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In March 2019 a good friend who owns a few pizza restaurants messaged me [...]. 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.
[...] He realized that a delivery option had mysteriously appeared on their company's Google Listing. The delivery option was created by Doordash.
[...] 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.
[...] He called in and placed an order for 10 pizzas to a friend's house and charged $160 to his personal credit card. A Doordash call center then called into his restaurant and put in the order for those 10 pizzas. A Doordash driver showed up with a credit card and paid $240 for the pizzas.
We went over the actual costs. Each pizza cost him approximately $7 ($6.50 in ingredients, $0.50 for the box). So if he paid $160 out of pocket plus $70 in expenses to net $240 from Doordash, he just made $10 in pure arbitrage profit. For all that trouble, it wasn't really worth it, but that first experiment did work.
[...] But we did realize, if you removed the food costs this could get more interesting.
[...] The order was put in for another 10 pizzas. But this time, he just put in the dough with no toppings (he indicated at the time dough was essentially costless at that scale, though pandemic baking may have changed things).
[...] Note 1: We found out afterward that was all the result of a "demand test" by Doordash. They have a test period where they scrape the restaurant's website and don't charge any fees to anyone, so they can ideally go to the restaurant with positive order data to then get the restaurant signed onto the platform. If we had to pay a customer fee on the order, it would've further cut into our arbitrage profits (though maybe we could've incorporated DashPass as part of the calculation).
(Score: 3, Informative) by khallow on Tuesday May 19 2020, @04:48AM (7 children)
That's not rent-seeking. The pizza restaurant was receiving orders and the customer was receiving ordered food that they would otherwise need to go to the restaurant to pick up. So other parties received value from this behavior. Rent seeking is when one can interfere in such activity for profit without delivering anything of value to anyone.
Using this example, if suddenly this pizza restaurant was forced to use Doordash to sell all their food (with nothing new added - so no deliveries, just having Doordash fondle the money before it goes to the bank), that would be rent seeking since Doordash added nothing to the transaction.
(Score: 4, Insightful) by Anonymous Coward on Tuesday May 19 2020, @05:40AM (4 children)
In this case you are correct because doordash apparently screwed up, but doordash has a habit of getting their own telephone number in an internet listing for the restaurant and then telling restaurants if they want the order they have to take it at a discount.
If restaurant refuses they have a pissed off customer that may not even realize what happened. Customer may think resteraunt blew them off leading to poor reviews.
Thing is, the true cost of a delivery by doordash is probably in the $10 per order range factoring in driver fees, infrastructure and profit. That is fixed regardless of $20 or $100 order... Not sure about others, but I don't want to pay that kind of markup.
The average pizza place probably can do more efficient delivery and some restaurants may not want delivery for whatever reason. Other restaurants may welcome doordash but only if a contract is in place beforehand.
(Score: 1) by khallow on Tuesday May 19 2020, @07:21AM
Ok, that I can see. Exploiting a search engine mechanic to insert yourself between customer and restaurant.
(Score: 3, Insightful) by Anonymous Coward on Tuesday May 19 2020, @10:57AM (2 children)
> In this case you are correct because doordash apparently screwed up
I don't think DoorDash screwed up (by their lights) at all. By initial discounting DD is using a monopolist tactic that is as old as the hills. As soon as other delivery options have been eliminated (because DD has deep VC pockets to outlast any attempt by existing suppliers to match low prices) then they can a) start gouging on the delivery price and b) lean on the pizzeria for price cuts.
(Score: 1, Touché) by Anonymous Coward on Tuesday May 19 2020, @12:02PM
At least somebody here understands how capitalism works.
(Score: 0) by Anonymous Coward on Wednesday May 20 2020, @10:29PM
Isn't it illegal to sell something below marginal cost for the purpose of driving out competition and then raising your prices?
(Score: 0) by Anonymous Coward on Tuesday May 19 2020, @07:14AM (1 child)
True. It is khallow class extortion. Price-gouging that is illegal in almost all pizza producing states. Khallow should be arrested for even contemplating such illegal actions.
(Score: 0) by Anonymous Coward on Wednesday May 20 2020, @12:36AM
Haven't you heard? Justice is just another fiction sold by the aristocracy to keep people in line. It appears quite solid until you bump up against the 1% of cases.
That is why they are tearing democracy apart, with the advent of the internet they can no longer keep information siloed, and that will lead to actual *gasp* reforms! Possibly even a real justice system. Can't have that now, not in this world of pyramids.