[ELI5] How do delivery services like Uber Eats make money when a rider get’s $5+ per delivery?
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Restaurant delivery is a pretty old business model. Not much has changed in decades. Doordash and Uber Eats may be new names, but operate the same business model as the companies did in the 90s.
The delivery service buys the restaurant food at a discount, generally 20%-30% discount. They then re-sell the food to the customer at full price. The add on a few minor fees, and maybe a delivery fee of $0-$3ish.
They have to pay the driver + operations out of the discount and fees, and generally margins are super thin as the driver and operations are not cheap.
There are a few ways to make this viable, the first option is to do really expensive orders, generally things like corporate catering which often have orders in the $300+ range. So a single order has a large margin. Otherwise, since margins are so small, you have to do massive, insane volume, of making profit of like $1-$2 per order on smaller orders, but if you do a crazy amount, it’ll work out.
A few current issues arose though: One of the current issues is that these services are all competing for the same bucket of customers and the bucket isn’t big enough for multiple service second that they have reduced fees and such so much to attract customers, that some orders are sold at a loss. Third, that the business makes sense in highly urban, high income areas, but in places like suburbs, its just not a good business to be in vs other things these companies can do with billions of dollars, like literally just starting a different business or investing it.
They’re trying to do thing to screw with fees or find ways to charge restaurants more through various means, but right now a lot of the problems have not been solved, and this is only a fringe business model.
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