
UberEats lost $3.36 per order and would continue do so for next5 years - zoolander2
https://themarkup.org/coronavirus/2020/05/27/during-the-pandemic-grubhub-should-be-thriving-its-not
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dang
This submission broke the site guidelines by using the title to editorialize.
Please don't do that.

[https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html)

[https://hn.algolia.com/?dateRange=all&page=0&prefix=false&qu...](https://hn.algolia.com/?dateRange=all&page=0&prefix=false&query=by%3Adang%20%22level%20playing%20field%22&sort=byDate&type=comment).

~~~
lhorie
Also, the title isn't even factually correct. The sentence from the article is
"In August 2019, analysts from the investment firm Cowen estimated that Uber
Eats was losing $3.36 on every order and would continue to lose money on every
order for the next five years". It's an estimation from a third-party, not
official numbers.

------
SeeDave
UberEats is a real head-scratcher as almost all of the key players, from my
perspective, have expressed dissatisfaction to some extent:

1\. Restaurants as UberEats charges a fee often greater than the restaurant's
own profitability

2\. Restaurants as there is a real fear that Uber is gathering data for
customer tastes/habits to then give priority to CloudKitchens™ or some other
variant on commissary kitchen/virtual restaurants

3\. Customers who are shocked by the fully-loaded cost (menu, fee, delivery,
tip)

4\. Drivers as they barely earn a living wage and put considerable wear and
tear on their vehicles

5\. Potential investors due to heavy losses generated by subsidizing this
entire operation

6\. White collar Employees as they are baited/strung along with generous RSU
grants to then be overworked at a pace which would make a full vesting
impossible

This is really strange because the Indian Dabbawala[0] industry has been
operating continuously for 100+ years and one would think that across-the-
board PPP/COL adjustments would allow for similar sustainability.

Is there any other industry where almost 100% of everyone involved is
currently miserable or are at risk of being disappointed by long-run results?

[0]
[https://en.wikipedia.org/wiki/Dabbawala](https://en.wikipedia.org/wiki/Dabbawala)

~~~
mataug
Dabbawala isn't a fair comparison.

\- The person making the food in the case of Dabbawala, is usually someone's
wife. That's basically unpaid labor. Its not fair for the wife, but that's a
different discussion, staying on topic.

\- Delivery routes are pre-determined so routes can be planned efficiently.

\- There's established routines such as the Dabbawala arriving around the same
time to pick up food.

\- The dabbawalas usually use trains and bicycles. So they don't pay for the
cost of a car, fuel, insurance and maintenance.

\- Dabbawalas, AFAIK, only exist in Mumbai, which has very high population
density and enough economies of scale to sustain the business.

\- Dabbawalas don't have a middle man tech company which pays expensive
software engineers, and tech executives.

So these factors make dabbawalas profitable while food delivery services don't
make a profit.

We recently started calling restaurants and asking if they have in-house
delivery, and avoid UberEats/Doordash/OtherDeliveryService. The other day we
ordered Thai food, and the owner of the restaurant delivered the food
personally and she was truly grateful that we called them instead of ordering
online.

This made me wonder, what if restaurants in a city formed Co-op, and started a
food delivery service ?

\- Multiple co-ops across different cities could form a LLC and hire Software
engineers to build an App & maintain backend services.

\- The same app would work across many cities

\- Each co-op is responsible for hiring its own delivery drivers in the city.

This would eliminate a profit-seeking middle man, and keep costs low. I sense
that there would be many obstacles, but I think its still possible, and
potentially be even better for the consumer and the restaurants.

~~~
ivalm
That's why the standard comparison in the US would be something like Domino's
Pizza, which makes money on delivery while being cheap. I think the answer is
somewhere along the lines of route/logistic efficiency.

------
deanCommie
> “Bottom line is that you need to pay someone enough money to drive to the
> restaurant, pick up food and drive it to a diner. . . ,” the company wrote.
> “At some point, delivery drones and robots may reduce the cost of
> fulfillment, but it will be a long time before the capital costs and ongoing
> operating expenses are less than the cost of paying someone for 30-45
> minutes of their time.”

Key point here. Even if you are expecting that these drivers are making
minimum wage and your operating costs are zero and they have to maintain their
bikes/vehicles out of their own pocket, that's still 7.50-11.25$ per order.
Which is not something people would be willing to pay for a 20-30$ food order.
Hell, I'd say even for a 100$ order people would balk at because they're used
to it being free.

We are approaching a reckoning as a society where we need to understand the
"true cost" of our choices.

I think the only way you can make door-to-door food delivery financially
viable is with A) delivery drones, and B) massive centralized kitchens.

~~~
Barrin92
>We are approaching a reckoning as a society where we need to understand the
"true cost" of our choices.

the much scarier question is why investors apparently don't understand this
rather simple fact and keep pumping ungodly sums of money into these ventures

says a lot about the level of general innovation in our society

~~~
MattGaiser
If the move to the centralized kitchens and turn burgers into a commodity
product, then I can see Uber being highly profitable. Costs can fall.

~~~
addicted44
My primary question, as always with Uber, is with ridiculously easy switching
costs, and almost no lock-in, why will Uber be the one that benefits when the
profit making $EPOCH happens?

Why wouldnt another well capitalized business that hasn't lost tens of
billions of dollars not be able to do better, since for $EPOCH + x years, that
other business can actually afford to lose dollars while Uber needs to
maintain its profit margin to recover the billions it lost in the pre $EPOCH
era.

~~~
addicted44
But how would they ever have the most content? There isn't a single restaurant
that is not being paid millions by Uber that is specific to Uber. Nearly every
cab driver will also drive for Lyft, Via, etc.

Additionally, Google actually competes and wins on content. It's rare that
Google offers a worse search result than any of its competitors. However, my
food tastes just as good if ordered through Uber Eats or Grubhub or through
the restaurant's own website, and my taxi service is likely gonna be the same
whether I use Lyft or Uber.

Finally, unlike Google, Uber is actually renting its location from its
competitors. Apple and Google could sign deals with Lyft/Seamless to make them
the default provider in Maps, Google search, Apple Search or an Apple
Restaurants app.

------
Havoc
>unworkable business model

That's not the right conclusion. The model is fine - you just jack up the
price by 5 bucks and you're done. Lose some customers, but remainder is likely
break even.

That -3.36 is a result of VC money pushing to companies to go head to head in
a race to the bottom that isn't capped to zero. That simple fact distorts
everything.

It's _NOT_ a problem with the model of sticking a burger on a bicycle. Look at
the bike couriers in NYC - physically this can work and there are probably a
fair number of people willing to pay +5.

~~~
puranjay
I've said this before but I really don't see any reason whatsoever why
UberEats has to be a nationwide, or heck, even a statewide thing.

This market can benefit a great deal from local players who serve just one or
a handful of cities. Keep the tech simple to keep costs low. Don't need to
invest in any $250k/year data scientists since you won't have a great deal of
data to work with anyway (given the small scale).

Lower costs means you can give restaurants and drivers a bigger cut as well.

Most people who will use your app will be local residents. They don't need an
app that can help them order in 500 cities across the world - they need an app
that can help them order in _just_ their city.

~~~
pedrocr
Local services like that have existed for decades. They usually have poor
websites or even phone ordering, often don't have an app, and the payment
methods can be behind the times. But they have always worked fine. The new
wave of VC-funded services are trying to grab away the market with both much
better UX and subsidizing the deliveries. It's just that no one seems to have
a viable plan to exit that phase and be profitable. Meanwhile the traditional
services are being edged out of the market. I don't know how this doesn't trip
up more fair competition laws because of that.

~~~
puranjay
We've come to a point where the tech and UX has been commoditized enough that
putting together a functional app with rock solid payment infrastructure isn't
technically challenging.

VC money might have pushed smaller players out of the market, but I suspect
they might make a comeback soon enough

~~~
pedrocr
I've seen both cab drivers and these delivery services struggle quite a bit
with that, so I'm not as optimistic.

------
lordnacho
The thesis that you can grab market share and then use it to make profits
doesn't work in this case.

There's no reason why the customer needs your particular delivery service.
Even in a last-man-standing scenario, that last service is competing with a
note delivered with every meal that says "please order direct".

I looked into starting a restuarant and it made no sense to me to pay 30% of
the meal price to a third party. The breakdown I got from my friend who runs a
sushi delivery service in central London is roughly 25% fish, 25% rent /
utilities, 30-40% labor. And that's when things are going well, you die if the
chefs waste a few % more fish, or if a few people less a day come to order
your food. So there's no space for a 30% cut.

Why anyone does it, I'm not sure. Perhaps it is to do with maintaining market
share, or making sure your ingredients are used. Of course it's also true that
the fish is the only part of that budget that is roughly linear with the
number of orders, so maybe the restaurants also fall into a trap of saying
they'll try to boost the 45% remaining with volume.

------
tracker1
Is part of the problem not reading the mythical man month, and trying to hire
your way out of problems that don't work that way. I honestly don't get why
there would be more than around 25-30 software developers working for Uber,
generally speaking. I mean other resources around them, sure...

Many companies will be stuck needing things done, hire teams and teams of new
developers and things will only fall farther behind as a result.

Instead of more designers, ux, management, leadership, review, marketing ahead
of development so a clear experience is defined for a given project, they try
to divide into more developer teams each bottle-necked more than if there were
just fewer dev teams.

Meanwhile, so much money is spent trying to get the smallest uplift in
efficiencies when the problems tend to be systematic.

\---

I mean to exclude certain things like self-driving cars that should be a
separate sub-company.

Also, a bit off... since a team of 4-5 developer per device category or
platform interest.

api, web-ui, ios-ui, android-ui, 2x data-services, driver-devices, restaurant-
devices, support-apps, 2x admin-apps/reporting (still talking well under 100).

~~~
wolco
Are they still working on self driving cars? That will push the headcount up.
For each developer you have project managers, product owners, database admins,
techs, ba/technical ba, qa. Not to mention probably a big legal team.
Nevermind marketing / ui/ux guys or guys doing reporting or people internal
tools.

~~~
tracker1
imo, self-driving cars should probably be a separate company owned by the
parent... and likely is, and doesn't even apply to the thousands of developers
alone they are stafing.

And for each developer there is probably 1:1 for other staff... in my
experience for a team of 4 devs, you usually get 1/2 time for a PM, 1/2 time
for an owner, a QA, 1/3-1/4 dba and a BA and maybe 1/4 time of a designer.

The primary application could probably do very well with 3-5 dedicated teams
to portions of the application with less general conflict and bottlenecking...
The support staff would need to scale to meet the larger demands though.

Given their funding, even top-tier engineers at $250-300k (Northern
California) base would still be less expensive than hundreds or thousands of
developers. Putting the self-driving car research into a separate company.

The site is not _THAT_ complex, and they are, or should be leveraging a number
of existing tools. They probably have a byzantine codebase that takes days to
make what should be a 15 minute change at this point because of the shear
numbers.

------
imtringued
It doesn't work because the delivery driver isn't delivering multiple orders
at once.

~~~
TYPE_FASTER
If that's the case, then everything makes sense to me now, except why they
would do that.

~~~
neltnerb
Optimizing for rapidly growing the customer base (both restaurants and diners)
over short term profitability.

It's understandable, if a terrible actual plan. I guess they feel they have to
grow fast enough that people don't just ignore them and order directly like we
used to and probably will again soon.

Some restaurants won't do delivery anymore, just like it was until recently,
and if they want to get into it then the smart people with actual local
experience can decide if it makes sense or not.

------
sailfast
How much of the overall investment was done in the hopes that some level of
autonomy would turn all these minuses into pluses within a couple years? I get
investing in a loser if there’s key enabling tech like this “in the pipeline”
but it sounds like even then the math is a bit backward.

Quote from the article: > “At some point, delivery drones and robots may
reduce the cost of fulfillment, but it will be a long time before the capital
costs and ongoing operating expenses are less than the cost of paying someone
for 30-45 minutes of their time.”

------
Jommi
It's always great seeing tons of HN commenters never really realising the
potential completely valid reasons a VC would fund a business like this. It
feels in part fueled by the media and general anti-VC thing that's going on.

------
jpalomaki
Deliveries could be more efficient if kitchens were centralized. It is
inefficient to pick from multiple locations.

Maybe you could just have larger kitchens, preparing different types of food
under different brands.

------
MattGaiser
I'm really surprised that UberEats doesn't try and pull a cruise line type
thing, where they have a massive central kitchen and just churn out vast
quantities fairly standard food.

~~~
puranjay
Cruise line customers generally don't have hundreds of nearby restaurants to
choose from.

------
buboard
SliceLine did it better

~~~
s09dfhks
sick reference

------
lukevdp
I couldn’t tell from the article, but is the 3.36 loss on unit economics, or
the loss of the company as a whole per order?

------
curiousllama
I'm incredibly sad that the era of VCs wildly subsidizing my millenial
lifestyle is coming to a close.

------
stefap2
They will make it up on volume.

------
adamnemecek
Capitalism evolved into socialism. The free market started subsidizing meels-
on-wheels.

~~~
devalgo
Subsidized for who though? It's not clear that the consumers, the restaurants
or the Drivers are actually getting a good deal here.

~~~
roflulz
consumers get it cheaper than it should actually cost? restaurants get to sell
more volume during covid, otherwise there's no way they'd have the volume to
support staying open, and drivers are getting paid for something that normally
wouldn't be a viable thing, I don't think many are leaving better
opportunities, otherwise, they wouldn't do it...

~~~
devalgo
Have you used any of these apps? Delivery Fee + Servicing Fees + Driver Tip is
usually minimum +20% on your order total. How is that cheaper? Restaurants
have to pay a flat % to the Apps and this usually crushes their profit even
with volume. Do we even need to argue that Uber drivers are getting a good
deal? Car maintenance + lack of benefits usually leaves them making minimum
wage or worse. It's A job but I don't think anyone is saying its a Good one.

