It is an interesting time to be alive.
Didn't someone say that was a curse?
People are stuck in their homes, and they are relying more and more on delivery services. That would mean that things should be great for delivery companies like Grubhub, Doordash, Postmates, Uber Eats, Amazon Flex and others
Or could it be the thing that topples one or more of them?
You would expect this to be a golden opportunity for gig delivery companies
Our society is more and more dependent on restaurants. Yet, with the COVID-19 Coronavirus scare, we're supposed to stay away from crowds. Many communities have ordered restaurants to close, other than for takeout and delivery.
I would think this is going to lead to a lot of new customers for each of these gig companies. You will have people ordering food who've never done that before. This is better than any marketing campaign they could hope for, right?
I'm not so sure. Depending on how they play things out, it could be an absolute disaster for some. I have a feeling it could topple a couple of companies.
I talked quite a bit with a friend awhile back who was a general manager at a restaurant in the area that uses all the delivery companies. He said he was paying out about 20% in commissions on any deliveries that went out. He explained that his actual cost on those orders comes out to 80% of the price, so essentially he makes no money at all on deliveries. I asked him why he uses delivery then, it doesn't make sense.
“Exposure. People find us on these websites when ordering in, and that helps us get people in the door who never would have known about us. That's when they order the alcohol and other things where we make a profit”
That makes sense. In a way it's like free marketing. No, he doesn't make money on those deliveries, but if he breaks even and still gets exposure, something that would cost a ton in advertising through other avenues, in the long term that's a good thing.
But now everything is changing
The problem now is, the profitable dining in has gone away for many of these restaurants. Revenue is way down but the fixed costs remain the same. Restaurants are fighting for their lives right now. The margins are even smaller, to the point that when you really break it down, they're selling food at a loss when paying the same commissions.
Grubhub and Uber Eats eliminate commissions temporarily
A week ago, Grubhub announced that they would temporarily eliminate commissions, up to $100 million total, for deliveries. In their press release, they stated that ” Grubhub's initiative will provide immediate and substantial cash flow relief to qualified independent restaurants.” Uber Eats shortly thereafter announced they were also suspending commission charges for independent restaurants.
Barrons reported one particular stock analyst has reduced his estimates for how Grubhub and Uber Eats would do. In particular, he mentioned he was concerned about what eliminating that revenue would do to these companies. I get that, that's how they make the bulk of their money.
Personally, I have to give them credit. They're playing the long game here. These companies understand that these restaurants have to survive if there's going to be a future. It's also going to help them with restaurant loyalty. I had one restaurant owner tell me just yesterday that “I don't think we could stay in business if not for Uber Eats waiving their fees.” To a certain extent, this is an investment that these companies are making.
Doordash and Postmates, however…. that's another story.
Someone from Doordash is possibly jumping up and down right now, saying “Hey, we're waiving fees too.” Well, that's assuming anyone from Doordash is reading this.
But I've been saying this all along, that Doordash is more about spin than substance. They did it again here as well. They announced a package of “commission relief and marketing support.” The package includes zero commissions for 30 days for independent restaurants.
That's for independent restaurants who sign up.
If you're an existing restaurant? Forgeddaboudit.
Now to be fair, they did promise “additional commission reductions for eligible merchants.” Notice two things about this: No promises of how much reduction, and that ‘eligible merchants.' In other words, it's the usual kind of qualifications that leave them an out when they decide to do nothing.
The bottom line here: While Uber Eats and Grubhub are using commission reductions to help their existing restaurants, Doordash is using it as a recruiting ploy.
And Postmates…. is waiving fees for some restaurants in San Francisco.
Why the difference in response?
It may be simply that Uber Eats and Grubhub have the ability to do this, Doordash and Postmates are in a different place.
The former are publicly traded. The latter are still in startup mode. Doordash and Postmates have to keep getting cash infusions and loans from investors to keep operating. The whole idea in startup investment is to get the company to a point where it can be sold and publicly owned. Both have had to delay that process.
The problem is, investors are nervous after Uber stocks took a dive and WeWorks plans to file an IPO turned into a disaster. There's more scrutiny on a company's ability to be profitable. Waiving commissions could cause companies like Doordash and Postmates to one, run out of cash, and two, endanger their abilities to go public. If they can't go public, investors can't get their money back, and if investors can't get their money back, they won't invest further. And if Doordash and Postmates, who are bleeding cash as it is, run out of cash and can't get any more, and if they can't be profitable in the first place…. you can see where this is going.
The other danger to gig companies: Do they have the capacity to handle dramatic increases in business?
Here's the problem to begin with. It's an incredibly inefficient system. You send one courier to one restaurant to deliver one order to one customer. Maybe, every once in awhile, you might add on a second or third.
And oh, by the way, you can't control the process. You're using contractors.
This was a real issue for at least one restaurant, who made the decision to stop using Doordash. In part, the problem was there was no control over Dashers. There was no way of knowing if they were being safe or sanitary and they didn't want to risk the health of their own staff or of their customers.
Support has been a major issue lately, especially for Doordash
This is another area where Doordash could really suffer. I'm speaking more from my own experience than anything.
So you have more orders. That means more problems.
But here's where there's a real support problem.
Doordash in particular relies heavily on a Phillipine call center for customer, restaurant, and driver support. The Philippines are in a lockdown situation right now, meaning that support agents are quarantined at home.
I know the technology is available that allows workers to work from home. I sold that technology for a number of years, and I can tell you that if you didn't invest in the right technology to begin with as a company, you won't have the ability to transition. There's a certain level of network infrastructure that's required to be able to adapt. Here's the bottom line: Doordash has been doing their support entirely on the cheap, so it's probably a safe bet they haven't invested in the kind of infrastructure that allows them to adapt.
Here's where I've experienced the issue.
Restaurants are closing left and right. More and more cities are banning dining-in, and the restaurant has to make a decision whether to keep offering takeout or delivery. I've seen a number in my market try to make a go of it to begin with since Denver announced such a ban, but eventually they decided to close their doors for the time being. Some that did were larger chains.
So what do they do when they decide to close up? If they have to contact support and no one is there for support, they're not going to hang on the phone forever.
What do you do as a courier when that happens? You have a choice: Contact support or cancel out of the order. The problem when you cancel out of the order is, it will then be sent to someone else. That creates a cycle where several drivers are taken out of commission due to this issue.
And what do you do as a customer? Your order is late. You're seeing it change over and over. You're pissed. And guess what? You can't contact support.
If the order does come in and it's wrong – you can't get through to someone to make it right.
The bottom line is, all of these companies are getting an introduction to a LOT more customers because of this crisis. But too often, that first introduction is a bad impression. And once the dust has settled, all those people they may have been able to add on as customers in the future have already experienced the platform, and the experience wasn't good.
If they do not fix the support issues, this could create long term damage to these companies.
I would say Grubhub has the best chance to get through this well.
It comes down to two things. One, they were the first to waive fees. That's going to remain in the memory of the restaurant owners.
Two, they seem to be better equipped to pivot when it comes to support. I get the impression that their infrastructure was better equipped to shift where things go when customers have issues. Previously, Grubhub had a substantial team of driver support staff that was based in the States. Over time they shifted things more and more to overseas call centers.
I have noticed that I can get through to Grubhub support much more quickly than I can with Uber Eats or Doordash. When I've had an issue with Grubhub I've been able to get someone on chat within about five to ten minutes. It's still a long delay, but in the past week I've yet to have had a call or chat answered on Uber Eats or Doordash.
I don't have inside information on what any of the companies have for network and telecom infrastructure. But having worked in the industry, my observations from the driver perspective give me the impression that Grubhub is a bit more nimble and able to adapt.
This is the golden opportunity for one company to really distance themselves from the competition.
Here's the reality. Support sucks when it comes to delivery from any of these platforms. And because of that, the customer experience is way too often a negative one. When these companies get overwhelmed, they have a greater risk of the experience becoming worse.
If any company could turn that around during this time, and really blow people away by their responsiveness, they have a chance to be THE trusted source for delivery.
I don't think that's going to happen.
I don't think this is the boon for delivery companies that some people think it is.
One of the biggest problems is, this has a way of exposing the greatest flaws in the business model.
They can't control the couriers. The law doesn't allow them to. It's an inefficient system. Support is greatly lacking. This is bringing to light all the flaws of the contractor model with drivers not truly getting sick leave, unable to draw unemployment, etc, with Grubhub's attendance policy discouraging drivers from dropping blocks if they don't feel safe. It's very possible that all the sins of these platforms are coming to light because of all this.
And if they're slashing or eliminating commissions and fees to restaurants, what's going to happen when they start charging more?
I'm curious to see what happens here. I think the business model is a house of cards, and these are the extraordinary circumstances that could collapse that house.
There's a tremendous opportunity right now for a company to distance themselves from the pack. Doordash could cement their lead. Grubhub could come back. Uber Eats could vault into first. But I think it's going to take doing some tremendous things in the midst of this to make it happen. I don't see that happening.
There's a lot of thought out there that maybe in a few weeks things will settle down, the growth of this disease will slow and it will be business as usual.
I'm just not sure if that's a possibility in our industry. I would love to see it all strengthen the industry. I'm just saying, be prepared for it to do the opposite.