Some believe the business model of the restaurant/delivery market is not sustainable, simply because companies like Grubhub, Seamless, and UberEats are venture capital-backed upstarts. This means these delivery-based companies currently have money being funneled in to stay afloat, while it produces upside-down margins.
Why upside-down margins, you ask?
Let's take a closer look at UberEats, for example. This company “is only profitable in 27 of the 108 cities where it’s offered — meaning they are actively losing money in approximately 70 percent of their markets. That’s with Uber taking 30 percent to 40 percent of every order from the restaurant and charging the customer a $5 delivery fee,” according to “Recode.”
What will happen when the money runs out and relationships turn sour? Fees will start skyrocketing, most likely. At that point, delivery would only be affordable for a small portion of consumers and even then, would it be enough? Can UberEats swallow those loses?
“The combination of an industry that has very thin margins (restaurant) with an industry that has upside-down margins (delivery) is not a wise nor healthy combination,” reports “Recode.”
Some markets, like New York and Washington D.C., will experience minimum wage increases come 2018, thinning out those restaurant margins to another level.
“Recode” reports delivery is most successful when localized and executed by the restaurants themselves like it has been done by the pizza segment for decades.
Do you think this is the solution to make delivery sustainable again? What about virtual restaurants?
Read more at “Recode.”