Chanos: Restaurant Delivery Business Will Never Be Profitable



Search  

ORIGINAL POST

Posted by Ed 34 days ago
Legendary short-seller Jim Chanos refer to this business as 'profitless prosperity' and his short on Grub Hub has just paid of big time as the share price of this company has collapsed:
 
https://youtu.be/I7jeqBdXAfk 

COMMENTS

Ed 34 days ago
Ed 20 days ago
Meals on Broken Wheels: Uber Eats, GrubHub, DoorDash & Postmates
 
 What do DoorDash, GrubHub, Postmates and Uber Eats have in common with Lassie? Nothing.
 
They’re dogs; Lassie’s a superstar. What do they have in common with each other? Everything. They take the world’s second oldest profession — Babylonia had delivery boys — sprinkle it with tech dust, click their ruby slippers, chant “There’s no place like Silicon Valley” and hope to become unicorns. (By the way, since unicorns are entirely mythical, wouldn’t the Valley be wise to pick another moniker for its wannabe superstars?)

There’s no secret to success in tech. But like hitting a 98 mph fastball, it’s easy to describe, nearly impossible to do: Create a great product that can scale. Even better if you can build a patent moat around it.

If, after five hard years of R&D, you create killer software at a cost of $100 million, then the first product you ship for $1,000 comes at a loss of $99.99 million. But by the time you’ve sold your millionth unit at almost no additional cost, you’ve grossed a billion. That’s scale.

Here’s the rub: You can scale intellectual property, you can’t scale labor. Your millionth pizza costs as much to deliver as your first.

Yet the meal-delivery guys claim they will scale when they create a critical mass. They will have the density they need to become profitable (none are yet) if they can somehow bag a huge market share.

The density argument goes like this: if we can deliver enough meals in a given trade area, we can be like the post office in terms of efficiency (yes, the post office, I’m not being ironic). Nice idea, but it doesn’t wash.
 
The post office is a route business—your mail carrier hits the same couple hundred houses on the identical route every day. That beats 200 homeowners making 200 trips to the post office.

Meal delivery is a discrete business. No one else in your zip code is ordering spaghetti Bolognese from Trattoria Pastaria at 6:30 on a Tuesday evening. Whether the Uber Eats guy drives to the restaurant or you do, it’s the same (except the food is hotter if you do it yourself).

 
There is no way to string that discrete delivery into an efficient, cost-effective route. To that point, old-school pizza joints average about 2 deliveries an hour and their drivers start at the restaurant. Can a free-floating DoorDasher do more than two an hour?
 
https://wolfstreet.com/2019/11/16/meals-on-broken-wheels-uber-eats-grubhub-doordash-postmates/  


< Back to main category



Login now