What’s the endgame for food delivery apps?

Jordan I’m not introducing this topic from some holier than thou pedestal. I Ubered my lunch yesterday, and when we came back from a weekend trip and didn’t feel like cooking, we ordered a big dinner from our favourite sushi place using a food delivery app, which means, yes, there’s a good chance that our favourite restaurant lost money to make our meal. So I am guilty, just like most of you are guilty of caving in the face of convenience. The choices on these apps are endless. The deals can be quite good. And like Elton John and Lil Nas X love it, how bad could it be?

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Lil Nas X …tonight I’ll be eating a Buffalo chicken Panini with extra hot sauce.

Elton John Tonight I’ll be eating salmon sushi with a Japanese jiggly cheesecake. Jolly good!

Jordan But today we are not just looking at where food delivery apps like Uber Eats are now and what they do to the bottom lines of local restaurants. We’re looking at their humble beginnings, how they evolved into their current form, and here’s the key thing, what the Endgame is. Because you may have heard that almost all these apps are still losing money hand over fist. So that means what we’re using them for today is almost certainly not their final form. So what will tech companies do with this user base that they’ve built? What will they do with the volumes of data about our consumption habits, even down to allergies, pizza topping preferences or the time of day we get hungry for lunch. Do you trust them to use that responsibly?

I’m Jordan Heath-Rawlings, this is The Big Story. Corey Mintz is a food reporter and the author of The Next Supper: The End of Restaurants as We Knew Them and What Comes After . Hey, Corey.

Corey Bless you for saying the colon and the comma. I appreciate that so much.

Jordan Listeners need punctuation.

Corey If it were up to me, there would be an exclamation mark at the end, but cooler heads prevailed.

Jordan There we go. I want to go back with you a couple of decades, because this is something that you’ve written about that maybe I knew once but had forgotten. But food delivery apps have been around kind of in their very infancy for almost 20 years now. How did they start?

Corey It’s funny when you say, let’s go back a couple of decades because immediately, I think ‘right, the 70s’. And then I realize, wait, that was 40 years ago. So a couple of decades ago was the 90s, and actually the early 2000s. And the first physical thing sold online at all was a pizza. It was a pizza through Pizza.net, which was a very early online ordering experiment by Pizza Hut. That was in 1994, I believe, the same year, maybe a year earlier than The Net with Sandra Bullock and Dennis Miller. I saw that movie because it had Dennis Miller in it. And there was a variety of attempts to sell things online. And obviously Amazon is the earliest great success story, and ultimately maybe the harbinger of doom story for many looking to sort of set that narrative.

But really it was in the early 2000s, a variety of startups attempted to mostly post menus online. The purpose was to streamline the ordering process mostly for workplaces. Most of us keep or did keep in those days a drawer full of restaurant menus in our homes. Right? We would say, do you want to order in tonight, we would choose one of the half dozen menus that we’ve collected because people slip them under our doors. Some people in New York and San Francisco and so forth who routinely had to order large volumes for the office, wanted to find a way to streamline that process because they were ordering from places again and again, and they wanted to make it as efficient as possible.

So it really began that way. And the actual ordering direct and delivering was something that began to add on over the years as the sort of first tech bubble gave way to some more legitimate and I guess, useful innovation. And it wasn’t really until I guess, the mid 2000s that we started to see these become actual delivery companies. I think 2008-2012 is where you start to see all the brand names that we know now sort of blossom into the businesses that we think of today as the ubiquitous and essential and always having been with us third party delivery companies.

Jordan How did they evolve from there? What I’m trying to piece together is how you get from these apps, which in their infancy provided a very simple service, to the ones we use today, which, as you point out in your book, have so much power over the entire restaurant industry.

Corey They evolved out of, I suppose, a little bit of necessity and a little bit of opportunism. The basic premise of most of them as they grew was sure, you’re used to ordering pizza and Chinese food for delivery for the most part, depending on where you live, there may be a slightly larger variety of restaurants back then to order from. For the most part, there was an opening in the market for, hey, don’t you want all sorts of other foods from other places? And they began to adapt in this way to say, why don’t I get your food from somewhere else? Now that restaurant doesn’t offer delivery, what if I execute the delivery?

Now delivery costs money, I need like a car, or a bike, or a scooter and a human being to bring it. So that’s going to add on to the cost. So what if I either A: got the restaurant to pay that cost or B: as I managed to grow and added users and their data and that being, of course, the greatest asset to all these tech companies. I attracted the interest of venture capital and venture capital, said the economics of your business doesn’t make any sense. You’re losing money, but what if I give you $100 million? Can you figure out a way to make money? Because obviously we see growth and growth is the most desirable thing, and that’s what we want to invest in. And if we see a half dozen companies all growing, all making a proposal to consumers, which seems attractive, which is what if I get you more stuff? What if I could bring you more convenience to your home without you having to think, without you having to work to get food? Isn’t that desirable?

So all this money comes flooding in and they do more of what they’re already doing, which is onboarding restaurants, I can’t remember if it was Grubhub or DoorDash, but one of them has this reputation of just putting restaurants on without asking permission, which was sort of sneered at by their peers until their peers went well, this company’s growing faster than us. Let’s do it, too. So they all kind of were in this race to the bottom. Most of them are still unprofitable today, but they all have this tremendous war chest of hundreds of millions of dollars for these billion dollar losing companies, and it’s all aimed toward being part of either Monopoly or Duopoly, that is the last company standing.

Jordan I’m glad you mentioned the data there, because we’re going to get deep into that in a minute, because that’s something I hadn’t thought about before. I think most people are familiar with the system as it is now, there’s a handful of these apps, they have every restaurant you could want on them or most of them. And as I think we finally know now, they’re a really crappy deal for the restaurants that have to use them. Why?

Corey Well, I think the key phrase in that question is the, ‘as we now know’. “We” is a highly interpretive term, not to sound like Bill Clinton and saying it depends on what your meaning of “is” is.

Jordan Fair enough.

Corey But this has been apparent for five or six years. I started hearing from restaurateurs around 2015/16 saying, ‘hey, is anyone else figuring out a way to actually make money with Uber Eats and Postmates and DoorDash and all these companies because I can’t make money on a 30% sales Commission, my profit margin is 10%, how does that work?’ And there was this sort of generation of restaurateurs saying, I don’t know how this works, I don’t want to do it, it doesn’t make financial sense. I don’t want to put my food into packages where it’s not going to look as good and hand it off to someone who’s not my employee, who’s going to then represent my business. I don’t want any part of this, but I see my sales or my sales growth evaporating at the same rate as these companies are growing. So I guess I’ll get on board and we’ll figure out a way to make it work, because if it didn’t work, they wouldn’t be in business, right? It wouldn’t make sense if it was a lose-lose proposition.

And people got on board partly for those reasons, partly because they saw their peers doing it. Well, if the restaurant down the street is doing it, then they’re going to get my sales. So everyone got on board, and the magic formula didn’t materialize. But that grumbling still stayed underground. I wrote a series of articles about these restaurants or these three PD firms, they’re not a good deal for restaurants. And the reception was that this was kind of a conspiracy theory up till the pandemic. And as you say, this is now common knowledge. Around May or June of 2020, after a couple of months of everyone ordering delivery under the belief that it would help out their local restaurants, the message of these delivery companies are not good for restaurants, that message just got put on a high boil and it boiled and it frothed up to the surface where suddenly everybody could see something that had been happening for years. And that was kind of like not even a hidden secret, just like something that was talked about regularly in the restaurant industry in terms of what are we ever going to do about this thing?

And then in mid 2020, it just switched to the point where when I first was writing this book proposal, this was still to my book editor, they were like, this is the first I’ve heard of this. To the point where now, it’s published and the only time I meet people now is on the playground. We’re talking while our kids are playing, they’re asking me what I do, and I start to explain. They go, oh, yeah, these companies, they’re not so good for restaurants. Because it has become public knowledge, which is wonderful. And some of the reaction to that, depending on where you live, is legislation putting caps on these companies.

Jordan What’s happened since that knowledge became more or less public to the companies themselves? Has it hurt their sales, their profits? They don’t seem… I’ve been trying to use them less, I think many people have, but they don’t seem to be going anywhere.

Corey Well, they’re not going anywhere. And it’s hard to say that you’ve hurt someone’s profits when they’re already unprofitable. The key thing to always remember about these companies is that it’s in their nature, it’s in their philosophy. Move fast and break things. It’s in their core DNA to change what they are, to adapt to the environment. So it’s always a mistake to say, ‘what policy did they just roll out?’ or ‘how have they reacted to this market force?’ because they’re always prepared to change again in six months. But the short term action has been in a handful of cities. New York, San Francisco, LA and eventually Toronto, although Toronto dithered for months and months, to put commission caps of usually 20% on these companies, and these were all temporary pandemic measures. But some of these cities have moved to then make these caps permanent. I know New York is one of those, and the result of that has been unsurprising. These companies are now suing New York, and they’re going to sue any city that tries to legislate them, the same way that Uber and Airbnb has sued any city that tried to legislate. That’s going to be the next battleground. And then after that, there’s going to be the larger subject of breaking up the tech companies altogether.

Jordan In terms of looking at a local restaurant ecosystem, I guess, for lack of a better word, if the delivery apps aren’t making money and what they’re taking in is data, as well as their hefty cuts, what can they do with that data to further disrupt this marketplace?

Corey They could do what they’ve already been doing. One of the third party delivery companies was notorious for this scheme in which they were using their restaurant partners, partners is what they call the restaurant clients that they have, and creating kind of copycat websites. So that when you search for that restaurant, you get the delivery systems phone number instead of the restaurant’s phone number, because if you call the delivery system, it dings it as their sale versus the restaurant sale. Because they know how to use everything they know about you, you being the customer, to make sure that they have the advantage.

I know one restaurateur in Toronto who figured out before the pandemic that he wanted to start his own delivery service for his restaurant called Hong Shing, and this was something he spent, I think, about a year developing, and he fortunately managed to get it up and running in time for this huge restaurant shutdown in March of 2020, and he found that it wasn’t just about the sales commissions, that the advantage was there for him, putting most of his front of house staff to work as couriers driving around Toronto. But the idea that he controlled the data, he could tell where his customers were coming from and how to optimize, which delivery zones to open up and what time of day and what menu items to promote. I mean, the data is the value. I’m going to mangle it, but there’s that axiom that if you’re not paying for service, then you are the product or some version of that. Within the delivery sphere, we are the product.

The users, some restaurateurs argue, are not loyal to any of these apps, but simply go back and forth depending on which one has deals, deals that are the company’s way of promoting one restaurant over the other. The customers just flip back and forth. But once you actually control the data, you’re able to as Colin, the owner of Hong Shing put it to me, he’s like, once I get people in my system, I can make sure those are my customers and they’re coming back to my restaurant.

Jordan If these tech companies wanted to try to play in the same space or compete with the restaurants they’re already charging directly, how could they leverage that data to take customers away from traditional restaurants? And I’m only guiding you here because there’s an example in your book, I think about a cloud kitchen. I think it’s in Los Angeles that has a million different Thai restaurants, and it’s created basically via algorithm? I’m not sure.

Corey Right. The restaurant that has six other names, and they’re all operating out of the same kitchen. They all have the same menu.

Jordan It sounds funny to hear that, but it did give me a glimpse of a future that was not terribly kind to the traditional restaurant business.

Corey No. It’s been one of the industries that’s, like, not philistine, but slow to adapt to a lot of technology because it’s a very labor intensive and personal experience intensive industry. But the California based tech disruption industry has its claws in here. And the ghost kitchen model is one of the evolving stories within the third party delivery space, that kind of shows you how you really can’t just look at today to try to assess what the reality is for the restaurant industry, because the potential to change is so vast.

Jordan Maybe quickly explain it now just for listeners. What is a ghost kitchen and what is a cloud Kitchen?

Corey The ghost kitchen model is essentially, let’s say it’s me. I buy a big warehouse. I convert it into kitchen space, but not one kitchen space, I convert it into ten kitchen spaces, each with their own dishwasher and deep fryer and hoods and all that. And I sublet it out to ten different restaurant operators, and each of them is selling different food. And of course, I optimize it for, like, I don’t want to have overlap. I want to have one burrito place, one burger place effectively. But additionally, one of them can be, as is the case of that place in LA, one of them could be operating online as ten different restaurants because they can have all these different names. The Cloud Kitchen is just a brand name. There’s a variety of players in the space. There’s Cloud Kitchen, Kitchen United. There’s a dozen more coming online. I read that I think Kroger, Walmart, a lot of the big grocery retailers are looking into getting into the space.

And the upside is, speaking with restaurateurs who have made a go out of it successfully and not successfully, the lesson has been if you’re a restaurant operator and you have three to five, let’s say, small restaurants in your city and you’re doing really well, you’ve got customers, you know, your brand. They’re a great opportunity for expanding with a lower investment. So instead of the million or $2 million that it costs you to move into a new neighbourhood, to open a restaurant and to pay ridiculous commercial rent and lock into a 5, 10 or 15 year lease, you can spend 50 to 80 grand kitting out this small kitchen just for delivery within that neighborhood and also only be locked into a year lease or in some cases six months lease.

So I’ve talked to people who’ve had great success doing that. And that’s terrific. And the advice has been like, if you’re a first time restaurateur, good luck, because there’s no way to stand out in the digital marketplace. You don’t have a street front. And if you don’t already have an established brand, then you’re not really going to attract customers in the highly competitive digital sphere. But the other side to that is that, as we talked about, if you just judge it on that and say, oh, great, it’s a terrific way for mid-size chains to grow within their municipalities. The downside is you never know what’s coming with these companies. I don’t think they’re interested in being restaurant landlords, but I do think that they’re interested in controlling, harvesting and finding a way to profit off the data.

And the data, and this is where that example of the LA ghost kitchen with the ten different Thai restaurants is, is that They AB test what works and what doesn’t work. They figure out not just, ‘is this a popular dish?’, but exactly what time of day, how many miles away people are waiting to order from, the exact price point that will make a sale or not a sale, the cost of ingredients that they need and labor. Once they can control all that and they can sort of feed it into the algorithm, they don’t really need the restaurateur anymore. The person who came in to say our grilled cheese sandwiches or burgers or burritos are really popular. You don’t really need that person, especially when you figured out a way to undercut them, to make their exact product and sell it for a dollar cheaper, or deliver it 1 minute faster.

Jordan What happens to the restaurateur in that situation?

Corey Well, they get squeezed out. They’ve been kind of squeezed out in really controlling their businesses for as long as these companies have been around. One of the things that attracts restaurateurs, not all of them, but the industry itself tends to sort of breed, if not a libertarian attitude, at least the entrepreneurial spirit of wanting to be your own boss and having a say in how your business is run. And when these companies came in, the message was like, we can grow sales, maybe not profit, but revenue. But you’re not really going to be your own boss anymore. This collection of tablets that are Velcro to the pass in your kitchen, they’re the boss now. Every time they beep or boop, that determines how you run your business.

As customers, we’ve always been addicted to convenience, and it’s always alluring, anything that makes something more convenient. And so we are kind of the marks who have been sold this bill of goods. And in doing so, we kind of sold restaurants down the river, the small, local independent restaurants that we love, and we want to keep around, because we make it just all the more difficult for them to maintain a profit.

Jordan Is that what you see when you think of the future of food delivery apps if they’re not regulated? Is this something that threatens the industry as a whole?

Corey Well, it’s always been an existential threat, and it has not gotten any smaller. Look at the victory of Uber and their peers last year in California. With Prop 22, effectively, California passed a law that said all the gig economy companies have to treat their workers like employees, which means things like insurance and benefits and hours. And these companies have so much money that they spent $200 million putting this issue on the ballot in 2020. And they leveraged their technology to convince voters. Workers groups, activists were doing their thing, as they’ve always done for the last 100 years, trying to reach people, trying to get them to care about the rights of workers. But Meanwhile, these companies that are already in your pocket, could message you with videos and propaganda every five minutes, and they won. They won in California, and they promised to take that everywhere. And that is what they’re going to do. Never mind the fighting back against the Commissions. They’re going to, as much as possible rewrite labor laws in their favour wherever they go.

So they’re much more of a threat to us in general than they are merely to restaurants. It’s almost too late for restaurants, but I think there’s still time left to save ourselves.

Jordan I hope so. The last thing I want to ask you, and this is something that I already maybe have an idea how you feel, but I’d love to put it to you.

Corey I’ve been subtle up until now. I’ve been holding my cards to my chest.

Jordan One of the things that I took away from this part of your book, and the reason that I wanted to talk to you about this today, is where the data comes in. It seems so antithetical to me to consider something like food, which is imbued with smells and tastes and memories and culture and family and all of that stuff. And to know that somewhere out there, the habits of what I eat are being broken down by big data and served up to be in an algorithm that’s going to tell me like, hey, it’s Tuesday. You like to order Wendy’s on Tuesday. They feel so dramatically at cross purposes for each other. I can’t imagine one becoming the other. And I wonder what you think about what this technology has done to our relationship with food.

Corey I think we all struggle with that because there’s always certain elements of automation and convenience that we are more than willing to sign away on. The auto replenishment, whether it’s your phone or your fridge, something that reminds you you need milk rather than you having to remember you need milk. That sounds great, right? But the further we get away from connection to our food, whether it’s cooking it, buying it, growing it, the more alienated we are just as a people. I mean, this is something I kind of pursue in the later chapters of the book on the history of groceries, but in America, I think almost half of the population, something like 40%, was involved in agricultural production in the beginning of the 20th century, and today it’s about 1.7%.

So it’s no wonder that it’s hard to have compassion for the people growing food, or it’s hard to avoid food waste because we go to the supermarket, we buy more than we need because we don’t have anyone in our family that produces food. We don’t remember what it’s like to put all the effort into… until you plant your own tomatoes and you go, oh, wow. That’s a lot of work to grow one tomato. And then you suddenly redevelop the interest. But it’s happening across the spectrum, whether it’s at the grocery store or the restaurant. I mean, I think those experiences, like you say, the smell and all the sounds and going in and having an actual physical visceral experience. I think that’s part of what makes us human. It’s just that it’s not the direction our society has been going for the last couple of hundred years. We’re always pushing to be more efficient, more profitable, and that drives us away from the things that we at least claim and believe to be essential for our happiness and our survival.

Jordan Corey Mintz is the author of The Next Supper: The End of Restaurants as We Knew Them and What Comes After . You can buy it wherever you like to buy books, just don’t order it from the big guys.

That was The Big Story. For more from us, head to thebigstorypodcast.ca. Find us on Twitter at @TheBigStoryFPN. Talk to us anytime via email at thebigstorypodcast@rci.rogers.com. Subscribe to us in your favourite podcast player, while you’re there, like us, rate us, review us, follow us, whatever they tell you to do. Pass this show along to a friend.

Stefanie Phillips is the lead producer of The Big Story. Joseph Fish and Braden Alexander are our associate producers. I’m Jordan Heath-Rawlings, stay safe, shop local, have a great weekend. We’ll talk Monday.

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