apps, restaurants are struggling to make delivery sustainable, and there’s potentially a bigger problem even a captive consumer base hasn’t solved.
“Their current models don’t really work,” said Dan Fleischmann, a vice president at Kitchen Fund, a venture capital firm that invests in food startups. “It just doesn’t really work for anyone. It doesn’t work for the restaurant. It doesn’t work for the third-party delivery provider.”....MUCH MORE
Even Before the Pandemic, Things Weren’t Looking GreatIn August 2019, analysts from the investment firm Cowen estimated that Uber Eats was losing $3.36 on every order and would continue to lose money on every order for the next five years. Uber CEO Dara Khosrowshahi acknowledged that Uber Eats is not yet profitable in an email to employees in March after its parent company laid off more than 3,700 employees. “While Eats growth is accelerating, the business today doesn’t come close to covering our expenses,” he wrote. When asked about the profitability of Uber Eats, Uber spokesperson Sarah Abboud referred The Markup to the company’s 2020 first quarter earnings report.
In early March, DoorDash filed to go public despite losing an estimated $450 million in 2019, according to The New York Times. DoorDash declined to comment on that estimate or its path to profitability, but regarding the latter CEO Tony Xu told Fortune in February that “we’re working our way there.”
Postmates, the smallest of the four companies by market share, was privately valued at up to $2.4 billion in 2019 but delayed its IPO filing after investors started drawing comparisons to grossly overvalued WeWork. Postmates did not respond to a request for comment. Meanwhile, other companies have been ditching the food delivery business: Yelp sold Eat24 to Grubhub, Square sold Caviar to DoorDash, and Amazon shut down its Amazon Restaurants delivery service....
