It struck me early on during the process of designing Awake: why is DoorDash worth so much (answer: cash flows), and why is there no serious competition? The answer to this second question is a little bit more involved.
After all: in which other market is the dominant player extracting value to the tune of 40% to 45% of each order from their main constituency? One would expect to see many credible threats and competition, and the relatively quick creation/consolidation of a low margin market for an essentially brain-dead service.
When did moving physical goods from one location to another, often times a few blocks down the street, become worth nearly half the order value?
Nearly everyone I know has halcyon dreams of owning a restaurant, a cozy hub for the community where delicious food and banter makes for an oasis in our busy lives. After all, what is life, if not good food and good company?
As it turns out, however, simple things are often not easy. Running a restaurant is risky business, one that deals with finicky customers, perishable food, truant employees, high taxes and real-estate costs, and the vagaries of weather and nature.
The average profit margin of successful restaurants is between 2% and 6%.
This should tell you how precarious restaurant operations typically are, often running their operating budget month to month.
And here comes DoorDash, the cutesy (deca++?)corn from Silicon Valley, destroying the food service industry in an entirely unnecessary way. And Postmates, and GrubHub, and all those creatures.
From Chownow: “Take Postmates for instance. By the end of 2018, many restaurants reported paying a 30% commission on every Postmates delivery. In Los Angeles, Uber Eats charged 40% for the same service. For a $10 item, that’s $3 to $4 right off the top.
The Restaurant Report says food and labor should cost restaurants between 50-75%. Let’s imagine your restaurant is running lean and mean at 50%, that’s $5 in food and labor costs. So far, you’ve made $2 and spent $8.
Remember, you haven’t taken into account expenses such as utilities, rent and spoilage. When all is said and done, you’re lucky if you make a penny or two. More likely than not, you’ve just paid someone to eat your food!
The story isn’t much better for the delivery app Grubhub, which will charge restaurants a base fee of 15% of every order plus tack on a credit card processing fee, order processing fee, and a delivery commission of an additional 10%.
These third-party restaurant delivery companies charge restaurants exorbitant commissions for every customer order, when the only real the value they bring is helping new customers find your restaurant for the first time. When a customer orders again and again, it’s because your staff was friendly, the food was delicious, and they had a great experience. Why should you pay Grubhub a 30% commission every time a customer orders? If the phone company took 15%, 20%, or 30% every time you took an order over the phone, you would have stopped taking phone orders a long time ago.
No matter which third-party marketplace you’re on, the math is the same, and it doesn’t bode well for restaurants.”
The DoorDash Math
Warning: This graphic may depress you (or turn you indignant).
Eating local is good. And keeping social distance today is very good.
And it is exceedingly important to support your local restaurant directly, otherwise we would only have DoorDash Kitchens, staffed by “willing” “gig economy” “entrepreneurs”.
How does a local restaurant survive in the age of AI-platforms-led assault?
Where is the free market with solutions to this local problem? What makes a giant corporation worth billions of dollars inherently better suited at delivering a few rolls down the street?
At Awake, we know the answer: nothing.
All that is needed to transform the market is a new market maker.
Why is DoorDash not profitable? Or Uber?
What is the exact reason that drivers for DoorDash are paid $1 per delivery, plus any tips, which until recently, they didn’t even pass on to the drivers? Despite this level of extraction, how come they are unable to turn a profit?
When even a lowly restaurant can turn in a profit of a couple percentage points, how come with all the technology, and all the engineering chops, and all the hype and valuation, how come they are not profitable?
At Awake, instead of turning ourselves into analysts, we like to answer these questions with new software services.
Chowtype is a collaboration between Awake and three stealth AI startups we’re working with closely. Chowtype is a new Awakened AI that delivers a very simple and important service to the restaurant industry.
Chowtype is a digital employee that works on behalf of all restaurants in the world. You simply use the app, or call the phone line. Our AI picks up the call and takes the order, dispatching it to the restaurant requested. The restaurant proceeds to fulfill your order, and you can request delivery or pickup. Simple.
Fee to use: $1 per order, paid by the restaurant.
Value is created when all sides win. A win-win situation creates value. A win-lose situation such as those set up by Uber or DoorDash is not value creation, but mere extraction, driven by the oldest emotions in the world – greed and gluttony.
Chowtype is a new value co-creation platform. It works with all restaurants and delivery services, local and global, in order to create a real-time market driven by locals eating in their favorite local joints, serviced by locals. Globally.
Watch this space as we announce more details – as well as apply the underlying technology to other domains. And if you’re a restaurant, sign up at Chowtype to get early access! And if you want to support local restaurants AND earn rewards, sign up for 1000 bonus ChowPoints!
Grrrrowl. That’s our stomachs announcing that we’re ready to eat.