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May 31, 2020 10:34 pm

Are Food Delivery Services Actually Losing Money?

Food delivery services like Grubhub should be thriving, especially during the pandemic. But they're not, The Markup reports: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. Uber CEO Dara Khosrowshahi acknowledged that Uber Eats is not yet profitable in an email to employees in March after its parent company laid off more than 3,700 employees.... In early March, DoorDash filed to go public despite losing an estimated $450 million in 2019, according to The New York Times. DoorDash declined to comment on that estimate or its path to profitability, but regarding the latter CEO Tony Xu told Fortune in February that "we're working our way there...." Meanwhile, other companies have been ditching the food delivery business: Yelp sold Eat24 to Grubhub, Square sold Caviar to DoorDash, and Amazon shut down its Amazon Restaurants delivery service. Grubhub, which also owns Seamless, is publicly traded and the only one of the big four that has achieved profitability. Still, it lost more than a third of its value after revenue fell below investors' expectations in the third quarter of 2019. In a letter to shareholders, the company revealed two things: Customers were "promiscuous," or not loyal to the Grubhub platform, and the delivery part of the business was fundamentally not profitable. Instead, delivery was just a "means to an end" — getting restaurants to sign up on the Grubhub platform and then upselling them on "marketing" benefits, like greater visibility in Grubhub's search results. In other words, like many tech companies, GrubHub is primarily an advertising company. "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."

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