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Why Do Food Delivery Companies Lose Money? - NY Mag
Ranjan Roy has a great article on Substack about DoorDash and “pizza arbitrage”: Roy’s friend was first annoyed to discover that DoorDash was providing delivery services for his nondelivery pizzeria: taking web orders without his knowledge, phoning in for takeout and sending a DoorDash delivery worker to pay and pick up the food, and often delivering to a customer who would be annoyed that the pizza arrived cold. And then he was surprised to see DoorDash was selling his $24 pizzas for only $16. This meant he had an arbitrage opportunity: Order his own pizzas at $16, sell them to DoorDash for $24 each, and pocket the difference. This worked even better if he didn’t put real pizzas in the delivery boxes. But how on earth was DoorDash ever supposed to make money selling his pizzas at a loss?
Delivery via smartphone is one of those venture-funded sectors where business executives appear to have taken seriously the old joke about “losing money on every transaction but making it up on volume.” Normal rules of capitalism about maximizing profits do not apply. This has led to a strange situation where restaurants feel squeezed by the fees charged by delivery services (when, unlike Roy’s friend, they participate voluntarily on a delivery platform) and yet the delivery services themselves manage to keep losing money. Why is this even happening?
Ranjan Roy has a great article on Substack about DoorDash and “pizza arbitrage”: Roy’s friend was first annoyed to discover that DoorDash was providing delivery services for his nondelivery pizzeria: taking web orders without his knowledge, phoning in for takeout and sending a DoorDash delivery worker to pay and pick up the food, and often delivering to a customer who would be annoyed that the pizza arrived cold. And then he was surprised to see DoorDash was selling his $24 pizzas for only $16. This meant he had an arbitrage opportunity: Order his own pizzas at $16, sell them to DoorDash for $24 each, and pocket the difference. This worked even better if he didn’t put real pizzas in the delivery boxes. But how on earth was DoorDash ever supposed to make money selling his pizzas at a loss?
Delivery via smartphone is one of those venture-funded sectors where business executives appear to have taken seriously the old joke about “losing money on every transaction but making it up on volume.” Normal rules of capitalism about maximizing profits do not apply. This has led to a strange situation where restaurants feel squeezed by the fees charged by delivery services (when, unlike Roy’s friend, they participate voluntarily on a delivery platform) and yet the delivery services themselves manage to keep losing money. Why is this even happening?