DoorDash & The Myth of Profitable Food Delivery

Food delivery is a simple business. While the market today is dominated by DoorDash, Uber Eats, Delivery Hero, and a few others, back in 2014, food delivery and the gig economy were just emerging in Silicon Valley. Back then, the barriers to entry were so low that anyone could open up their own food delivery business in a matter of weeks with just a few thousand dollars and a website.

Food delivery seemed such an obvious million dollar business that as a starry-eyed 20 year old at the time, I left college to start a food delivery company, joining many others in the gold rush. The market in 2014 was wide open for the taking. DoorDash had not yet become a household name, UberEats was just spinning up, and GrubHub was used for looking up restaurant menus online.

6 years after my startup, it’s been interesting to see the continued hype of food delivery companies around the world even though everyone knows that the unit economics just don’t work. When you have to rely on tips to pay a livable wage to drivers, it’s obvious that there is something fundamentally broken with the business model.

In this episode, we’re going to look at the four biggest food delivery companies around the world from DoorDash, UberEats, Delivery Hero, and Just Eat. What are the strategies that these companies believe will lead them to profitability? Are these just fantasies spun for investors and which companies have made the most progress?

🎧 Audio Editing & Mixing: Sonalf

0:00 Delivered to Your Door
4:40 Once Bitten, Twice Shy
7:46 Hard Truths Cut Both Ways
9:03 DoorDash, Dashers, & Unit Economics
14:19 Unorthodox Measures of Profit
19:17 Frequency, not Margins
23:14 Same Tide, Same Boats

[ModernMBA]

🥃 This episode is the Season 1 Finale.

Season 2 is coming soon - thank you for all your wonderful support, engagement, and feedback.

0:00 Delivered to Your Door
3:00 Chicken or the Egg
4:40 Once Bitten, Twice Shy
7:46 Hard Truths Cut Both Ways
9:03 DoorDash, Dashers, & Unit Economics
14:19 Unorthodox Measures of Profit
19:17 Frequency, not Margins
23:14 Same Tide, Same Boats

[enriquelopez]

Everyone loses. Customers pay too much, drivers don’t get paid enough, restaurants lose money, and deliver companies are still unprofitable

[jdw]

As someone who worked at Chipotle until very recently, I can say that another issue facing delivery services is that the employees making your food do not care about customer satisfaction for out of store customers. If there is a long line in-store and we also have a bunch of online orders piled up, we are much more likely to prioritize helping the customers who are physically present, since we don’t want to have to deal with their complaining to our face about wait times. Also, if our numbers say we’re over-portioning certain ingredients, we will make up for that by shorting online orders. Again, if you’re not in the store you can’t ask for “a little bit more” of something as can those watching you make their food.

[fdxxx]

“We lose money with every order, but we make up for it in volume”

[jerrykreutzer]

This video was a breath of fresh air. The personal experience of the creator made if feel like they actually had something to say and weren't just regurgitating content they found after 10 minutes of googling like many other business/finance channels. Thank you.

[pokeylope]

Fulltime third party food service driver here, what annoys me, is apps will allow restaurants to have closed lobbies, packed drive thrus, and no way for the driver to come in lobby or have order ran out to them, thus leading to you having to wait in a 40 min line, thus guaranteeing a late order. If a location cannot accommodate for delivery orders, then they shouldn't do them.

[alileevil]

Back when these apps first started coming out, I predicted that it would lead to higher food prices and boy was I right. Food delivery companies have now encouraged me to cook my own food.

[jsward]

I used to deliver pizzas in house for a restaurant I worked at. I did it for a little over a year before I started looking into doing gig deliveries, and realised that I would need commercial car insurance. After inquiring with my manager, I realised that the “pizza insurance” form she had me fill out when I was hired, didn’t actually insure me whilst delivering for them. There was no way that I could afford commercial car insurance working only part time, especially when I had to split tips with the rest of the team. I told her I couldn’t deliver anymore, and eventually moved onto other work. The whole ordeal really opened my eyes to how unsustainable food delivery is as a business model.

[ritesh]

I placed my first-ever DoorDash order after receiving a gift card from someone. My $16 meal cost me a total of $25. I knew it would be expensive to order food through the delivery app, but I had no idea it would be this expensive. So, I will not make another order unless I am extremely sick and can't move my ass to cook or go to a restaurant.

[uncharted]

I'm sad you're going away. Season 2 can't come fast enough. I'm very impressed you started your own business. Even though it didn't work out the education, experience, and memories are valuable.

[Schoritzobandit]

I really can't express how valuable these videos are. I've always had a hard time being interested in business-focused content because of the level of flash and presentation used by many other channels, which I think obscures whether or not they have actual insight. By contrast, this channel is precise, understated, and extremely clear. I feel like I'm absorbing so much information and genuinely understanding it as I watch, and its given me an entirely new interest in how businesses are managed. Thanks for all you do

[JoelChenFa]

The thing about all this "disruptor" businesses is that they exploit their employees and still do not make a profit. Its like doing evil to lose money. I can never understand why investors throw money at the "potential"

[Meg_A_Byte]

I never understood how food delivery companies actually turn profit.
Now I know they don't.

Thank you!

[opnuul]

modern mba is so consistently well-researched, engaging, and interesting. well done yet again, and here's to an even better season 2! Love your work 😊

[Poopythesnowmanman]

I used to work for a delivery Startup in college. What he said is Spot on and things I realized as I was working that job - realizing what a dead end industry it was

[WOranos]

Food delivery companies are the primary reason I no longer have food delivered. They are no more reliable than the in-house services vendors used to offer, but they are WAY more expensive. When the costs associated with deliveries started to approach half the price of the product, I'd had enough. The convenience is no longer worth the cost. Now, if I can't walk to a restaurant and pick up what I want, I do without. My bank account has never been happier. Neither has my waistline.

[romdwpj]

Proud to say I haven't used a food delivery service since 2019 when they all started adding "service fees" and "small cart fees" and all that scammy nonsense

[robincormier]

interesting video. I personally ran a delivery company in Halifax NS Canada (not a huge city like Toronto or Montreal but still still decently populated). I had around 50 drivers in total staff and 4 or 5 dispatchers to handle the phones. On any given night we usually fielded about 15-20 drivers and 1 dispatcher was always sufficient. We usually did anywhere between 75-150 deliveries per night and about 50 or so during the day with the hours of operation being 11am-11pm.
This "business" though was not official, we never kept any records, we never had a payroll, it was all cash and done on a per delivery basis. We basically ran the entire operation under the table... but still we had over 100 local restaurants on board, including all the local KFC's.
The benefit to this was that my core group of drivers were actually Courier drivers during the day... delivering things like envelopes and printer cartridges which were not time-sensitive like food. So when I got a call come in for a food delivery I could always get one of my courier drivers to divert from their current route and do the food delivery real quick then get back to their other deliveries. This really helped a lot because it made it so that I didn't have to have any drivers just sitting around doing nothing while waiting for a call.
I was doing this just before Uber eats and Door Dash even existed, they started to try and break into our market just as I was getting out of the business.
Our pay structure was 6$ per delivery (going higher if long distance)(the restaurant usually passed on this cost to the customer although some only would charge half and pay half themselves) and the drivers all had to pay the dispatcher 1$ per call that they got (Drivers kept all the tips). Typically most drivers would see about 10-20 deliveries a night and the real winner was the dispatcher who made close to 200$ some days just sitting at home on the phone.
I remember some nights making close to 300 bucks driving if the tips were going really well, but then there were other nights when you only made 100 bucks if you were lucky. The main cost for me was the repairs to the Car. I was driving a 2nd hand car and it needed fixing A LOT when ur putting like 400 kms a day on the thing. In your video this factor wasn't even included, and if the drivers already don't make a livable wage without tips, after you factor in the car repairs it's even worse. I was always jelly of anyone could deliver on a bike, my city was too vast to do it in.
Every time it felt like i was starting to get ahead of my finances, boom 500 dollar car repair bill. After years and years of struggling with this, I eventually gave up driving all together and left the business in the hands of my head dispatcher who still runs it to this day. There was definitely money to be made... but real "profitability" wasn't actually there.

[cptnd]

wow, finally a business youtuber who actually has an education AND experience, and isn't just reading paragraphs ver batim off wikipedia
great video

[monkeymaster]

Man, this channel does business analysis right. Ties in economics with financial statement analysis and real-world references. Big up bro, this shot.