DoorDash Buying Caviar from Square for $410M
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That's not a slam on businesses in a bubble phase, either. Many industries go through one before settling into a steady, sustainable state. Just surprised that delivery is still in one, while related industries, like ride-share are cooling off.
I have always heard food delivery as a business is a great way to lose money. Do you have any examples of companies doing it profitably?
It might be more accurate to say that food delivery as a separate business from producing it is hard to profit on.
Food delivery as part of a QSR can be profitable but most businesses don’t track margins efficiently enough to know the difference.
travis kalanick is investing millions of his own cash into this space.
There's room to improve in the US, like making kitchens without the attached restaurant more prevalent, but as long as you have to get in a car to deliver the food, there's going to be the same problems the rideshare industry faces.
https://en.wikipedia.org/wiki/List_of_United_States_cities_b...
Neither Shanghai or Beijing would make top 20 on this list
Chinese cities have access to incredibly cheap labor, far more so than most cities in the US or Europe.
1) Ghost kitchens that only serve via delivery apps. You can save on rent by setting it up in an area with no foot-traffic. You can also get economies of scale.
2) Restaurants with dedicated entrances for delivery drivers. Baar Baar in NYC has a separate place where delivery workers can wait. In other restaurants, they have to wait in the limited dining area. One hopes that the workers still get to use restrooms & get some water, etc.
You can't. This is the kind of a mistake that all first time entrepreneurs make. Delivery costs too much money. Logistics of getting your labor force to your kitchen is a nightmare.
> 2) Restaurants with dedicated entrances for delivery drivers. Baar Baar in NYC has a separate place where delivery workers can wait. In other restaurants, they have to wait in the limited dining area. One hopes that the workers still get to use restrooms & get some water, etc.
This was tried in NYC during first dot com. Remember purple shirts? They had a competitor with green shirts. That's the unproductive spaces. Rent hikes wiped those out.
Edit: Blind downvotes are laughable. Go walk into your local pizza place and talk to the owners. They will tell you why they are slowly dropping off all the apps. They are giving equivalent of a 20-30% discount in fees for the area they already deliver in.
Ghost kitchens are mostly scams. The ones that aren't are ran out of commissary commercial kitchens that cost an arm and a leg. The "ghost kitchens" are mostly not really legal, sometimes ran out of a house, marketing same stuff under different names. Most of the restaurant overhead for small places does not come from the rent of the floor space. It comes from the rent of the kitchen and compliance with the health codes. And, unlike say taxi commissions, health departments take no crap, which is why the ghost restaurants disappear rather quickly.
It is the "no one did it before" idea of people who have never ran restaurants. It always flops. If it did not, Union Sq Hospitality would have been doing it for years.
I remember around 2000 in order to order ice cream for delivery having to call Kozmo (or maybe it was Webvan) on a voice phone and talk to a person like some kind of savage.
It seems like the smartphone and good map data could transform something that was terribly inefficient 20 years ago into something that's efficient enough to be profitable now.
Yes, those were the purple shirts! Thank you for reminding me the name.
The thing is delivery is not an issue. In the markets that have density, local places figured out delivery. My bodega will deliver whatever I order. For free. So will four other bodegas in the immediate area. The guy who owns the wine store will deliver for free. So will the taco joint. Or PR chicken shack It will be done by the kids of people who own those places. Or by their relatives. Or by their helpers. Yes, all of them would also try UberEats and Grubhub and Seamless and others. All of them will drop those services after a few month ( all of them did ) because they are in a real cut throat market and they know what starts costing them money.
So we get to the areas with less density, which is the burbs and near rural. Such as, say, Bucks County in PA within a 20 minute drive of Doylestown. There are probably about 100 places total to get food from, including Wawa, take out places, casual restaurants and "upscale" sit down places. The issue there is that general delivery is not profitable, which is why none of the places deliver outside 5-10 minute drive. Their customers have cars and driving 10-20 minutes is not a big deal for a customer. The max time they are willing to wait for food is cook time + round trip time. Delivery services can't compete there because they can't beat the cooktime + roundtrip time ~ delivery is free option
Cost structure has not changed in restaurants that do take outs.
Delivery services in the areas where they ( delivery services ) could be popular and are popular solve a non-existent problem for restaurants ( delivery ) by eating into restaurant's profit margins. Not only that, by longer-term delivery services are terrible for restaurants because suddenly every restaurant in 1-2 mile radius even in the most high density city becomes a competitor while the margin is lower.
Your commission is also a bit off, perhaps you speak from full service experience?
While true that base comm is 20-30, those numbers are always negotiated down. Grub/Seamless will take as low as 12 from high vol regional leaders while UberEats made some deals that are supposedly really low (McDonalds). I don’t have exact numbers but from my recollection they mentioned it in their S1.
While Danny Myers is quite smart, USH isn’t a barometer for the entire industry as his focus is more on full service.
It is a temporary fluke. If Chinese take out operators that are able to do razor thin margins and nearly completely unpaid labor force cannot make them work then no one can make them work
> While true that base comm is 20-30, those numbers are always negotiated down. Grub/Seamless will take as low as 12 from high vol regional leaders while UberEats made some deals that are supposedly really low (McDonalds). I don’t have exact numbers but from my recollection they mentioned it in their S1.
It is a creative lie by omission. Same kind of lie that Grubhub had when it forgot about the $$ it charged restaurants for answering phones that Grubhub setup.
There are maybe a dozen chains (McDonalds/Burger King/Chipotle/Qdoba/Subway/White Castle, etc) that can negotiate $1 fee. Your pizza place, your taco place, your take out sushi joint don't have this ability. If they did then the VCs would not fund DoorDash or GrubHub.
> While Danny Myers is quite smart, USH isn’t a barometer for the entire industry as his focus is more on full service.
Have you heard of Shake Shack?
They can, and they do. One way some chains achieve this is by raising prices vs. in-store. By offsetting the cost, the economics makes more sense.
> It is a creative lie by omission. Same kind of lie that Grubhub had when it forgot about the $$ it charged restaurants for answering phones that Grubhub setup.
> There are maybe a dozen chains (McDonalds/Burger King/Chipotle/Qdoba/Subway/White Castle, etc) that can negotiate $1 fee. Your pizza place, your taco place, your take out sushi joint don't have this ability. If they did then the VCs would not fund DoorDash or GrubHub.
I personally know of chains that have less than 50 locations and have negotiated ~12-15% comm. I also know of a NYC deli with one location that runs at ~15-17 comm. Its about volume. You can negotiate anything with high enough vol.
Not sure what you meant by "creative lie by omission" or if you were referring to what I said.
> Have you heard of Shake Shack?
Shake Shack IPO'd in 2015. White Myers does sit on the board (chairman), they are different companies. Also, Shake Shack has only recently started going into delivery (check their latest 10-K) they are fledglings going from their own platform (OLO) to working w/Caviar/Dash/etc.
Again, successful, but not a barometer.
That's not allowed by the contracts. In either event 50 location chain is HUGE. Olive Garden has less than 1000 stores nationally. If you have 50 stores your chain is in the real estate business and it happened to have food as an additional line item.
> I also know of a NYC deli with one location that runs at ~15-17 comm. Its about volume. You can negotiate anything with high enough vol.
Unless you happen to own that deli I'm going to tell you that you are being lied to. No one does enough volume to do it.
> Not sure what you meant by "creative lie by omission" or if you were referring to what I said
Something else is padded. Delivery services won't make any money off the 10% commission.
> Also, Shake Shack has only recently started going into delivery (check their latest 10-K) they are fledglings going from their own platform (OLO) to working w/Caviar/Dash/etc.
The argument was that USG type companies only do full service restaurants. That's simply not the case.
> Again, successful, but not a barometer.
It is because it has been around longer than most of the startups in the delivery space, not to mention vendors to the startups in the delivery space that do not have actual restaurants.
They are not. They are just a different model than a standard restaurant.
What I have observed in my area (UK) is that instead of expanding by setting up a new branch in the costly centre of town, some chains work with Deliveroo to open a ghost kitchen in the industrial area.
That allows them to expand to a new town while saving on capex.
They are not. It is called commissary kitchen. Has been around forever. Those are the kitchens that support food trucks. Or the kitchens that support prepared food not made on premises in supermarkets. They don't work for a-la minute production even if a-la minute is just used to load it into driver's gear.
> What I have observed in my area (UK) is that instead of expanding by setting up a new branch in the costly centre of town, some chains work with Deliveroo to open a ghost kitchen in the industrial area
That simply means real estate has not adjusted to it. It will.
If the target is to work only with Deliveroo or other delivery app then everything can be stripped apart from the kitchen and that kitchen can then be located where it's cheapest since no customers will ever walk in or even know where it is.
That's not a scam. That's an adaptation, an optimisation for a specific business model.
> That simply means real estate has not adjusted to it. It will.
Premium retail space is going to cost more than industrial space that may be located anywhere in a much wider area.
Restaurant wants to minimize dwell time, which is a time that the restaurant does not spend cooking food for a-la minute order. The closer the restaurant is to the customer, the smaller is the dwell time if the customer is always available. That's the reason why the restaurant wants to be where the customers are.
Delivery-only restaurants dwell time is always larger than the walk in restaurant unless the delivery drivers are immediately and always available when the food is cooked and the time to deliver the food to the customer is the same as time time to turn it over across the counter ( for the same type of food ) which means the restaurant will always make less money in the identical situations.
The only thing that the restaurant gets from the delivery only portion is marketing when its menu is available to people who do not know about it. And it competes with every single other restaurant available in the delivery order. All that for the 20-30% discount off every order. That's the math. It is groupon, all over again. And the arguments of those in awe of the business model are exactly the same. It does not work because the best slammed take out places have 20-30% operating margins.
Finally, there's a startup called Crave which is going to kill this entire DoorDash/Delivery/Deliveroo type model - it gives restaurants ability to dynamically price their checks via discounts ( think surge pricing backwards ) for a low, flat per sale price. Think of it as Yelp Cash, but more dynamic and less connected to Yelp.
This actually solves the problem of dwell time. By offering a dynamic discount based on how busy the place is the restaurant increases a flow of orders into the business.
Surely by selecting a location that balances low rent versus proximity to residential areas you could lower operational costs while still ensuring staff could get to work and keep delivery costs low? I get that running a restaurant is a complex and risky business, but i dont think youve really addressed why a delivery only kitchen would fail consistently.
It would fail consistently because it has a worse dwell time compared to a comparable restaurant that also does take out while providing no real advantages. There are just no margins for error in a restaurant business. If your competitors dwell time is 10 minutes and yours is 30, you are done.
Here's is why the proximity to the residential area is important: kitchens are staffed by the group of people on the lowest tier of the economic ladder. These people use public transportation to get to places, not cars. The industrial zones where the rent is cheap aren't accessible easily via public transportation which means the kitchen staff has problems getting there, which in turn means that it selects other places.
If an industrial area is easily accessible by a car from the residential areas which is what is necessary for it to be a good source for deliveries then the rent in that area is only slightly lower than the rent in the residential area so there's really no win at putting the kitchen there. To get a win on rent one needs to put it 20-30 minutes away where the rent could be significantly cheaper. Except that it means that it takes at least 30 minutes to get to the border of the residential area with the food, plus additional 10-15 minutes inside the service area, which means the delivery only saving money by putting the place in the cheaper industrial area restaurant has the following minuses:
1. Difficulty to get kitchen staff 2. 45 minutes of driving to get from its kitchen to an average customer if the driver is immediately available at the location [ the drivers is not at the location: the driver is probably at the transit somewhere in or around the residential area so the turn around becomes at best ~1 h ]
It's competitors located in the residential areas:
1. Don't have the logistical problem at hiring staff 2. Can get food delivered in sub 25 minutes of driving
The only positive for the outskirts kitchen is ~20-30% at best save on the rent.
A variety of restaurants just doesn’t exist in many places. It’s fast food, fast casual, and maybe a couple of local pizza/taco places.
Beyond that, good luck.
Incidentally, that was my first estimate for how far in the country I was when I travelled a lot for work: "How many reviews does {insert fast food restaurant} have on Yelp?"
Turns out, people only leave lots of Yelp reviews for Taco Bells when that's the only thing around.
If they get big enough, next time they steal wages, they won't have to back down. Heck, if they get big enough, they can steal wages, drive the company broke, and then get a bail out to pay the higher ups that are making the decisions that drove the company into the ground in the first place.
We then have the gall to blame Adam Smith, who didn't even believe in separation of funding and management (i.e. he didn't believe in joint-stock companies)
Intervention? The government only discourages anticompetitive practices. Literally buying a competitor is not one, its subject to approval at some amounts, but is not anticompetitive behavior, as in predictably by the rules.
There should be enough role models by now to dissolve whatever egalitarian promise you were fed in elementary school. Why even waste any breath on these completely ineffective set of rules, when you already know the playbook, you spelled it out! Play those cards man, generational wealth is knocking at your door
As an example, take Uber. The Economist recently asked whether it can ever make money. [1] And events in the months since don't make it any clearer. [2]
I think tech's wave of quasi-monopolies (Google, Facebook, Amazon) gave investors the notion that similarly dominant players could be established in non-tech fields if they were dressed up as technology plays. So we see absurd amounts of cash being poured into things like Uber and WeWork. Unlike the previous players, we also see them going to IPO while they're still losing money.
And sadly, I think you're right about regulatory laxness. Antitrust regulation has been out of fashion for a long time. And if we see it come back, it could well be more an authoritarian political tool than any actual attempt to ensure competitive markets.
[1] https://www.economist.com/business/2019/04/27/can-uber-ever-...
[2] https://www.economist.com/business/2019/04/27/can-uber-ever-...
I think for there to be political will to redistribute the power that concentrates in monopolies, there needs to be a clear rallying cry.
When you look at the trust busters of the 20th and 19th century, they had a clear rallying cry from the masses: improve working conditions.
I wonder if with automation taking over, the new rallying cry will be UBI? I mean, to pay for such a thing, you need to redistribute social wealth, which is now concentrating in monopolies.
People notice the concentration of money, and the lack in other parts, more than the particulars of how markets work. Then the rallying cry brings about change in unexpected ways, maybe? I don't know, but I'm hopeful.
As to getting downvoted, I'm not surprised, my take: Many people in tech now are very idealistic and have a lot vested into the companies they work with. They truly believe door dash is about 'empowering small businesses' (or whatever pretty words their employer has on the about us).
And the thing is, doordash does do that. But the reason for it's valuation, and the ultimate purpose of the investors, is rent seeking. Providing service is the way to get people hooked, it's a secondary consideration for these investors. So anything that directly or indirectly highlights this discrepancy between what the workers are trying to achieve and what the ultimate company beneficiaries are trying to achieve, will be viewed with hostility by those who so truly want to make the world a better place. Which I think is the majority here. :)
It would be more interesting if we knew how much they actually paid in hard cash; the rest is effectively just promises of money in the form of a valuation that hasn't materialized in liquid form yet.
If you're an early employee of Caviar and got $1M in AMZN stock or options? You could sell it for cash. DoorDash stock? It could be $0 in a few years for all you know, and you quite possibly have no avenues to liquidate it for anything now.
New business model for Square?: Acquire companies, onboard them onto Square's business platform, sell them
I miss Foodler so damn much.
Also they announced they were "investigating the issue" for 4 months before, and then didn't make a change. So let's not congratulate them until its been confirmed to be actually working as drivers and customers expect.
This isn't meant to be a triggering comment. I'm genuinely curious to learn about other people's reactions to DoorDash's former tipping system.
Once they modify their system and move to a system where drivers get 100% of the tips the drivers will probably see approximately the same payouts on average, just with higher variance across drivers. Basically what DoorDash was doing is the same as tip-pooling at a restaurant which isn't exactly a controversial practice.
DoorDash drivers don’t rely on other drivers. So why should a good driver compensate for the poor tips of a bad one?
Tipping frequently matters more about the tippers mood, the tip-receiver's race and gender, and (of course) order size.
It's like walking blindfolded into a restaurant and putting your tip in the hostesses hand before you even see any of the staff, or have any indication of service.
Anyway, yes, actually: I think there's a good argument to be made for a higher wage for delivery drivers -- and all waitstaff -- that makes their earnings less dependent on tips. If people want to tip for exceptional service, that's fine, but there are a surprising number of people who treat tips today as if they're only for exceptional service, will cut tips in half or even to zero for things beyond the server's control (e.g., the restaurant will not accept your clearly expired coupon), etc.
Things a dasher is responsible for:
1. The correctness of the order. Yes, it's fair to hold them responsible for this, because they have the order and they are at the restaurant. If the order is wrong, they can easily correct it then. If it's wrong at my house, now what? Probably I'm unhappy, even after Door Dash offers me credits
2. Keeping the food in good shape. That includes heat (some dashers use a heat bag), but it also includes keeping soup, chili cheese fries, and other things upright. (All things some dashers have screwed up for me.)
3. Paying attention to notes. I eat my Taco Bell with diablo sauce. Did he include the sauce I asked for in the notes? (Bonus points for including things like napkins and sporks without being asked.)
4. Polite behavior. Most are polite, but some practically throw the food at you and run away.
That's a pretty silly system.
That way DoorDash provides at least a partial matching contribution to my tip instead of eating from my tip.
Why so unforgiving? Because you can't deter unethical behavior by merely asking for a perpetrator to discontinue the unethical behavior if/when exposed. The expected value of a penalty needs to exceed the financial reward of the behavior it is meant to punish. Furthermore, I don't trust companies who are likely to be unethical the moment someone isn't looking.
Can I avoid AWS? No, but I can certainly not spend my own money directly on any of their services.
First of all, people tip beforehand so it's not based on quality of service anyway.
Second of all, it makes DoorDash a steady stream of income instead of hoping that you'll be tipped enough. Most people don't tip and if the tip is large enough, you do receive the tip.
I'm not sure I fully understand the backlash. Yes, the tipping policy didn't meet people's expectations ... but it seems almost exactly the same s how tipping + wages work for wait staff in restaurants (where restaurants are allowed to pay them less than minimum wage, as long as the difference is offset by tips).
Why are we okay with this policy, which is enshrined in law, for restaurant wait staff but not for delivery drivers?
A reasonable argument is that tips should always go direct to the staff and they should also at least make minimum wage, but that'd represent a huge change from the status quo and people aren't freaking out about how restaurant staff are compensated, so it seems like this hits a different emotional chord for some reason. Maybe it's more evil-seeming coming from a large tech-ish company rather than SMBs?
Personally, I am not okay with the law. An employer should pay a living wage. That said, I'm biased because I would vastly prefer to avoid the anxiety I feel around figuring out the right amount to tip such that I don't feel scummy nor taken advantage of. I went there to eat some food, not feel anxious.
But more fundamentally Instacart and Doordash deceived consumers in a way restaurants don't. Say minimum wage for tipped employees is $4, a restaurant pays a $5 wage and I tip $2, I expect that the staff gets the $5 wage and the $2 tip (whether pooled or otherwise). If the restauranteur uses my $2 tip to cut wages below $5, then that would be illegal and outrageous. The minimum wage amount of $4 does not even enter into the calculation in this example, except defining the floor for the restaurant to pay its tipped employees.
This is a difference without distinction. It is the separate minimum wage for tipped employees which allows the restaurant to pay less than the minimum wage. If the tipped employee minimum wage is $A and the untipped employee minimum wage is $B, and the tipped employee earns $C in tips:
The restaurant must pay $A. If $A + $C < $B, the restaurant must pay $B -($C + $A) more so the employee earns $B. Else, the restaurant doesn't have to pay anymore.
That's exactly how DoorDash works. They pay $1 (equivalent to $A), guarantee another amount (equivalent to $B), and if $A + $C < $B, they fill in the difference.
> But more fundamentally Instacart and Doordash deceived consumers in a way restaurants don't.…
How so? They operate exactly as restaurants do in tipped employee minimum wages states in regard to tips.
There are some restaurants that are exclusive on certain platforms (UberEats for example is exclusive with McDonalds), so if you want that, there's only one game in town, but most people I know who use these platforms regularly (myself included) aren't using them for a specific restaurant. It's more like, "I want sushi! I wonder what is available on my platform of choice?"
Beyond they all have slightly different pricing models, but at the end of the day they all cost about the same.
Network effects are pretty strong. Locally, I don't know anyone who uses anything other than SkipTheDishes.
https://www.vox.com/recode/2019/7/11/20688108/postmates-acqu...
Looks like Doordash doubled its US marketshare in the last year mostly at Grubhub's expense while others have remained more or less flat.
For example as a user I have literally never had a good experience with Caviar. It almost always wrong in different ways.
As a courier one time the guy called and said that the restaurant was taking so long that Caviar would no longer pay him to wait so we ended up paying him out of pocket to cover it (he said we could cancel and get our money back but that he'd also get nothing after waiting for a very long time).
Uber Eats, as a user, has usually worked pretty well. As a courier one of them told us they constantly have out of date restaurant menus, people order from them, the restaurant substitutes or ignores it completely and now they have to deal with an angry person.
It really feels like restaurants are not equipped to handle these types of services and all of the services don't train their people if at all, as well as treating them kinda like crap many times.
I also once opened the door after waiting about five minutes after getting the “driver is approaching” notification to hear two people bitching about “how ridiculous” it was finding my place. They were in my driveway but could not find the front door. My house is on a hill so the door is down a flight of stairs from the garage but it’s only about 20 feet away and plainly visible from the street.
The building itself looks like a garage from the road, so many pass by the unmarked door they need to enter the code on. Also, there's three consecutive lanes you can turn right onto, so when Waze tells them to turn right, only 33% of drivers get it correct else they get lost in a maze of parking lots and dead ends. This is also after the driver successfully navigates a roundabout (hard for some US drivers) and does not accidentally getting back onto the interstate because the lanes are not clearly marked.
That courier was full of shit. You get paid regardless of customer status, and you also get paid per minute over a certain delay threshold. Sounds like you just got a bad actor.
I mean, that's basically what he said but that it had been an hour and a half (IIRC) and he said Courier would stop paying him to wait.
I've never been a courier so I wouldn't know.
A lot has changed since then, and we’ve had several pretty negative encounters with them including one where the CS rep basically accused us of lying about not receiving our food. (I suspect it was misdelivered because the map software they used put our address as our neighbors house two doors down.)
My last experience with them: The app told us to contact them for an ETA on our food. The actual status of our order wasn’t clear. We had a dasher and then we didn’t have a dasher. There was no way to contact them. We tried “Contact the dasher” and the number didn’t go through. We tried to use the chat functionality (which is ridiculously buried under four or five levels of clicks and even then not immediately obvious” when it used to be basically automatic if you clicked “help”) and it wouldn’t connect us. We tried another number which also didn’t go through. The website had a message about difficulty placing orders at that time but ours was already placed.
So there we sat in limbo not knowing if the food would ever arrive and no way to contact anybody. Should we just go out to eat? We didn’t know. We did use their web form contact them, but the response came way too late to not have ruined our meal time. Eventually our order was cancelled and to their credit they gave us $50 credits but meh.
DoorDash app and website are a dumpster fire with usability and bugs galore.
The issue is as a user is if you bring this up to DoorDash support they have no internal process for handling reported issues with the app and website and letting the development team know.
As far as I know, DoorDash wasn't in that space before; I wonder if that's part of the reason for the acquisition. (The alternative is that they may not be interested in that side of the business at all and shut it down.)
How are these acquisitions not in violation of these laws. Especially from the Big Tech Cos that slurp up literally any small competitor.
From the article:
"DoorDash's acquisition of Caviar creates a highly differentiated company with a unique brand and wide-ranging selection."
How is this not a play at eliminating competition?
To your more general question of "how is this not a play at eliminating competition" - consider it more "can we (DoorDash) make more money operating Caviar by finding synergies with our existing infrastructure, than we pay for Caviar based on a model that describes Caviar operating under Square without that benefit?" That's a question of efficiency, not competition, and it's generally a good thing.
Using a monopoly in one industry to negatively affect businesses in another industry or gain a monopoly there is illegal.
I’m trying to figure out if their Developer API is a chasing-Stripe distraction for them or a good defensive move.
[0]: https://www.cnn.com/2019/07/18/perspectives/principles-gig-e...
https://www.cnbc.com/2019/08/01/square-earnings-q2-2019.html
$410M is about 60 metric tonnes of caviar.
Still a better deal than buying a tier-3 food delivery company.
Seriously, I don't know the logic behind behind that name.