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With food-delivery apps like Uber Eats, who’s actually making money?

During the pandemic, Americans have replaced dining out with take-out and delivery meals. As a result, more customers and restaurants are relying on apps like Grubhub and Uber Eats to transport food. But restaurants say the apps consume their profits, customers find delivery fees too high and drivers can't earn a living wage. So what is the business model's viability? Paul Solman reports.

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  • Judy Woodruff:

    More Americans are ordering takeout these days, as restaurants limit dine-in service during the coronavirus pandemic.

    That means more customers and restaurants are relying on food delivery apps.

    Paul Solman reports on whether these apps' business models have long-term staying power.

    It's part of our weekly economics segment, Making Sense.

  • Paul Solman:

    Grubhub, DoorDash, Uber Eats and more all competing to deliver restaurant food to shut-in consumers.

    So, the restaurant owners like Desmond Reilly of Chicken + Whiskey in D.C. are ecstatic, right?

  • Desmond Reilly:

    The price that we pay to these services to make this happen, it takes all of our profits. These numbers are anywhere from 22 to 30 percent, depending on the provider. There's really minimal left over for us.

    So, you could mathematically put yourself out of business if you only had delivery service, and you had no walk-in, sit-down traffic in your restaurants.

  • Paul Solman:

    Chef/owner of the high-end D.C. restaurant Xiquet, Danny Lledo, actually stopped using the services entirely.

  • Danny Lledo:

    Right now, we are the ones that are delivering. I have delivered quite a bit. One of my employees has a car, but essentially the other apps weren't doing anything in terms of marketing for us.

  • Paul Solman:

    So, not great for restaurants. But don't these apps at least provide work to delivery drivers during the jobless pandemic?

    We met Mostafa Makled last year driving for Uber in San Francisco. But now…

  • Mostafa Makled:

    There is not that much people requesting Uber, since everyone is just staying at home. And the only thing that is, like, more busy is just food delivery.

  • Paul Solman:

    So he switched. The pay, however…

  • Mostafa Makled:

    It's like half of what we used to make. So, after expenses, like, your hour might be like somewhere between $5 to $10 an hour. And that in a city like San Francisco doesn't even cover, like, living expenses.

  • Paul Solman:

    Now, wait. Unhappy restaurants, unhappy workers. OK, but how about the customers?

  • Olga Berman:

    I have very mixed feelings about it.

  • Sarah O’Malley:

    Usually, the only reason that we would use Uber Eats is if there's some sort of discount or promotion.

  • Chris Cherkis:

    I think we will sort of get away from the apps again and just start going out either to pick up directly or to actually go in and sit in a joint.

  • Paul Solman:

    Well, but some group must unequivocally benefit from this industry, its investors.

  • Janelle Sallenave:

    We should start by acknowledging that, today, Uber Eats does not make money.

  • Paul Solman:

    Janelle Sallenave is head of Uber Eats.

  • Janelle Sallenave:

    We have been very public about the fact that it's not yet profitable.

  • Paul Solman:

    And neither are her competitors.

  • Ranjan Roy:

    The platforms themselves lose a ton of money, in the hundreds of millions of dollars, billions collectively.

  • Paul Solman:

    Ranjan Roy writes a tech industry blog. Count him a skeptic.

  • Ranjan Roy:

    Customers complain if the fees get too high, and the drivers and couriers are underpaid gig labor.

  • Paul Solman:

    Which raised the question that motivated this story, which I put to investor Vitaliy Katsenelson.

    Why does this business even make sense?

  • Vitaliy Katsenelson:

    I'm not sure it does. And I think they are still trying to figure out how to make money at this even today.

  • Paul Solman:

    That is, after years of trying and a market that just doesn't get any better than this.

    But then how could venture capitalists have poured in a billion buck, I asked Ranjan Roy.

  • Ranjan Roy:

    Everyone's searching for yield in some capacity and finding — trying to find any opportunity they can.

  • Paul Solman:

    What Roy means is that, with historically low interest rates for years now, those with money have been desperate for higher returns. Veteran venture capitalist Randy Komisar has seen it first hand.

  • Randy Komisar:

    Finding opportunities to invest large checks in potentially big outcomes has outweighed the ability for us to sort of discern good from bad returns on capital.

  • Paul Solman:

    So there's too much money chasing, too few opportunities?

  • Randy Komisar:

    In a nutshell, that's it.

  • Paul Solman:

    So investors are willing to take risks on start-ups that might seem, well, daffy.

  • Randy Komisar:

    I can remember one that came in that was a robotics pizza delivery business.

  • Paul Solman:

    A funding pitch for a start-up called Zume, spelled Z-U-M-E.

  • Randy Komisar:

    It was going to use A.I. to understand the desires of its customers. And they would have the trucks drive through the neighborhoods at exactly the right time to deliver exactly the right pizza made by that great little robot sitting in the back of the truck.

    And, ultimately, I said, has anybody tasted the pizza? And we ordered a pizza. And it was the worst pizza I had ever had.

  • Paul Solman:

    Komisar argued against backing Zume. But the Japanese-Saudi giant investment fund SoftBank plunked down nearly $400 million. The business went bust in just over a year.

    But, look, says Komisar, taking a flyer on wild ideas sometimes pays off.

  • Randy Komisar:

    Hundreds of millions of dollars gets poured into failures all the time. And on the other side, there are always these extraordinary phenomena that come out of nowhere.

  • Paul Solman:

    So, back to the basic question one last time: Is there any hope for these firms?

  • Vitaliy Katsenelson:

    These companies have to consolidate.

  • Paul Solman:

    Whittle the industry to a single player or two, says investor Vitaliy Katsenelson, which is presumably why Grubhub sold itself to the Dutch food delivery company Just Eat Takeaway two weeks ago.

    And as for the remaining players, they're offering ever-steeper discounts to lure customers and run the weaker firms off the track. But even if there wind up being a winner or two, says investor Katsenelson:

  • Vitaliy Katsenelson:

    They will only make money if one driver picks up orders from one restaurant and delivers them to different customers at once.

  • Paul Solman:

    But FedEx or Amazon drivers deliver to well over 100 customers a day. Who can deliver that many meals, though, relying on underpaid drivers, and on restaurants so unhappy with the commissions that some cities have put temporary ceilings on what the apps can charge during the pandemic, ceilings that make the business even more unprofitable?

    Small wonder the industry opposes them.

  • Max Rettig:

    Ultimately, even though these policies might be well-intentioned, that ends up hurting the very people that these policies are intending to help.

  • Paul Solman:

    Max Rettig speaks for DoorDash.

  • Max Rettig:

    When prices go up, that means there are going to be fewer orders into the system. And when there are fewer orders in this system, restaurants are earning less.

  • Paul Solman:

    And, finally, should the caps become permanent, says Janelle Sallenave of Uber Eats:

  • Janelle Sallenave:

    It would be a fundamental rethink of the entire business model.

  • Paul Solman:

    A business model that, at the moment, seems kind of shaky as it is.

    Paul Solman for the "PBS NewsHour."

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