
Uber’s Restaurant Empire - PretzelFisch
https://www.bloomberg.com/news/articles/2018-10-24/uber-s-secret-empire-of-virtual-restaurants
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QML
In reflection, it’s a good idea. Consumer preferences are hard to gauge; there
isn’t much of a feedback loop right now with restaurants beyond you either
have business and are sustainable, or you don’t and lose it all. This is
comparable to YouTube giving you different advertisements, but that these ads
(restaurants) are really expensive to run and experiment with. Virtual
restaurants essentially bring A/B testing from the digital realm to the
physical one. They provide and shorten the feedback loop, lowering the cost of
exploration by centralizing and by economies of scale; and resulting in
greater exploitation (not in the economic sense but in the multi armed bandits
framework).

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blatherard
Seamless had virtual restaurants at least 5 years ago. I remember in
particular my wife liked to order burritos from a certain restaurant, named
"Coastal" on the UWS. We tried visiting the restaurant based on the address,
and found out that it was actually "Citrus", an upscale latin american place
with an entirely different menu (that has since closed).

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smmnyc
I used to live on the UWS and remember Citrus. Never encountered Coastal but
do recall an eclectic menu. (No burritos though!)

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actuator
I think this is pretty common across industries where a platform acts as an
aggregator/marketplace. Case in point services like Amazon.com, Netflix have
their own brands/content as well. Netflix is known for using data of people's
content consumption to make new content. I think this makes sense for two
reasons:-

\- Tighter control over what you produce, so higher margins and potential
differentiators(like the burger example in article).

\- Acts as a defensible strategy for the aggregator if it can tie these brands
with itself.

The only scary thing is when these marketplaces/aggregators just kill small
businesses because of controlling the "storefront", discovery and leveraging
economies of scale. Example search in Amazon:
[https://imgur.com/a/zHDueIk](https://imgur.com/a/zHDueIk)

~~~
petra
In the case of "virtual restaurants", centralized, high volume kitchens are
much more cost efficient - for example they can get salmon for $6/pound
instead of the $9-$11/pound restaurants pay, and can save maybe up to 85% on
labor.

So thinking that a small business could play in the "virtual restaurant"
industry, is probably not realistic.

~~~
Eridrus
And yet, most of the centralised places have shut down. I'm thinking of Maple
and others, which I enjoyed using in NYC, and yet they are gone now.

~~~
petra
Since this new market is just being created, it makes sense that a lot of
companies will be shut down, in that search for the best business model.

One possible guess is: in this very competitive market it's really
hard/expensive to get new customers. But here, UBER had a big advantage.

Also, customers aren't loyal. But in the case of UBER, even if those customers
change a virtual restaurant brand, they're very likely to stay in the UBER
app, and UBER may have some power to guide them.

And if many "virtual restaurants" share the same highly-efficient commercial
kitchen, and aggregate their orders from suppliers - they still get most of
the efficiencies of a large commercial kitchen.

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dawhizkid
I'm still waiting for someone to figure out how to make "Etsy for food" work
at scale. My guess if/when it happens it will look somewhat like what Uber has
i.e. rent licensed "ghost kitchens" to small cooks by the hour and make all
deliveries originating from those kitchens.

~~~
dopeboy
This was tried most recently by Josephine (josephine.com) in the bay area.
They ran up against laws that forbid selling food cooked at home.

I don't think it is a matter of figuring out but rather legislation.

~~~
analogmemory
I hope someone can figure out a model like Josephine had, I had some really
tasty homecooked meals

~~~
wil421
Meals on wheels and similar meal services for elderly and disabled people have
been around for years. The menus are usually home cooked style food. Some
smaller ready to cook kitchens have been in my area for 10-15 years at least.

I understand you might have used homecooked to describe literally home cooked
food but smaller mom and pop food prep places are really good. Personally I
usually cook but a lot of friends use ready to cook places.

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ben_jones
Op-ed from a former power user: Uber eats caters in part to the socially
anxious and introverted demographic with moderate to high levels of disposable
income. It pushes high margin, low-quality, foods at 2x or more pricing -
particularly pizza, wings, chinese, and burgers. With some exceptions a large
portion of these restaurants delivered already for lower prices, but with less
convenience such as order tracking or ordering through an app. Over-time many
"power users" of Uber eats and similar apps will regress to only a couple
favored restaurants or stop using the app entirely. Uber eats will optimize
for these power users to the detriment of non-chosen parties for the worst of
the ecosystem as a whole.

~~~
706f6f70
> the socially anxious and introverted demographic with moderate to high
> levels of disposable income

I've began wondering if Silicon Valley is intentionally growing this
demographic. If your customers need you because they are mentally unable to
order food without you . . . well that's even better than a lifetime
prescription of your medication or selling cigarettes.

It's twice as good if I can slowly train my customers to develop social
anxiety by removing transactional interactions with minimum wage earners. That
sort of interaction would traditionally service as a stepping stone in
developing and maintaining social skills.

Add in social media which constantly has self-condemning memes about social
anxiety, embarrassing moments, and so on; and you've got an extremely fertile
ground for social anxiety.

~~~
dannyw
I don’t know where this whole idea of minimum wage interactions being a
stepping stone in developing social skills came from, because I don’t think
these sort of rote, algorithmic interactions help anyone develop anything.

~~~
michaelt
Football players train by dodging around predictable, stationary obstacles,
even though on the field they'll need to dodge around unpredictable, moving
obstacles.

Just because you need to use 6 skills at the same time in a real game, doesn't
mean there's no value in an exercise that only develops 3 of the skills.

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sytelus
There are two fundamental issues in food delivery business:

1\. Per hour cost of a delivery person is usually $20 after taking in to
account vehicle, gas, down times etc. If you assume each delivery takes
minimum of 20 mins (accounting for restaurant-customer-return hops), we are
talking average of $6+ per delivery. Considering a cost of a meal is usually
$10-20, this is significant barrier. My question is: Does these startups
taking on losses to build customer base?

2\. Cooked food is notoriously perishable. Think about eating burger lying
around for 30-60 mins before you eat. This not only limits items you can
deliver but also puts on pressure that you are always running against clock.
One mistake and you are bound to lose a customer for factors not in your
control.

So, food delivery idea is not new. It had been tried and failed to takeoff
probably couple of dozen times mainly due to above two issues. What really has
changed now to mitigate these two issues?

~~~
chrisseaton
> we are talking average of $6+ per delivery. Considering a cost of a meal is
> usually $10-20, this is significant barrier

I don't understand. Why does the value of the thing being delivered make a
difference to the value of the fact that it's delivered?

Should we expect it to cost more to deliver a more expensive item? I don't see
why. Why should it cost less to deliver a less expensive item.

~~~
ergothus
You are correct that the value of the delivery does not change with the cost
of the item. As a cost impact, it makes sense to instead compare to the time
and cost of traveling myself to get the item.

But the OPs point is valid if you think about the impact to your budget.
Saying a meal delivered represents a 50% markup in your food entertainment
budget is a legit consideration. Were we talking about a 5% or 10% impact to
the budget it would less dramatic.

~~~
bobthepanda
In an urban area, there's two related costs; money and time. Depending on
where you're trying to go and how to get there it can be a lot. Not everybody
can afford the time to go out, and throw in parking a car in there and you can
easily waste way too much time trying to get food. And that's assuming you can
even find free parking.

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dpeck
See Mac’d from the last yc batch as well. There’s some cool stuff happening in
food. Ghost kitchens have existed for a while, and I’ve had a restaurateur
friend mention them to me quite a few years ago, but it seems like they’re
hitting scale and getting very interesting.

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diogenescynic
I will not order take out from Uber. I’ve seen drivers with the food on the
floor with passengers sitting over it. Deliveries also aren’t quick.

~~~
icebraining
Weird; in the two cities I've seen them, all UberEats drivers use mopeds, they
don't drive people as well. How does that even work? I don't think the apps
let you coordinate the delivery and ride.

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pietroglyph
The most interesting part of this is their use of user data. Traditionally, it
seems like there isn't a great way to judge demand for a restaurant until you
open it, so it makes sense that user tracking (to gauge interest) and the
ability to operate out of an already profitable space (reduced upfront cost)
gives establishments a significant advantage (although the article doesn't
exactly comment on number of failed online restaurants, so selection bias
cannot be ruled out.) I wonder how competitors like GrubHub use data to gauge
interest...

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ikeboy
What's annoying is when you try to order from an existing restaurant and
notice they marked up their menu across the board for Uber Eats, then there's
delivery on top of that.

~~~
wenc
That's because Ubereats (and most food delivery platforms) take a huge cut (up
to ~30%).

Many low-margin restaurants wouldn't be able to survive without making that up
somehow. I sometimes wonder why restaurants bother to list on food-platforms
at all. Maybe they figure it's loss-leader marketing?

Or perhaps being that food markups are usually in the ~50%, and drinks are
several hundred percent, they can afford to make less?

~~~
ikeboy
Restaurants are low margin because of fixed costs and a limited number of
customers for their fixed space. Delivery doesn't add to their fixed costs,
and their gross margin is high.

FTA:

>For restaurateurs, it can be a chance to spread their fixed costs over a
higher volume of orders.

~~~
wenc
Makes sense. Thanks.

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tardo99
The thing that really impresses/surprises me about the growth of services like
these is that people have so much disposable income to pay for stuff like
this. In the news one reads constantly about how people are stressed
financially. Maybe people are diverting money they once would have spent on
other luxuries (cable tv maybe?) toward this kind of expense.

~~~
pjc50
The inequality slope is increasing. There's a fairly large upper middle class
of people who work+commute long hours and are prepared to pay for extreme
convenience. While at the same time there's _also_ a precariat of people for
whom earning a small and variable amount outside normal working hours sounds
like a good idea, providing cheap labour to these services.

[https://delong.typepad.com/sdj/2009/02/changing-relative-
pri...](https://delong.typepad.com/sdj/2009/02/changing-relative-prices.html)
: "In Agatha Christie's autobiography, she mentioned how she never thought she
would ever be wealthy enough to own a car - nor so poor that she wouldn't have
servants..."

Perhaps that is now reversing. Or the gap is wide enough to have a servant
with a car.

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KeepTalking
hmmmm.... I wonder if Uber eats can do what AirBnb did to the hotel business
by allowing home chefs-after-6pm to take low risk experiments and launch micro
Uber only restaurants from their home kitchen or a common kitchen (managed by
Uber eats to deal with sanitation challenges).

~~~
extrapickles
It would have to be from a commercial kitchen to pass health regulations in
most places. There are a few restaurants than share kitchens with the one next
door, and I would not be surprised if they had a virtual restaurant or two for
delivery only.

No reason that the kitchens that food trucks use can’t support this as I
suspect they dont have much demand for space around 5pm.

~~~
Forge36
I agree with your point on kitchen sharing, but I'm wondering if we sharing an
incorre assumption:

should we expect that the laws will be followed? Policing unlicensed taxis
_should_ have prevented Uber from succeeding. I recall early Uber being a
considered "ride-sharing" in attempt to avoid this problem.

How will unlicensed restaurants be enforced? Will people simply call the
practice food-sharing or splitting-meals? Start from the same model: two
friends living across the city but one didn't cook, the other makes large
meals. Uber meals is just a delivery service. Combine with money transfer app:
it's not a restaurant, is a group of friends pitching in for a good meal.

Uber successfully managed to get driver's to assume the risk when running
unlicensed taxis. It wouldn't surprise me if they could reimagine that success
here. The biggest hurdle I foresee: keeping the branding, and scale small
enough to fly under the radar until it's well established

~~~
prostoalex
> How will unlicensed restaurants be enforced?

One story about a dead cockroach or rat feces making into a meal will let
market forces take care of it. The story doesn’t even have to be true.

~~~
reaperducer
_One story about a dead cockroach or rat feces making into a meal will let
market forces take care of it. The story doesn’t even have to be true._

On the other hand, it's a virtual restaurant. So all you have to do is pay
some kid on Fivrr five bucks for a new logo with a different name, and you're
back in business!

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kerng
Had never thought about this, but it's pretty smart idea. Wondering if this
will become more and more the norm, especially catering singles. Is there a
way to search for these online only restaurants exclusively?

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SideburnsOfDoom
Seems similar to this:
[https://www.theguardian.com/business/2017/oct/28/deliveroo-d...](https://www.theguardian.com/business/2017/oct/28/deliveroo-
dark-kitchens-pop-up-feeding-the-city-london)

Which talks about "dark kitchens" i.e. existing, well-known chain, having a
branch that purely serves delivery services.

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jasonwilk
I have always thought this space will turn into the Netflix of food. First you
differentiate by having a good array of content (food) but will eventually
need to create original content with exclusivity (Uber creating or funding
their own restaurants just for delivery) to differentiate.

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PretzelFisch
It would be interesting to have access to an anonymized uber eats order
dataset.

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baseballMan
The biggest thing I've noticed with uber eats is the outrageous delivery fees.
I'm not really interested in paying an extra $6.99 for a meal and I'm
surprised other people are fine with it.

~~~
foobaw
In my area, a lot of them are either free or $1.99, $2.99. (It will vary by
demand though).

I think my threshold is $2.99 - in some scenarios when I'm extremely sick.

~~~
bllguo
in mine, fees used to be around there. I was comfortable with the 2.49 or
lower fees. Around 1 month ago they raised delivery fees by ~$2-$3 across the
board.

