Food delivery services are popular but not turning a profit

Food delivery services like DoorDash and Uber Eats saw big business during the pandemic, Wall Street Journal reports, but even at the height of their popularity, the companies were not making money. Now, they are trying to apply new ideas to make their services profitable.

Delivery services, which mostly utilize apps to allow customers to make orders, make their profits by charging restaurants a percentage of each purchase and charging customers a service fee. These earnings are used to pay their delivery drivers, one of their largest expenses, 

The percentage taken from an order varies from service to service, Bistro Byronz owner Emelie Alton says. Bistro Byronz uses Waitr and Grubhub, while Pizza Byronz uses Waitr and Uber Eats. The food delivery services usually take about 20%-30% of each order’s total, Alton says. 

After accounting for advertising costs and refunds to customers, among other operational expenses, DoorDash on average is left with 2.5% of a customer’s overall bill, according to a Deutsche Bank analysis. That means DoorDash ended up with 90 cents on the average order of $36 during the height of the pandemic.

Food delivery “is and always will be a crummy business,” Grubhub Chief Executive Matt Maloney tells WSJ. As restaurants recover from the pandemic, Maloney believes more orders will shift away from app delivery, but online ordering will remain popular, whether for pickup or for transportation by the restaurants’ own personnel. 

City Slice attempted to launch its own delivery service, manager Loni Trabeaux says, but it may have been too late. City Slice’s service ran for only a few months, and customers were not as willing to order directly from the restaurant as they were from food delivery apps, Trabeaux says. Orders through delivery apps at City Slice have gone up 70% since before the pandemic. 

Executives at DoorDash and Uber have spent the past year testing processes they may use in the future to up their profit, including raising customers’ average order size by expanding into more lucrative offerings like groceries and alcohol and using technology to reduce errors by restaurants and drivers, translating into fewer refunds.

However, many local customers have yet to see such efficiency changes in action.

The accuracy of the food delivery from these external services depends on the weather and time of day, says Lance Leblanc, owner of La Divina Italian Cafe. He hasn’t noticed any significant changes to the services in the past year.