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The Fight to Rein in Delivery Apps

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The Fight to Rein in Delivery Apps

It goes on. Collin had this startup that he founded in college, and Grubhub bought him out in 2011, 2012. He ended up going to Stanford for business school, and he was a year behind [the DoorDash C.E.O.] Tony Xu’s class. He told me, “I told Tony, ‘Why would you want to get into [the delivery business]? Grubhub has this pretty locked down.’ What I didn’t understand was the impact of zero interest rates.” Basically, there’s all this money sloshing around, and these venture-capital funds need somewhere to put it. They’re in the business of trying to make monopolies, and they will throw a lot of money at that. And in an environment of minimal, completely defunded, completely defanged, completely ineffectual antitrust enforcement—the Obama F.T.C. was unbelievably ineffectual, and it’s not the first F.T.C. that has been—they understood that there were all kinds of potential opportunities if they could just monopolize that customer base.

My understanding is that the promise of these money-losing, venture-funded companies is that they will eventually become profitable, once they capture a sufficient share of the market. And right now the delivery companies dominate the market, but they still can’t seem to get close to profitability.

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Right. They don’t know how to get out of that business model that they invented, how to climb out of that hole, without potentially yielding market share. One of our Protect Our Restaurants members owns a restaurant in Iowa City, and they started a co-op with seventeen other restaurants—it’s a delivery service that operates just on a local basis. He’s set up little franchises of his model in other cities. It’s not easy to get off the ground, but it makes a lot more sense, because [the DoorDash model] is just not run for the benefit of the restaurant, or even with the restaurant’s operations in mind. There are a lot of ways that the whole thing could be improved if these were just locally run businesses—a restaurant coalition, or a city department of tourism, or something like that operating the marketplace. Those are groups that have the interests of the local dining community, and the community at large, in mind. The whole operation [of massive, decentralized delivery apps]—it doesn’t need to exist.

There doesn’t need to be someone a thousand miles away pushing a button that makes a guy go pick up food from a restaurant three blocks away from me and then bring it to my apartment.

They’re middlemen, and they make it impossible—like, if you don’t have something, if you run out of something, what are you going to do? You can’t call the customer. One of our members was telling me that, one day, he opened up a customer account on his work cell phone, and he realized that Uber Eats was telling his customers that they were still waiting for the kitchen to finish preparing their food. He said that these were orders that had been done for, like, fifty minutes. He was getting all these angry calls. People were, like, “Why is it taking you so long to make my food?” And he’s, like, “Dude, just come in!” If people knew, they would just go get it themselves. I mean, we have a labor shortage, and ninety-one per cent of Americans have access to a car. So it’s not a great business model. It’s going to be very price-sensitive.

Which aspect is price-sensitive?

If DoorDash is charging people five extra dollars for a meal, or ten extra dollars, and you start factoring in inflated prices, and the litany of fees—I think that people will make this calculation and decide “It’s not worth it. I’ll just go pick it up myself.” That’s better for restaurants.

That seems dependent on transferring the cost to diners. Which has happened—when cities put caps on what the delivery apps can charge restaurants, the apps charge a fee directly to customers. In Portland, Oregon, for example, DoorDash charged diners a two-dollar “Portland City Mandate” fee.

Which is great. I love that solution to this problem.

I can’t tell if you’re being sarcastic.

No, I really love it, because it forces the diner to actually make that calculation, and that’s how it should be. It’s the customer who is receiving the service. The only service that a restaurant gets from these apps is potential marketing, or a potential customer lead. DoorDash claims that these commission caps are price controls, but they’re not controls on the price that they’re allowed to charge the customers, just on the percentage of commission that they’re allowed to extract from restaurants. If this is a service, if it costs something to provide, then customers should be forced to run that calculus. There’s no benefit that anybody derives from that service being subsidized by Silicon Valley and by restaurants who are being held at gunpoint because they have no other options. If we didn’t have a fee cap here in D.C., I would have felt like it was unconscionable to order from DoorDash. But, with the fee cap, it’s, like, OK, if I’m feeling really lazy, or I have a whole lot to do, I can see if it makes sense to go on DoorDash.

They are working very hard to make it work. They’re working really hard on ghost kitchens. Uber’s working really hard on alcohol delivery—I might be a little bit worried, if I owned a liquor store, about Uber’s ownership of [the alcohol-delivery platform] Drizly. And then Cloud Kitchens, which is owned by [the former Uber C.E.O.] Travis Kalanick, has apparently been amassing liquor licenses. So they’re working to disrupt liquor stores, and they’re spending a lot on convenience and grocery delivery. I don’t see how it ever becomes the highest-margin business, but maybe Amazon will buy them at the end of the day. In the meantime, Tony Xu’s a billionaire, and so are, I think, two or three of his co-founders. So at least it’s worked out for them.

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The Fight to Rein in Delivery Apps