Editor’s Note: As this post has gotten a bit of attention, we wanted to add in the name of my friend’s restaurants. They’re fighting the good fight right now, so if you happen to be in the Kansas area, please support Aj’s NY Pizzeria (it’s NY-style pizza based in Manhattan and Topeka, Kansas, and while I’m biased, it’s good).
If capitalism is driven by a search for profit, the food delivery business confuses the hell out of me. Every platform loses money. Restaurants feel like they're getting screwed. Delivery drivers are poster children for gig economy problems. Customers get annoyed about delivery fees.
Isn't business supposed to solve problems?
Last week's Uber-Grubhub news set off some antitrust alarms for me and got me thinking about the business of food delivery as a whole. But let me start this newsletter with a story about Pizza Arbitrage.
In March 2019 a good friend who owns a few pizza restaurants messaged me (this friend has made appearances in prior Margins' pieces). For over a decade, he resisted adding delivery as an option for his restaurants. He felt it would detract from focusing on the dine-in experience and result in trying to compete with Domino's.
But he had suddenly started getting customers calling in with complaints about their deliveries.
Customers called in saying their pizza was delivered cold. Or the wrong pizza was delivered and they wanted a new pizza.
Again, none of his restaurants delivered.
He realized that a delivery option had mysteriously appeared on their company's Google Listing. The delivery option was created by Doordash.
To confirm, he had never spoken with anyone from Doordash and after years of resisting the siren song of delivery revenue, certainly did not want to be listed. But the words "Order Delivery" were right there, prominently on the Google snippet.
He messaged me asking me if I knew anything about Doordash, and oh boy, did I get Softbank-triggered. I had just read about their $400 million Series F and it was among the WeWorkian class of companies that, for me, represented everything wrong about startup evolution through the 2010s. Raise a ton of money, lose a ton of money, and just obliterate the basic economics of an industry.
Doordash was causing him real problems. The most common was, Doordash delivery drivers didn't have the proper bags for pizza so it inevitably would arrive cold. It led to his employees wasting time responding to complaints and even some bad Yelp reviews.
But he brought up another problem - the prices were off. He was frustrated that customers were seeing incorrectly low prices. A pizza that he charged $24 for was listed as $16 by Doordash.
My first thought: I wondered if Doordash is artificially lowering prices for customer acquisition purposes.
My second thought: I knew Doordash scraped restaurant websites. After we discussed it more, it was clear that the way his menu was set up on his website, Doordash had mistakenly taken the price for a plain cheese pizza and applied it to a 'specialty' pizza with a bunch of toppings.
My third thought: Cue the Wall Street trader in me…..ARBITRAGE!!!!
