DoorDash and Pizza Arbitrage

This piece by Ranjan Roy for his Margins newsletter is such a perfect example of counterfeit capitalism. Roy has a friend who owns a few pizzerias. They were getting complaints from customers whose deliveries were cold. What made that really odd is that his pizzerias weren’t offering delivery service. What happened is that DoorDash, with no permission, registered a phone number with Google under his restaurant’s name. The fun part of the story:

DoorDash was causing him real problems. The most common was, DoorDash delivery drivers didn’t have the proper bags for pizza so it inevitably would arrive cold. It led to his employees wasting time responding to complaints and even some bad Yelp reviews.

But he brought up another problem - the prices were off. He was frustrated that customers were seeing incorrectly low prices. A pizza that he charged $24 for was listed as $16 by DoorDash.

My first thought: I wondered if DoorDash is artificially lowering prices for customer acquisition purposes.

My second thought: I knew DoorDash scraped restaurant websites. After we discussed it more, it was clear that the way his menu was set up on his website, DoorDash had mistakenly taken the price for a plain cheese pizza and applied it to a ‘specialty’ pizza with a bunch of toppings.

My third thought: Cue the Wall Street trader in me… ARBITRAGE!

The arbitrage is good fun, but ultimately the whole thing shows how predatory these VC-backed delivery services are:

You have insanely large pools of capital creating an incredibly inefficient money-losing business model. It’s used to subsidize an untenable customer expectation. You leverage a broken workforce to minimize your genuine labor expenses. The companies unload their capital cannons on customer acquisition, while this week’s Uber-Grubhub news reminds us, the only viable endgame is a promise of monopoly concentration and increased prices. But is that even viable?

★ Thursday, 28 May 2020