Customer Acquisition · Beverage

Are food delivery businesses being propped up by VC money?

Lucas Jaz

February 2nd, 2016

There's been a lot of talk of late about Door Dash and competitors going for major rounds and not getting them.  Talk I've heard explains that they are acquiring customers for more than they are worth in an effort to grow. Do people have knowledge of whether this is true and more interestingly, if they are being propped up by VC money to get a bigger footprint where does that leave the market in a year?

Brian McConnell

February 2nd, 2016

Expect things to get ugly. All of these businesses are replaceable and forgettable. Customers will use whatever delivery service is available in the area or from a restaurant. Workers, being treated like disposable wet naps, have no loyalty to any of them. So if they're spending VC money to grow, expect them to fail fast and fail hard when cash runs low. A few might be left afterward, but they'll competing in a low margin, high effort space. At least the VCs will know where to look for capital losses to count against the winners in their portfolios.

Anu Shukla Founder & CEO at RewardsPay Inc.

February 2nd, 2016

As a consumer, it is nice to have a choice of eateries and menus and order online or by phone and have it delivered in 30-45 minutes ( like waiters.com in the past) But the cost is high for an average lunch. I recently ordered a $9.00 item and with delivery and tip - paid $ 19.95 - so will not be doing that again !
Wondering why these services even exist at this point - not sustainable!

Michael Barnathan

February 2nd, 2016

To the extent there's margin there, I suspect a lot of it will come from asking restaurants to take a hit rather than billing a delivery cost to the consumer. Something nominal (<$5) might work. Obviously the model works best in locations where deliveries to multiple clients in certain areas can be batched, such as dense urban neighborhoods.

Craig Merry CEO/Founder of Beacon Safety Co. and Operations Coordinator at Purple Communications, Inc.

February 2nd, 2016

Depends if they can do it "cheaply" enough for consumers not to balk. Yes, VC's are behind Door Dash. I don't see the growth potential at all. While convenient, it doesn't save that much time/money over traditional options. It's a very niche market.  

Michael Barnathan

February 2nd, 2016

(In the sense of a restaurant volunteering to take that hit, it needs to be offset by increased exposure/order volume, which would favor the larger platforms such as Seamless over smaller VC-funded competitors).

Michael Brill Technology startup exec focused on AI-driven products

February 4th, 2016

Then there's this: http://finance.yahoo.com/q?s=grub

Vijay MD Founder Chefalytics, Co-owner Bite Catering Couture, Independent consultant (ex-McKinsey)

February 2nd, 2016

I think we'll see the costs go up and the consumer won't take them.

We run a catering business and an integrated chain of custody and solid customer experience on delivery is what our customers expect. 

You do see that care at a Munchery or Sprig, so that model may work if the unit economics play out over time. 

You don't see that with a door dash or uber and I think the lack of care and risk in food being handled by a non-trained non-employee + true unit economics will drive that model out.   

In the real world sales that don't add to the bottom line drive businesses that don't account for those costs out of business.  We saw it with Groupon and I think we'll see it again here.

Michael Barnathan

February 4th, 2016

They just crushed their earnings, which were released today. Long-held expectations of a slowdown (priced into their recent decline) may be premature.

They're the biggest player in this space, so the comment about sufficient delivery volume (at least in dense areas) probably rings true for them.

Chris Kitze CEO at Safe Cash Payment Technologies, Inc.

February 2nd, 2016

Brian McConnell +1

The other thing you'll see is the high priced lunch eateries in places like NY and SF die off.  It's getting hard to find anything for less than $15 for take out and this is supported mainly by startup fever.

Paul Geller Web Executive, Entrepreneur

February 2nd, 2016

The big online food delivery platforms drive so much order flow that they are sure to survive.  In fact the restaurants get very dependent on the volume.  I see a lot more of that unsustainable VC subsidy happening in the Uber space.