1 00:00:01,920 --> 00:00:06,920 Speaker 1: Welcome to Brainstuff production of I Heart Radio, Hey brain 2 00:00:06,960 --> 00:00:10,760 Speaker 1: Stuff Lauren Vogebaum here. During the early days of the 3 00:00:10,760 --> 00:00:14,160 Speaker 1: COVID pandemic, when in person dining was shut down in 4 00:00:14,200 --> 00:00:18,640 Speaker 1: most states, both restaurants and consumers turned to food delivery 5 00:00:18,680 --> 00:00:23,280 Speaker 1: apps as a lifeline. These apps, like door Dash, Uber Eats, 6 00:00:23,320 --> 00:00:28,200 Speaker 1: and grub Hub, exploded in popularity. From January through September 7 00:00:28,240 --> 00:00:32,600 Speaker 1: of door Dash alone recorded five hundred and forty three 8 00:00:32,640 --> 00:00:35,559 Speaker 1: million orders, compared to just a hundred and eighty one 9 00:00:35,600 --> 00:00:40,600 Speaker 1: million orders during the same period in twenty nineteen. For restaurants, 10 00:00:40,600 --> 00:00:43,760 Speaker 1: the popularity and convenience of food delivery apps provided a 11 00:00:43,880 --> 00:00:46,640 Speaker 1: much needed revenue source to keep the lights on until 12 00:00:46,640 --> 00:00:50,240 Speaker 1: the lockdown orders were lifted. And for workers who lost 13 00:00:50,360 --> 00:00:52,760 Speaker 1: jobs during the shutdown and students who were sent home 14 00:00:52,760 --> 00:00:55,320 Speaker 1: from college, a part time job as a food delivery 15 00:00:55,400 --> 00:00:59,320 Speaker 1: driver was a flexible way to earn some extra cash. 16 00:00:59,800 --> 00:01:04,120 Speaker 1: But now lots of folks, including economists, investors, and workers 17 00:01:04,240 --> 00:01:07,679 Speaker 1: rights advocates, are questioning the viability and ethics of the 18 00:01:07,680 --> 00:01:11,959 Speaker 1: food delivery business model. Sure, consumers are hooked, but is 19 00:01:12,040 --> 00:01:15,600 Speaker 1: anybody in the food delivery business, from restaurants to drivers 20 00:01:15,680 --> 00:01:19,240 Speaker 1: to the app companies themselves actually making money on this. 21 00:01:21,280 --> 00:01:24,760 Speaker 1: Before the pandemic, food delivery apps were niche services that 22 00:01:24,800 --> 00:01:28,280 Speaker 1: were mostly popular in big cities. But during the lockdown 23 00:01:28,360 --> 00:01:31,520 Speaker 1: and after door dash and uber eats were downloaded by 24 00:01:31,520 --> 00:01:35,759 Speaker 1: the millions and delivery service expanded into suburbia. The two 25 00:01:35,800 --> 00:01:38,720 Speaker 1: apps now control eighty five percent of the US food 26 00:01:38,760 --> 00:01:43,280 Speaker 1: delivery market. Both of these apps earned staggering amounts of money. 27 00:01:43,319 --> 00:01:47,960 Speaker 1: In one Uber Eats clocked four point eight billion in 28 00:01:48,040 --> 00:01:54,560 Speaker 1: revenue infty increase over twenty nineteen. Meanwhile, door Dash's revenue 29 00:01:54,640 --> 00:01:57,320 Speaker 1: jumped two hundred and sixty eight percent from twenty nine 30 00:01:58,560 --> 00:02:02,200 Speaker 1: and continued to generate one point to eight billion dollars 31 00:02:02,280 --> 00:02:07,720 Speaker 1: in quarterly earnings, which is why it's so shocking to 32 00:02:07,800 --> 00:02:11,000 Speaker 1: learn that neither of these companies has turned a profit. 33 00:02:11,760 --> 00:02:14,080 Speaker 1: For the article, this episode is based on How's to 34 00:02:14,200 --> 00:02:17,360 Speaker 1: Work spoke with Daniel McCarthy, a marketing professor at Emory 35 00:02:17,440 --> 00:02:21,520 Speaker 1: University's go Sweata School of Business. He explained that delivery 36 00:02:21,560 --> 00:02:24,280 Speaker 1: apps only pocket a small slice of the cost of 37 00:02:24,320 --> 00:02:27,360 Speaker 1: each food order, and they've been spending a lot more 38 00:02:27,440 --> 00:02:31,000 Speaker 1: on advertising their services and improving their technology than they've 39 00:02:31,000 --> 00:02:34,440 Speaker 1: been earning from food deliveries. The delivery apps make what 40 00:02:34,560 --> 00:02:37,760 Speaker 1: little money they pocket by charging restaurants a commission for 41 00:02:37,919 --> 00:02:41,200 Speaker 1: each order placed through the app. The standard commission is 42 00:02:41,280 --> 00:02:45,200 Speaker 1: though door Dash has also introduced a tiered commission structure. 43 00:02:46,040 --> 00:02:48,880 Speaker 1: The apps also charge a smaller service fee to the customer. 44 00:02:50,120 --> 00:02:53,400 Speaker 1: According to an analysis by Deutsche Bank, the average door 45 00:02:53,440 --> 00:02:56,280 Speaker 1: dash order during the pandemic has been worth about thirty 46 00:02:56,280 --> 00:03:01,239 Speaker 1: six dollars. If door Dash pocketed, the company earned ten 47 00:03:01,280 --> 00:03:03,920 Speaker 1: dollars and eighty cents, plus another two or so for 48 00:03:04,040 --> 00:03:07,520 Speaker 1: the service fee. That might sound like a lot per order, 49 00:03:07,720 --> 00:03:10,799 Speaker 1: especially when it's multiplied by hundreds of millions of orders, 50 00:03:11,400 --> 00:03:14,600 Speaker 1: but that twelve dollars and eighty cents is gross revenue. 51 00:03:15,040 --> 00:03:17,639 Speaker 1: You still have to subtract the costs of doing business. 52 00:03:18,840 --> 00:03:21,440 Speaker 1: The biggest expense for these apps is paying the drivers. 53 00:03:21,960 --> 00:03:26,519 Speaker 1: Next are advertising and marketing costs, including those free promotional 54 00:03:26,520 --> 00:03:30,120 Speaker 1: campaigns to attract new customers. And then there are returns 55 00:03:30,120 --> 00:03:33,919 Speaker 1: and refunds, which really eat into the bottom line. When 56 00:03:33,960 --> 00:03:36,680 Speaker 1: all those costs are taken into account, a dootche Bank 57 00:03:36,720 --> 00:03:39,600 Speaker 1: and other analysts have calculated that door Dash is left 58 00:03:39,640 --> 00:03:42,360 Speaker 1: with net earnings of two point five to three per 59 00:03:42,360 --> 00:03:45,680 Speaker 1: cent of the customers overall bill or for that average 60 00:03:45,720 --> 00:03:49,760 Speaker 1: thirty six dollar order, just ninety cents to a buck twenty. 61 00:03:50,520 --> 00:03:53,600 Speaker 1: So far, that slim margin hasn't been enough to propel 62 00:03:53,680 --> 00:03:58,200 Speaker 1: the apps into profitability, even as they taken billions in revenue. 63 00:03:58,880 --> 00:04:01,920 Speaker 1: But what about the restaurant to use the apps. Let's 64 00:04:02,000 --> 00:04:04,840 Speaker 1: take the case of Philip Fosse, a chef and owner 65 00:04:04,880 --> 00:04:07,800 Speaker 1: of to Chicago restaurants, one Michelin starred and the other 66 00:04:07,840 --> 00:04:11,440 Speaker 1: a casual barbecue joint. When the pandemic hit and in 67 00:04:11,480 --> 00:04:14,960 Speaker 1: person dining was shut down, Fosse and his staff scrambled 68 00:04:14,960 --> 00:04:18,839 Speaker 1: to offer curbside pickup and delivery. For a while, the 69 00:04:18,880 --> 00:04:22,640 Speaker 1: delivery apps seemed like a godsend, allowing restaurants like Fosces 70 00:04:22,640 --> 00:04:25,920 Speaker 1: to eke out some earnings until customers were allowed back. 71 00:04:26,640 --> 00:04:30,359 Speaker 1: But even when in person dining reopened, many consumers remained 72 00:04:30,360 --> 00:04:35,200 Speaker 1: hooked on the apps. Foss wrote an eater in January, 73 00:04:35,960 --> 00:04:39,560 Speaker 1: delivery apps are destroying restaurants, from mom and pop places 74 00:04:39,640 --> 00:04:43,640 Speaker 1: to chefs with Michelin stars. They're a terrible deal. Fosse's 75 00:04:43,720 --> 00:04:47,960 Speaker 1: complaint came down to simple economics. If customers choose delivery 76 00:04:48,120 --> 00:04:51,440 Speaker 1: over in person dining restaurants lose way too much money 77 00:04:51,480 --> 00:04:54,240 Speaker 1: to the commissions charged by door Dash and Uber eats. 78 00:04:54,920 --> 00:04:57,640 Speaker 1: Even when the apps commission was capped by lawmakers at 79 00:04:58,600 --> 00:05:01,880 Speaker 1: or fifteen percent during to the pandemic, it's still left 80 00:05:01,920 --> 00:05:06,000 Speaker 1: restaurants struggling to turn a profit on each order. A 81 00:05:06,080 --> 00:05:09,279 Speaker 1: Foss used the example of a thirty dollar delivery order 82 00:05:09,360 --> 00:05:12,320 Speaker 1: of smoked ribs, sides and a dessert from his barbecue joint. 83 00:05:13,080 --> 00:05:16,520 Speaker 1: Even with commission capped at fifteen percent in Chicago, that 84 00:05:16,600 --> 00:05:19,360 Speaker 1: took four dollars and fifty cents off the top. Now, 85 00:05:19,360 --> 00:05:22,720 Speaker 1: when he calculated the food and labor costs plus occupancy 86 00:05:22,760 --> 00:05:26,320 Speaker 1: costs like rent, utilities, and waste removal, Foss was left 87 00:05:26,360 --> 00:05:29,400 Speaker 1: with five percent profit or a dollar fifty on a 88 00:05:29,440 --> 00:05:33,599 Speaker 1: thirty dollar sale. A Foss understands the attraction of food 89 00:05:33,640 --> 00:05:37,040 Speaker 1: delivery apps for both customers and restaurant owners, but says 90 00:05:37,120 --> 00:05:40,480 Speaker 1: the economics are unsustainable, especially if the apps go back 91 00:05:40,520 --> 00:05:45,239 Speaker 1: to charging pre pandemic commissions. Of He wrote, the restaurant 92 00:05:45,279 --> 00:05:49,000 Speaker 1: industry has been cannibalizing itself by joining delivery services like 93 00:05:49,040 --> 00:05:53,599 Speaker 1: grub hub, door Dash, and Uber eats. Okay, but how 94 00:05:53,640 --> 00:05:56,800 Speaker 1: are the driver's faring. Let's look at the case of 95 00:05:56,839 --> 00:05:59,640 Speaker 1: Mike Hayes, who worked as a chef for seventeen years 96 00:05:59,680 --> 00:06:02,040 Speaker 1: before where he was laid off in March of at 97 00:06:02,040 --> 00:06:05,279 Speaker 1: the start of the pandemic. He started driving for door Dash, 98 00:06:05,360 --> 00:06:08,240 Speaker 1: attracted by the flexibility of the working hours and door 99 00:06:08,320 --> 00:06:11,160 Speaker 1: Dash's claimed that drivers earned an average of twenty five 100 00:06:11,200 --> 00:06:15,200 Speaker 1: dollars an hour, But Hayes's experience was different, as he 101 00:06:15,279 --> 00:06:20,520 Speaker 1: explained to Business Insider in March. But based in Portland, Oregon, 102 00:06:20,680 --> 00:06:23,920 Speaker 1: a hot spot for food delivery, has logged forty five 103 00:06:23,920 --> 00:06:27,240 Speaker 1: hours a week driving full time for door Dash. His 104 00:06:27,320 --> 00:06:29,960 Speaker 1: earnings ranged from a good week in which he made 105 00:06:30,000 --> 00:06:33,039 Speaker 1: eight hundred dollars that's seventeen dollars and seventy seven cents 106 00:06:33,040 --> 00:06:35,680 Speaker 1: an hour, to a bad week in which he made 107 00:06:35,720 --> 00:06:38,520 Speaker 1: just two hundred dollars or four dollars and forty four 108 00:06:38,520 --> 00:06:42,560 Speaker 1: cents an hour. And according to the website rides sharing 109 00:06:42,640 --> 00:06:48,040 Speaker 1: driver Haze's experience is typical. There are occasional unicorn orders 110 00:06:48,080 --> 00:06:51,120 Speaker 1: that generate a big payoff, but there are also plenty 111 00:06:51,120 --> 00:06:53,919 Speaker 1: of ten mile trips with long waits the restaurant for 112 00:06:53,960 --> 00:06:57,480 Speaker 1: a three dollars score. The average pay the website said 113 00:06:57,640 --> 00:07:01,719 Speaker 1: was fifteen dollars an hour A Dashers make money in 114 00:07:01,839 --> 00:07:04,880 Speaker 1: two ways. The app guarantees them a base pay for 115 00:07:04,920 --> 00:07:07,480 Speaker 1: each delivery based on the total cost of the order. 116 00:07:08,160 --> 00:07:10,400 Speaker 1: On top of that base pay, dashers also make money 117 00:07:10,440 --> 00:07:13,680 Speaker 1: on customer tips. The more orders you complete in an hour, 118 00:07:13,960 --> 00:07:17,040 Speaker 1: and the bigger those individual orders and tips, the more 119 00:07:17,080 --> 00:07:21,280 Speaker 1: money you make a while delivery app drivers can improve 120 00:07:21,400 --> 00:07:24,600 Speaker 1: their earning potential by working during peak hours lunch and 121 00:07:24,600 --> 00:07:28,400 Speaker 1: dinner rush in geographic hotspots, there are still plenty of 122 00:07:28,480 --> 00:07:31,680 Speaker 1: variables that are out of their control. A restaurant can 123 00:07:31,720 --> 00:07:34,200 Speaker 1: get busy, forcing the driver to spend an hour on 124 00:07:34,240 --> 00:07:37,240 Speaker 1: a small order, and people can be cheap with their tips, 125 00:07:37,480 --> 00:07:40,200 Speaker 1: and gas prices can go up. All of that eats 126 00:07:40,200 --> 00:07:44,960 Speaker 1: into the driver's earnings. Driving for these app companies might 127 00:07:45,000 --> 00:07:47,320 Speaker 1: make sense as a part time gig for college students 128 00:07:47,360 --> 00:07:50,280 Speaker 1: or retirees, but it's hard to make a living doing 129 00:07:50,320 --> 00:07:54,680 Speaker 1: it full time, and since app companies consider drivers contractors 130 00:07:54,760 --> 00:07:58,120 Speaker 1: and not employees, they don't offer benefits like health insurance, 131 00:07:58,160 --> 00:08:03,880 Speaker 1: retirement savings accounts, or worker compensation. So from the restaurants 132 00:08:03,920 --> 00:08:07,240 Speaker 1: to the drivers to the app companies themselves, the math 133 00:08:07,320 --> 00:08:10,640 Speaker 1: of food delivery doesn't seem to add up. When the 134 00:08:10,840 --> 00:08:13,840 Speaker 1: pie of a thirty six dollar order is divided among 135 00:08:13,920 --> 00:08:17,640 Speaker 1: these three entities, all of them leave the table hungry. 136 00:08:18,240 --> 00:08:21,160 Speaker 1: But is there a way to make food delivery profitable? 137 00:08:21,960 --> 00:08:25,239 Speaker 1: Matt Maloney doesn't think so, and he should know. He's 138 00:08:25,280 --> 00:08:28,240 Speaker 1: the CEO of greb hub, formerly the biggest name in 139 00:08:28,280 --> 00:08:31,720 Speaker 1: the food delivery business. He told The Wall Street Journal 140 00:08:31,720 --> 00:08:35,880 Speaker 1: in May food delivery is and always will be a 141 00:08:35,920 --> 00:08:40,440 Speaker 1: crummy business. He said that no amount of technological upgrades 142 00:08:40,520 --> 00:08:43,319 Speaker 1: or logistical tweaks will make it profitable, which is why 143 00:08:43,480 --> 00:08:46,760 Speaker 1: greb Hub pivoted to becoming an online marketing partner for 144 00:08:46,800 --> 00:08:51,920 Speaker 1: restaurants instead. McCarthy at Emory isn't as down on delivery apps. 145 00:08:52,520 --> 00:08:56,600 Speaker 1: His research specialty is measuring consumer engagement with products and services, 146 00:08:57,040 --> 00:08:59,600 Speaker 1: and the data from these companies show that app users 147 00:08:59,720 --> 00:09:04,079 Speaker 1: aren't backing off. He said that's the one very favorable 148 00:09:04,160 --> 00:09:07,360 Speaker 1: dynamic going on for the category as a whole. When 149 00:09:07,400 --> 00:09:09,600 Speaker 1: people start to use a delivery app, they tend to 150 00:09:09,679 --> 00:09:12,520 Speaker 1: use it more and more. Over time, the apps start 151 00:09:12,559 --> 00:09:17,000 Speaker 1: consuming more and more of their food budget. He explained 152 00:09:17,080 --> 00:09:19,160 Speaker 1: that one way for everyone to make more money and 153 00:09:19,160 --> 00:09:23,000 Speaker 1: food delivery is simply to charge consumers more for the convenience. 154 00:09:23,720 --> 00:09:27,400 Speaker 1: That's what Chipotle is doing. In the popular tex Mex 155 00:09:27,440 --> 00:09:30,800 Speaker 1: food chains sold nearly half of all food orders via delivery, 156 00:09:31,040 --> 00:09:34,680 Speaker 1: up from just eleven percent in twenty nineteen. To recoup 157 00:09:34,720 --> 00:09:38,360 Speaker 1: the cost of commissions to Potley now charges sevent more 158 00:09:38,480 --> 00:09:42,600 Speaker 1: for delivery compared with in store purchases. These apps are 159 00:09:42,600 --> 00:09:46,400 Speaker 1: also expanding into other delivery sectors like groceries, drug stores, 160 00:09:46,440 --> 00:09:50,080 Speaker 1: and alcohol. McCarthy said, I think this is the real 161 00:09:50,240 --> 00:09:53,880 Speaker 1: key to unlocking the potential profitability of the model. You 162 00:09:53,920 --> 00:09:56,240 Speaker 1: can have the same driver for filling many orders on 163 00:09:56,280 --> 00:10:00,720 Speaker 1: the same run without having to wait, and Uber Eats 164 00:10:00,840 --> 00:10:04,000 Speaker 1: is capitalizing on its double identity as a ride sharing app. 165 00:10:04,400 --> 00:10:06,840 Speaker 1: A new feature on the Uber app allows writers to 166 00:10:07,000 --> 00:10:09,440 Speaker 1: order and pick up a meal during their drive, or 167 00:10:09,520 --> 00:10:17,360 Speaker 1: to have a meal delivered to their destination. Today's episode 168 00:10:17,400 --> 00:10:20,080 Speaker 1: is based on the article who if Anyone makes money 169 00:10:20,160 --> 00:10:22,720 Speaker 1: off food delivery apps like Uber Eats on how stuff 170 00:10:22,720 --> 00:10:25,480 Speaker 1: works dot Com written by Dave Rouse. Brain Stuff is 171 00:10:25,480 --> 00:10:27,600 Speaker 1: production of by Heart Radio in partnership with how stuff 172 00:10:27,600 --> 00:10:29,520 Speaker 1: works dot Com, and its produced by Tyler Clang with 173 00:10:29,559 --> 00:10:33,000 Speaker 1: assistance from Ramsey Young, four more podcasts, My Heart Radio, 174 00:10:33,160 --> 00:10:35,840 Speaker 1: visit the heart Radio app, Apple podcasts, or wherever you 175 00:10:35,880 --> 00:10:37,160 Speaker 1: listen to your favorite shows.