DoorDash and Uber Eats Are Hot. They’re Still Not Making Money.

If you haven’t heard, DoorDash and Uber Eats have been making a lot of headlines lately. Both companies have seen a meteoric rise in popularity and have been among the most talked about tech startups of the year. But while DoorDash has been praised for delivering food to hungry customers in an instant and the ability to offer on-demand deliveries, Uber Eats has been criticized for being a money pit as it struggles to turn a profit.

In 2015, the food delivery industry went through a huge wave of growth as food delivery services like DoorDash and Postmates took off in major cities across the country. The growth continued throughout 2016, with several smaller companies joining the fray. And now, in 2017, the food delivery industry is still booming, with a number of new players launching services in major cities across the country.

DoorDash and Uber Eats are two of the hottest startups in the food delivery space. They’re basically a more direct approach to delivery than your usual hungry-driver, around-the-corner delivery. Both food delivery startups are free for merchants, and the companies seem to only serve larger restaurants. Still, it’s not surprising that the core concepts behind the companies are pretty simple. DoorDash connects consumers with local restaurants. Uber Eats connects restaurants with consumers.

the pandemic, meal delivery services experienced record sales as millions of Americans living at home embraced the idea of ordering a meal through smartphone apps. Their value has increased dramatically. They received a large amount of data that helped them improve their performance. There was only one problem: Even at the height of their success, they weren’t making any money. You really have to optimize everything down to the last cent, says Pierre-Dimitri Gore-Coti, head of Uber’s global delivery division, which includes Uber Eats.

At the height of the pandemic, DoorDash suppliers delivered more supplies per hour on average than in previous years.

Photo: Alexi Rosenfeld/Getty Images Food delivery is an expensive logistical undertaking. Apps make money by charging restaurants a percentage of the amount ordered and consumers a service fee. They then use this revenue to pay the drivers, who are their biggest expense. After deducting advertising costs and refunds to customers, as well as other operating expenses, DoorDash retains an average of 2.5 percent of the customer’s total bill, according to the study. German Bank Analysis. That means that at the height of the pandemic, DoorDash took 90 cents off the average order of about $36. The math isn’t pretty, but it’s the best in the industry. Although DoorDash has yet to make an annual profit in its eight years of existence, it posted a quarterly loss last year, making it the only meal delivery service in the U.S. to do so during the healthcare crisis.

Feast or famine

The average DoorDash order during the pandemic* cost customers nearly $36, while the delivery service made less than $1 in profit.

word-image-13368 Food: $24.04 Tax: $1.82 Tip: $3.54 Gather round: $6.15 Total : $35.55 The mail lasts: Shipping costs : $5.37 Tip: $3.54 Total : $8.91 After payment from the restaurant and vendor, DoorDash will stay with : They are: $4.85 Refunds : -$0.49 Actions: -$0.55 Advertising: -$1.01 Other expenditure : -$1.90 Profit: $0.90   word-image-13369 Food: $24.04 Tax: $1.82 Tip: $3.54 Gather round: $6.15 Total : $35.55 Accept mail : Shipping costs : $5.37 Tip: $3.54 Total : $8.91 After paying the restaurant and the delivery driver, DoorDash remains: They are: $4.85 Refunds : -$0.49 Actions: -$0.55 Advertising: -$1.01 Other expenditure : -$1.90 Profit: $0.90 Analysts think the companies will not be profitable for at least a few years. Right now, they say they want to prove that the industry can continue to grow and increase profits even as customers return to restaurants. It’s an expensive, low-margin, developmental business – that’s absolutely true, said Christopher Payne, DoorDash’s COO. DoorDash and Uber executives have spent the past year testing what they hope will become the secret sauce. They aim to increase average customer order size by expanding into more lucrative items such as groceries and alcohol, combining non-perishable items with food to reduce delivery costs, and using technology to reduce errors in restaurants and drivers, resulting in fewer returns. Some competitors question whether diversifying into new categories and reducing operating costs is the key to profit. Grubhub, pioneer in online restaurant ordering with delivery or pickup by restaurant owners and reluctant to get into delivery to fend off competition from DoorDash and others, is being acquired by the European giant. Just Eat Takeaway.com Next month. She said she wanted to return to her roots as an online marketing service for restaurants. Food delivery is and always will be a lame business, the CEO of Grubhub said. Matt Maloney. Said. Maloney thinks that as restaurants transform, more orders will shift from delivery via apps, but that online orders will remain popular, both for pickup and for transportation by restaurants’ own employees. Grubhub’s advertising department is key to future profitability, he said. Grubhub is skeptical of the various implementations of its competitors. All other companies in the sector are stepping up their logistics and advertising their business intelligence and technological excellence, said CEO Maloney. I think it’s the right decision to become a better restaurant company.

Playing for seconds and cents

Saving a few seconds per transaction can mean the difference between an order that increases or decreases your profits. The companies have used the experience of the past year to improve efficiency and reduce certain operating costs. DoorDash driver Mark Ferguson says the app helps him use his time more efficiently. He realized this when he started delivering food again in March, after a one-year hiatus. The app selects restaurants for him that are closer to when his order will be ready, reducing the wait time. The 47-year-old, who has logged more than 6,000 DoorDash deliveries since 2015, is also saving travel time because the company has integrated Google Maps into the app’s interface for drivers. Previously, if they wanted to use Google Maps they had to switch from one application to another. Deliveries have also become more flexible: Dashers are invited to upload photos showing customers where they put their food, reducing the number of incorrect orders. word-image-13370

Online orders accounted for nearly half of Chipotle’s sales last year, up from 11% in 2019.

Photo: David Paul Morris/Bloomberg News The way I spend my time as a Dasher has changed, Ferguson said. Deutsche Bank says that at the height of the blockchain pandemic last year, DoorDash drivers were making 44% more deliveries per hour than three years earlier There are still many obstacles on the road from applications to profitability. While initial data shows that consumers who used apps during the pandemic keep them after the health crisis is over, the rate of growth is expected to slow from the rapid pace of 2020. According to the advocacy organization Protect Our Restaurants, more than 70 U.S. municipalities and states last year temporarily limited the fees that apps can charge restaurants to help local businesses. Major cities are considering making these changes permanent, which would limit the already narrow boundaries of applications. As traffic increases and restaurant kitchens return to full capacity, operational efficiency may decrease despite the measures taken by enforcement agencies. Some major chains are already reducing their reliance on delivery, increasing menu prices in the app and investing in high-tech takeout services to increase direct orders. On the website Chipotle Mexican Grill Inc, Last year, online orders accounted for nearly half of the chain’s $6 billion in sales, up from 11 percent in 2019. Shipping accounts for about half of these online sales but appears to be the least profitable category. technical manager Kurt Garner. reports that prices on Chipotle’s delivery apps now average 17% higher than in-store prices, after the company’s data scientists conducted market research to see how much they could raise costs. Garner says the company has also noticed that more customers prefer to order online when available. Chipotle is now building dozens of Chipotlans across the country. Meal delivery apps, aware of rejection by restaurants, have begun to change their terms. Late last month, DoorDash announced that it would allow restaurants to choose one of three commission rates and offer different levels of marketing and product support based on their choice. Uber is currently experimenting with something similar. Restaurants used to have no choice. Some large chains have used their size to negotiate a 15% commission. Many small restaurants paid the apps up to 30% of each order. This month, Grubhub and its competitors announced that for a monthly fee, it would create customized websites for independent restaurants, rather than receiving a commission for each order. According to the company, the initiative is designed to give restaurants better access to consumer data. The applications are also interesting for controllers. In April, representatives from Uber and DoorDash met with members of the New York City Council, who were considering making the 20 percent fee permanent. Uber claimed to be smaller and more capable in the city compared to its competitors, according to a person with knowledge of the discussion. According to the person, DoorDash has told lawmakers that it has stopped certain practices, such as. B. by publishing information about restaurants on its application without their consent. The board is still considering extending this limit or making it permanent.

More orders, fewer errors

In recent months, DoorDash and Uber have positioned themselves as companies that offer more than just food. Managers say the change gives customers reasons to return – and they think the habit will stay. According to market research firm Edison Trends, these companies together control more than 85 percent of food delivery sales in the United States In the middle of last year, the two companies expanded their operations to include the supply of food, alcohol and household products such as toilet paper. Part of the proposal: simplicity of control in a single application. word-image-13371

DoorDash and Uber Eats are looking at ways to encourage users to order food.

Photo: Michael Loccisano/Getty Images Uber announced that starting next month, it will allow customers to combine a meal order with a ride to the nearest store. DoorDash is currently testing a similar feature. Ordering food or alcohol is more lucrative than ordering groceries. Apps can therefore increase the size of people’s shopping basket and consequently their income. They can also get better at selling, said Payne, DoorDash’s chief operating officer. Now, he said, applications may ask: You want fries with that? Would you like a cabernet sauvignon with that? In the first quarter of 2021, non-restaurant orders accounted for 7% of DoorDash orders and grew rapidly by 40% compared to the fourth quarter of 2020. Earlier this month, the company raised its annual forecast for the total value of orders placed on its platform. With this strategy, applications can also reduce their biggest cost: the cost of delivery itself. Meal delivery apps couldn’t always wait to match a small order with a more profitable one, as hot meals needed to be delivered quickly. Company officials say the expansion of their non-perishable range allows them to consolidate stocks in a way that would not be possible with food alone. Analysts say that despite rapid growth in the past year, penetration of meal delivery services is still low – only 6% of the U.S. population uses DoorDash, the country’s largest meal delivery service by market share, meaning it’s still very early days outside of cities like New York, says a Deutsche Bank analyst. Lloyd Walmsley Said. In January, DoorDash outperformed its competitors by capturing more than half of the U.S. meal delivery market, up from a third a year ago. This was driven by a strong suburban presence, which helped DoorDash win customers through larger family orders, a wider selection of restaurants and greater operational efficiency. word-image-13372

Uber acquired beverage delivery service Drizly this year. Selling alcohol is generally more profitable than ordering food in a restaurant

Photo: Allison Dinner/REUTERS It remains to be seen whether the suburban location remains an advantage. Drivers may have to travel longer distances, but deliveries can be made faster due to less traffic and waiting times, as less time is spent looking for a parking space or taking the elevator to the customer’s restaurant or home, for example. Labor is also cheaper. Another way for companies to rake in money is to give refunds to consumers. Sometimes small changes to a product can make a big difference. Uber’s Gore-Koti was surprised at how many consumers complained about the lack of combo meals in the first few months of the pandemic. After solving the problem, he discovered that in fact the main ingredients of the combinations were usually provided, but things like salad or dessert were often missing. The app did not allow customers to report that one of the items in the combo was missing, so Uber had to refund the entire meal. Last summer, the company began offering consumers the ability to remove missing items from the combo. To minimize errors, the apps are also improving the technology they provide to restaurants. Prior to a pandemic, the most common missing element is Cheesecake Factory Inc. the delivery note was the cheesecake itself. The restaurant staff packed the hot dishes, but left the cheesecakes cold to be packed later. This increased the likelihood that employees would forget the cheesecake. DoorDash’s solution involved embedding reminders in the restaurant’s trays, so that orders for cheesecake were displayed in big, bold letters. This change reduced the number of missing desserts, as staff were less likely to overlook them when placing orders at the bar machines. DoorDash says cheesecake is no longer the most overlooked product. word-image-13373

GrubHub will begin allowing independent restaurants to pay a monthly fee for using the online ordering sites, rather than commissions on orders.

Photo: Mariah Tauger/Los Angeles Times/Getty Images DoorDash used what it had learned at the Cheesecake Factory to minimize mistakes when ordering from other restaurants. He began to take instructions from clients, such as. B. no cucumbers in the salad, in big letters above the order so the cooks can see it before they cook. A lot depends on where the technology is placed (bold or red font, etc.), says Toby Espinosa, Vice President of DoorDash, who has worked with restaurants on the technology. Something so small can lead to an insane increase in operational productivity. Grubhub develops a guarantee for its orders. For example, if a delivery is late, Grubhub will cover the cost and give the customer credit even if the restaurant defaulted, Maloney said. Maloney said he expects his business to pick up once restaurants are back to full capacity and profitable, allowing them to spend more on advertising services like Grubhub.

Seeking new clients and new customers

Apps are looking for ways to attract new users without spending too much money on advertising – otherwise they drive up costs. Uber is betting on its ride-sharing app to attract new Eats users. Last month, Uber unveiled new features that further merged its ride-hailing app and its delivery business to increase Eats orders when people start commuting again. One feature allows passengers to order food and receive it on the spot through Uber. The company has started sending messages to travelers who ask for food at their destination via the Eats app from airports. About 13% of new Uber Eats users switched from the ride-sharing app to Uber Eats in the fourth quarter, and company officials are confident that number will rise after the recent change. Apps are also trying to find ways to convert more users into monthly subscribers. Subscribers pay the applications a fixed monthly fee in exchange for lower commissions on orders. They generally order more often and have a larger shopping basket than non-subscribers. Demand for food deliveries has increased after the pandemic, but restaurants are struggling to survive. In a highly competitive environment, delivery services are fighting for market share while facing increasing pressure to reduce costs and better protect their employees. Video/Photo : Jaden Urby/WSJ Both Uber and DoorDash offer free trial memberships in the hopes that customers will keep them once they enjoy the convenience. In January, Deutsche Bank estimated that if DoorDash doubled its monthly subscribers this year, it would see annual growth even if order size and frequency fell back to pre-DoorDash levels. DoorDash shares are up nearly 50% since its IPO in December. Uber shares fell in mid-March last year when widespread blockades hurt Uber’s core ride-hailing business, but the stock has more than doubled since then. Grubhub’s shares shot up last year after the announcement of its acquisition of Just Eat and continued to rise last year as well, but its share price has since fallen.

SHARE YOUR THOUGHTS

How has the pandemic changed the way you use delivery applications? Join the discussion below. One strategy that helps Uber and DoorDash make more profitable deliveries is logistics for non-restaurant businesses. Although the companies had formed several partnerships before the pandemic, they redoubled their efforts when many companies became more dependent on supplies during the pandemic. Customers place their orders directly on these companies’ websites, which then turn to apps like Uber and DoorDash to fulfill the order. DoorDash now offers delivery services for Walmart Inc, Macy’s Inc. и Petco Health and Wellness Co. among other things. These orders are more profitable because apps don’t have to pay consumers back for mistakes or spend money on marketing. Customers like Walmart bring in a lot of business, so drivers typically carry multiple orders at once, which reduces the cost of in-app delivery. Sir, I want to thank you for your support. Walmsley of Deutsche Bank estimates that DoorDash will earn $2 from these deliveries, compared with 90 cents on an average meal order in the middle of last year. In such an environment, even small efficiency gains can make the difference between loss and gain: It’s a game of seconds and inches, said Mr…. Walmsley. Email Pritika Rana at [email protected] and Heather Haddon at [email protected]

Next action for delivery requests

Copyright ©2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8The rise of on-demand delivery startups like DoorDash and Uber Eats has been a boon for restaurant owners. Diners are ordering food from their favorites—and the on-demand model allows restaurants to provide food without worrying about labor costs or inventory.. Read more about uber eats delivery driver and let us know what you think.

Frequently Asked Questions

Do restaurants lose money with DoorDash?

If you’re a rideshare driver, you know that there’s no better way to make a buck than to take someone from point A to point B in the shortest amount of time possible. But according to a recent report released by DoorDash, these services are still losing money—more than $1 million a month, to be exact. Chances are, you’re also familiar with Uber Eats and GrubHub, both of which have more than 100,000 people signed on as couriers and have seen tons of success in their respective markets. Food delivery is booming! In just the past few years, online options have exploded, with some delivery services even offering free food if you order enough. But do restaurants lose money with DoorDash?

Which is better Uber eats or DoorDash?

With Uber Eats and DoorDash, customers can order food from their favorite local restaurants through their mobile apps or websites. Both services are trying to dominate the on-demand food delivery market that currently includes Uber Eats and Deliveroo, although Yelp continues to hold the crown for online food ordering. For each of these companies, there are numerous competitors, including Grubhub, Postmates, Foodler, Eat24, Sprig, and Seamless, which are all vying for a share of the market. Last Friday, Uber announced that it was acquiring food delivery service DoorDash in exchange for 6.8 billion dollars This deal represents Uber’s biggest exit yet after a string of failed investments and business deals with companies like Spotify, and could prove to be the start of a new era for the company.

Can you do DoorDash and UberEats at the same time?

DoorDash and UberEats are two of the fastest growing platforms in the delivery industry, and yet both have been plagued by problems. DoorDash has been getting a lot of heat for its slow growth, and UberEats has been caught in a scandal that may lead to its selling off to another company. But if these two companies were to merge, their growth would skyrocket. As well as being much stronger, the two platforms would also help each other out, as they would be able to supply one another with delivery drivers. DoorDash and UberEats are two companies that have found massive success in the on-demand food delivery market. Both companies use a combination of online ordering, smartphone apps, and cashless payments to offer their services. Each service has certain Advantages and disadvantages so choosing one over the other really depends on your personal preferences, what you want to get out of your food delivery experience, and how you plan to use the service.

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