At first glance, it seems like a huge opportunity. People are hungry, people like their favorite restaurants, connect those two things more often and make millions. But all of the food delivery startups that are running around the French capital suffer from three problems, which when combined will prove to be fatal.
The idea is benign enough on the surface. Restaurants are highly localized businesses that depend on a certain zone of business where people are willing to come from to eat there. Unless you are a three-Michelin star restaurant by a celebrity chef, you are limited to this problem: no one is going to make a trip just for you. That zone of business can be expanded by a delivery service that will help reach people who are a bit too far or a bit too lazy to actually go to the restaurant itself.
As far as business models go, the delivery services have found an innovative margin in the restaurant market. The services arrange a deal with the restaurants where they buy a dish at between 50 and 70% of what the dish normally costs. The delivery service then promotes the dish on their service at the same price as it can be found in the restaurant. By being available in a larger business area and on a higher-visibility platform, restaurants compensate for the lower price, in some cases increasing their orders by 30%. The strength of this business proposition is what has allowed a lot of investment to flow into the space recently.
In the Paris streets I see the turquoise and black of Deliveroo bike delivery guys and girls. The pink of Foodora too. But recently the darling of the industry, Take Eat Easy, shut down. It won’t be long before the others follow suit, and it’s for three reasons. First, the price of food is pegged to what the restaurant experience costs to the consumer, incorporating all of the experience and service that go along with it. The services charge a delivery fee for each order which people are expected to pay for “convenience.” Second, no one has yet to figure out how to protect food on its journey, meaning that when the food gets to you, not only does it cost you more, but it tastes a lot shittier. Finally, the majority of the population eats around the same time, causing a type of surge demand that is impossible to legally meet under current French labor laws.
Let’s dive into the first point. If a Pad Thai costs 14 euro at your favorite Thai place, that price includes the cost of renting the restaurant space, the salary of the server who serves you, the dishwasher that cleans your plate and cutlery, as well as the electricity to light the restaurant and the bottles of hot sauce on the tables. When you get that same Pad Thai delivered, there are a lot of costs that are not longer needed. It’s one thing to pay 14 euro when you have the restaurant experience that goes with it. Someone to refill your water or bring you another wedge of lime.
When you are eating in your own home, your experience is degraded simply because you don’t have those elements. Market forces would say that in this case you should be paying less for the delivery version than the restaurant one. Many people would argue that you could justify charging the same price because of the convenience of eating in your own home. But not only do you pay the same price, you pay more because of the delivery fee that gets tacked on. That’s paying twice for “convenience.”
But that convenience also directly correlates to a degraded experience in terms of quality. If you’re familiar with radioactivity you will understand this metaphor: french fries have a half life of 2.5 minutes. Meaning that every 2.5 minutes that pass, French fries are half as good as they were 2.5 minutes ago. This continues decreasing but never actually gets to zero. You could probably still be tempted to eat a fry that you dug out of the back seat of your car from who knows how many years ago.
You know exactly what I’m talking about. Droopy fries that are cold are impossible to reheat. Microwave them and you have a soggy steaming mess with no crunch that is useless for dipping in ketchup. Sure, you could stick your fries in the oven, but if you want to go through the trouble of turning on your oven and waiting for something to recook, why are you ordering delivery in the first place?
It’s not rocket science or radiospectrology to know that when you put a can of cold soda in a bag next to some hot crunchy French fries, by the time the delivery guy gets to your place, you have a lukewarm soda and cold fries. It is ridiculous that no one has figured this out yet.
That’s not getting in to what happens to burgers in that same bag: steamy hot meat + melty warm cheese + toasted bun = wet mess after 10 minutes. Italian style pizza is cold after three minutes. It’s probably still sitting on the counter waiting for the delivery guy to pick it up and it’s already uneatable.
Let’s imagine that we found ways to preserve food and that justified people paying more for less. The other fatal problem is the economics of delivery personnel. Even the most impressive logistic algorithm can only get a few deliveries per delivery person per hour. Even if someone can deliver 4 meals per hour, there are only 4 hours in the day with enough volume to optimize routes: from noon to 2pm and from 7pm to 9pm. That’s when people eat. So delivery companies that hire delivery people face the impossible challenge of regular surging demand stuck between periods of almost no demand. This means that they have to hire people for a few hours a day and those people can’t take other jobs that overlap with those hours because if they did they wouldn’t be available when needed.
The customer doesn’t care, of course, they only see the wait time and wonder where the hell the delivery guy is, no matter how long she takes to get there. And the restaurant faces the problem of timing their food so that it’s ready when a delivery person is there, otherwise the gap between oven and mouth grows even longer, further compromising the quality.
In order to have enough staff on demand to quickly satisfy customers at peak hours would probably mean surge pricing like Uber. But then who would pay 2x more delivery charge for a 10 euro burger so that it’s now a 15 euro transaction for a cold burger and soggy fries?
Furthermore, French labor laws are very complicated. Essentially all of these modern delivery employees are registered as “auto-entrepreneurs” (a freelance classification that allows them to bill their clients). So they could say that they did 20 deliveries on a weekend, create a bill, and get paid by the business without the business having to pay most of the (extremely heavy) salary costs. But the flip side is that auto-entrepreneurs are technically free to work or not to work, and the current policy of requiring the delivery people wear a uniform is certainly against the conventions of the auto-entrepreneur status.
Even if all the delivery people are students or part-timers who are piecing together a few jobs and don’t mind getting paid less than a regular salary intermittently, the space is still headed for a showdown between how workers are treated and that legality under current labor laws.
If delivery were cheaper than the restaurant, it would compensate for the reduction in quality. But then no one would make money and restaurants could find themselves in a situation where they would be cannibalising their own businesses.
“Wait Tony,” you say, “Domino’s pizza has been doing delivery for years! What about those bodegas in NYC that will deliver a hot sandwich?”
Dominoes pizza is delivery and take out only. There is no restaurant experience to compare it to. Plus American style pizza with more bread and cheese stays hotter longer and is a particularly deliverable food. The pizzas that Deliveroo and Foodora are so aggressively advertising in the Paris metro are those deliciously thin Italian pizzas that are impossible to deliver.
And those bodegas in NYC use 12-year-old Vietnamese boys to walk up staircases and steps, not exactly a model of sustainable employment. Plus the US has one other huge factor working for delivery success: tips.
Tips are paid as a percentage of the order, usually between 15 and 20%. Therefore, a family order for $60 garners a $10-12 tip, while a burger that costs $10 will have a $2 tip. A delivery person only needs one big order per hour to climb above minimum wage. And – with a bit of charm and service – the delivery person can increase that tip by making the experience more pleasurable. The restaurant, working to upsell the clients, tries to increase order size which has the added benefit of paying the delivery guy more. Interests are aligned.
Until there is a tip culture in France and an overhaul in the labor laws combined with someone figuring out how to separate hot and cold food in the same paper bag, delivery services are doomed in the long run.
Disagree? Are you a fan of delivery services and want to tell me why I’m wrong? Let me know in the comments!