The bizarro business of food delivery apps

Look, I use food delivery apps. I’m not complaining about them. I enjoy the convenience. I have two kids, and commute an hour each way to work. They meet a need.

But the business is insane. And few (if any) of these apps will survive the current madness.

In Toronto, where I live, the market has surpassed irrational. Foodora, for example, offers 50% off deals from 200 restaurants. They charge restaurants up to 30% to deliver food. So these restaurants likely sell at a loss to attract customers. Sounds a lot like Groupon, which wasn’t great for merchants, and tanked after its IPO.

And Foodora isn’t alone here. DoorDash and Uber Eats compete hard. Their advertising budgets must consume their earnings, and then some. But without at truce, it’s all-out war. All pursue the same strategy: Lose money but gain customers for the long-term. Unfortunately, those customers aren’t loyal.

And it gets worse for these companies. To be profitable, they need lots of gig workers who are independent contractors. This keeps wages down. But amassing many of these workers and paying low wages sparked a large gig worker union. This will eat into revenue needed for marketing.

To top it off, there’s a looming recession. When it hits, investors may not be so willing to subsidize this service. So the cheap convenience of food delivery apps we’ve grown accustomed to may be fleeting.

You would think these companies know all this. You would guess they have sound business models with a high probability of success. I lived through the original dot-com bubble, and wouldn’t be so sure. CEOs have egos and shareholders and hate to lose, even when losing would be a blessing.

“Markets can remain irrational longer than you can remain solvent,” Keynes said. Replace “you” with “startups.” That’s the the food delivery situation in Toronto.

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