Speaker 1: Welcome to Brainstuff production of I Heart Radio, Hey brain
Speaker 1: Stuff Lauren Vogebaum here. During the early days of the
Speaker 1: COVID pandemic, when in person dining was shut down in
Speaker 1: most states, both restaurants and consumers turned to food delivery
Speaker 1: apps as a lifeline. These apps, like door Dash, Uber Eats,
Speaker 1: and grub Hub, exploded in popularity. From January through September
Speaker 1: of door Dash alone recorded five hundred and forty three
Speaker 1: million orders, compared to just a hundred and eighty one
Speaker 1: million orders during the same period in twenty nineteen. For restaurants,
Speaker 1: the popularity and convenience of food delivery apps provided a
Speaker 1: much needed revenue source to keep the lights on until
Speaker 1: the lockdown orders were lifted. And for workers who lost
Speaker 1: jobs during the shutdown and students who were sent home
Speaker 1: from college, a part time job as a food delivery
Speaker 1: driver was a flexible way to earn some extra cash.
Speaker 1: But now lots of folks, including economists, investors, and workers
Speaker 1: rights advocates, are questioning the viability and ethics of the
Speaker 1: food delivery business model. Sure, consumers are hooked, but is
Speaker 1: anybody in the food delivery business, from restaurants to drivers
Speaker 1: to the app companies themselves actually making money on this.
Speaker 1: Before the pandemic, food delivery apps were niche services that
Speaker 1: were mostly popular in big cities. But during the lockdown
Speaker 1: and after door dash and uber eats were downloaded by
Speaker 1: the millions and delivery service expanded into suburbia. The two
Speaker 1: apps now control eighty five percent of the US food
Speaker 1: delivery market. Both of these apps earned staggering amounts of money.
Speaker 1: In one Uber Eats clocked four point eight billion in
Speaker 1: revenue infty increase over twenty nineteen. Meanwhile, door Dash's revenue
Speaker 1: jumped two hundred and sixty eight percent from twenty nine
Speaker 1: and continued to generate one point to eight billion dollars
Speaker 1: in quarterly earnings, which is why it's so shocking to
Speaker 1: learn that neither of these companies has turned a profit.
Speaker 1: For the article, this episode is based on How's to
Speaker 1: Work spoke with Daniel McCarthy, a marketing professor at Emory
Speaker 1: University's go Sweata School of Business. He explained that delivery
Speaker 1: apps only pocket a small slice of the cost of
Speaker 1: each food order, and they've been spending a lot more
Speaker 1: on advertising their services and improving their technology than they've
Speaker 1: been earning from food deliveries. The delivery apps make what
Speaker 1: little money they pocket by charging restaurants a commission for
Speaker 1: each order placed through the app. The standard commission is
Speaker 1: though door Dash has also introduced a tiered commission structure.
Speaker 1: The apps also charge a smaller service fee to the customer.
Speaker 1: According to an analysis by Deutsche Bank, the average door
Speaker 1: dash order during the pandemic has been worth about thirty
Speaker 1: six dollars. If door Dash pocketed, the company earned ten
Speaker 1: dollars and eighty cents, plus another two or so for
Speaker 1: the service fee. That might sound like a lot per order,
Speaker 1: especially when it's multiplied by hundreds of millions of orders,
Speaker 1: but that twelve dollars and eighty cents is gross revenue.
Speaker 1: You still have to subtract the costs of doing business.
Speaker 1: The biggest expense for these apps is paying the drivers.
Speaker 1: Next are advertising and marketing costs, including those free promotional
Speaker 1: campaigns to attract new customers. And then there are returns
Speaker 1: and refunds, which really eat into the bottom line. When
Speaker 1: all those costs are taken into account, a dootche Bank
Speaker 1: and other analysts have calculated that door Dash is left
Speaker 1: with net earnings of two point five to three per
Speaker 1: cent of the customers overall bill or for that average
Speaker 1: thirty six dollar order, just ninety cents to a buck twenty.
Speaker 1: So far, that slim margin hasn't been enough to propel
Speaker 1: the apps into profitability, even as they taken billions in revenue.
Speaker 1: But what about the restaurant to use the apps. Let's
Speaker 1: take the case of Philip Fosse, a chef and owner
Speaker 1: of to Chicago restaurants, one Michelin starred and the other
Speaker 1: a casual barbecue joint. When the pandemic hit and in
Speaker 1: person dining was shut down, Fosse and his staff scrambled
Speaker 1: to offer curbside pickup and delivery. For a while, the
Speaker 1: delivery apps seemed like a godsend, allowing restaurants like Fosces
Speaker 1: to eke out some earnings until customers were allowed back.
Speaker 1: But even when in person dining reopened, many consumers remained
Speaker 1: hooked on the apps. Foss wrote an eater in January,
Speaker 1: delivery apps are destroying restaurants, from mom and pop places
Speaker 1: to chefs with Michelin stars. They're a terrible deal. Fosse's
Speaker 1: complaint came down to simple economics. If customers choose delivery
Speaker 1: over in person dining restaurants lose way too much money
Speaker 1: to the commissions charged by door Dash and Uber eats.
Speaker 1: Even when the apps commission was capped by lawmakers at
Speaker 1: or fifteen percent during to the pandemic, it's still left
Speaker 1: restaurants struggling to turn a profit on each order. A
Speaker 1: Foss used the example of a thirty dollar delivery order
Speaker 1: of smoked ribs, sides and a dessert from his barbecue joint.
Speaker 1: Even with commission capped at fifteen percent in Chicago, that
Speaker 1: took four dollars and fifty cents off the top. Now,
Speaker 1: when he calculated the food and labor costs plus occupancy
Speaker 1: costs like rent, utilities, and waste removal, Foss was left
Speaker 1: with five percent profit or a dollar fifty on a
Speaker 1: thirty dollar sale. A Foss understands the attraction of food
Speaker 1: delivery apps for both customers and restaurant owners, but says
Speaker 1: the economics are unsustainable, especially if the apps go back
Speaker 1: to charging pre pandemic commissions. Of He wrote, the restaurant
Speaker 1: industry has been cannibalizing itself by joining delivery services like
Speaker 1: grub hub, door Dash, and Uber eats. Okay, but how
Speaker 1: are the driver's faring. Let's look at the case of
Speaker 1: Mike Hayes, who worked as a chef for seventeen years
Speaker 1: before where he was laid off in March of at
Speaker 1: the start of the pandemic. He started driving for door Dash,
Speaker 1: attracted by the flexibility of the working hours and door
Speaker 1: Dash's claimed that drivers earned an average of twenty five
Speaker 1: dollars an hour, But Hayes's experience was different, as he
Speaker 1: explained to Business Insider in March. But based in Portland, Oregon,
Speaker 1: a hot spot for food delivery, has logged forty five
Speaker 1: hours a week driving full time for door Dash. His
Speaker 1: earnings ranged from a good week in which he made
Speaker 1: eight hundred dollars that's seventeen dollars and seventy seven cents
Speaker 1: an hour, to a bad week in which he made
Speaker 1: just two hundred dollars or four dollars and forty four
Speaker 1: cents an hour. And according to the website rides sharing
Speaker 1: driver Haze's experience is typical. There are occasional unicorn orders
Speaker 1: that generate a big payoff, but there are also plenty
Speaker 1: of ten mile trips with long waits the restaurant for
Speaker 1: a three dollars score. The average pay the website said
Speaker 1: was fifteen dollars an hour A Dashers make money in
Speaker 1: two ways. The app guarantees them a base pay for
Speaker 1: each delivery based on the total cost of the order.
Speaker 1: On top of that base pay, dashers also make money
Speaker 1: on customer tips. The more orders you complete in an hour,
Speaker 1: and the bigger those individual orders and tips, the more
Speaker 1: money you make a while delivery app drivers can improve
Speaker 1: their earning potential by working during peak hours lunch and
Speaker 1: dinner rush in geographic hotspots, there are still plenty of
Speaker 1: variables that are out of their control. A restaurant can
Speaker 1: get busy, forcing the driver to spend an hour on
Speaker 1: a small order, and people can be cheap with their tips,
Speaker 1: and gas prices can go up. All of that eats
Speaker 1: into the driver's earnings. Driving for these app companies might
Speaker 1: make sense as a part time gig for college students
Speaker 1: or retirees, but it's hard to make a living doing
Speaker 1: it full time, and since app companies consider drivers contractors
Speaker 1: and not employees, they don't offer benefits like health insurance,
Speaker 1: retirement savings accounts, or worker compensation. So from the restaurants
Speaker 1: to the drivers to the app companies themselves, the math
Speaker 1: of food delivery doesn't seem to add up. When the
Speaker 1: pie of a thirty six dollar order is divided among
Speaker 1: these three entities, all of them leave the table hungry.
Speaker 1: But is there a way to make food delivery profitable?
Speaker 1: Matt Maloney doesn't think so, and he should know. He's
Speaker 1: the CEO of greb hub, formerly the biggest name in
Speaker 1: the food delivery business. He told The Wall Street Journal
Speaker 1: in May food delivery is and always will be a
Speaker 1: crummy business. He said that no amount of technological upgrades
Speaker 1: or logistical tweaks will make it profitable, which is why
Speaker 1: greb Hub pivoted to becoming an online marketing partner for
Speaker 1: restaurants instead. McCarthy at Emory isn't as down on delivery apps.
Speaker 1: His research specialty is measuring consumer engagement with products and services,
Speaker 1: and the data from these companies show that app users
Speaker 1: aren't backing off. He said that's the one very favorable
Speaker 1: dynamic going on for the category as a whole. When
Speaker 1: people start to use a delivery app, they tend to
Speaker 1: use it more and more. Over time, the apps start
Speaker 1: consuming more and more of their food budget. He explained
Speaker 1: that one way for everyone to make more money and
Speaker 1: food delivery is simply to charge consumers more for the convenience.
Speaker 1: That's what Chipotle is doing. In the popular tex Mex
Speaker 1: food chains sold nearly half of all food orders via delivery,
Speaker 1: up from just eleven percent in twenty nineteen. To recoup
Speaker 1: the cost of commissions to Potley now charges sevent more
Speaker 1: for delivery compared with in store purchases. These apps are
Speaker 1: also expanding into other delivery sectors like groceries, drug stores,
Speaker 1: and alcohol. McCarthy said, I think this is the real
Speaker 1: key to unlocking the potential profitability of the model. You
Speaker 1: can have the same driver for filling many orders on
Speaker 1: the same run without having to wait, and Uber Eats
Speaker 1: is capitalizing on its double identity as a ride sharing app.
Speaker 1: A new feature on the Uber app allows writers to
Speaker 1: order and pick up a meal during their drive, or
Speaker 1: to have a meal delivered to their destination. Today's episode
Speaker 1: is based on the article who if Anyone makes money
Speaker 1: off food delivery apps like Uber Eats on how stuff
Speaker 1: works dot Com written by Dave Rouse. Brain Stuff is
Speaker 1: production of by Heart Radio in partnership with how stuff
Speaker 1: works dot Com, and its produced by Tyler Clang with
Speaker 1: assistance from Ramsey Young, four more podcasts, My Heart Radio,
Speaker 1: visit the heart Radio app, Apple podcasts, or wherever you
Speaker 1: listen to your favorite shows.