The Great Pizza Arbitrage Scheme Of 2020 Is Spotlighting The Strangeness Of Food Delivery Services
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Food delivery services always felt a bit wonky to me. I'm usually not terribly old fashioned about most things, but I generally understood that some restaurants delivered and some did not and that that was mostly fine. Along came food delivery services to bring us food from places that didn't deliver and that was mostly fine, too. But lately it's starting to become clear that somewhere in the ecosystem of venture capitalist funding and food delivery services, something is broken. We'll explore the larger issues in a separate post, but one great example of how janky this is getting is how one pizzeria owner managed to make a nice profit by buying his own pizzas from DoorDash. Confused? Well, buckle up.Yesterday, Ranjan Roy, a content strategist and writer, wrote about the latter in his newsletter The Margins; one of his friends who owns a few pizza restaurants suddenly got an influx of customers complaining about delivery when the restaurants didn’t offer delivery. “He realized that a delivery option had mysteriously appeared on their company’s Google Listing. The delivery option was created by Doordash,” Roy wrote.Apparently, this is one way that DoorDash does customer acquisition — by bullying restaurants. But what’s funnier about Roy’s friend’s problem (and it was a real problem because of Yelp reviews and angry customers) is that DoorDash priced the pizzas incorrectly. “A pizza that he charged $24 for was listed as $16 by Doordash,” emphasis Roy’s. And then: “My third thought: Cue the Wall Street trader in me…..ARBITRAGE!!!!” And so began the dumbest transaction plan in the modern history of business. The pizzeria owner placed some DoorDash orders, expecting that eventually DoorDash would catch on. It didn't. To date, even with journalists now asking the company direct questions, DoorDash hasn't commented as of the time of this writing. At $8 per pizza in pure profit, the owner went ahead and ordered an indeterminate, but more than 10, number of pizzas. It got fun enough as an experiment that eventually the owner just ordered pizza dough through DoorDash, alleviating the need to even turn on the ovens, at $75 in pure profit.Are these huge numbers? No, except that when this sort of thing happens to the restaurant rather than the delivery service, the former operating under much smaller margins with real hard costs, it's a problem. Those problems mostly being what happens when DoorDash delivers crappy service that the customer thinks is from the restaurant as well as customers getting used to these very low prices when the owners of the business actually charge more for the product.The answer isn’t clear because we’re very far from the old ways. By the magic of venture capital, some businesses don’t have to make money to survive. And that’s upended things for everyone. “Third-party delivery platforms, as they’ve been built, just seem like the wrong model, but instead of testing, failing, and evolving, they’ve been subsidized into market dominance,” as Roy puts it. “The more I learn about food delivery platforms, as they exist today, I wonder if we’ve managed to watch an entire industry evolve artificially and incorrectly.”As Bloomberg put it last Halloween: “GrubHub Inc. just announced disappointing quarterly results and said that food delivery is only a means to an end, unlikely to ever be profitable on its own. The risk heading into 2020 is that the inevitable reckoning for the food-delivery businesses will spread to the broader restaurant industry.” And at the end of the first quarter of 2020, that looks more prescient than ever. According to its first quarter report, GrubHub, the only profitable restaurant delivery business, lost $33.4 million over the last 3 months. (In fairness: COVID-19.) Yeah, but in other fairness, companies that cannot make a profit aren't supposed to survive in capitalist societies. That's sort of a cultural lodestone in our economy. And while venture capital can certainly prop up emerging businesses that otherwise would never launch into real profitability, it's worth considering whether the food delivery business has run out of runway.On the question of why these food delivery service companies seem to almost universally lose money, more to come.
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posted at: 12:00am on 23-May-2020
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Banks Get Payout From Equifax Hack While Consumers Still Wait For Compensation
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We've noted several times that the FTC's settlement over the Equifax hack that exposed the public data of 147 million Americans was little more than a performative joke. While much was made of the historic fine levied against the company, the FTC's settlement failed to provide impacted victims much of anything outside of a sad chuckle.The agency originally promised that impacted users would be able to nab 10 years of free credit reporting or a $125 cash payout if users already subscribed to a credit reporting service. But it didn't take long for the government to backtrack, claiming it was surprised by the number of victims interested in modest compensation, while admitting the settlement failed to set aside enough money to pay even 248,000 of the hack's 147 million victims. Even the credit reporting was relatively useless given such offers have been doled out the last seventy times consumers were impacted by a company's shaky security and privacy standards.While consumers didn't see their promised compensation, US banks are facing no such hurdles. The company this week agreed to shell out $5.5 million to thousands of banks and credit unions who say they were harmed by the targeted hack of Equifax customers. The full agreement with the banks also doles out an additional $25 million to help beef up security, with Equifax also covering the banks' administrative costs, attorney fees, and assorted expenses.But while the banks are now covered, the actual victims of the hack attack remain lost in the bureaucratic mire:"It's been more than two-and-a-half years since the biz was thoroughly hacked, and just under a year since the $700m settlement was agreed, so it's perhaps surprising that not a cent appears to been given to the people directly impacted by the cyber-break-in.Even now, with a final settlement approved in December 2019 and a deadline to apply for the money of January 22, 2020 - four months ago - Equifax still apparently hasn't sent out any checks and still hasn't given a firm date for when it will do. Questions from The Register on the topic have gone unanswered." That again falls on the back of the FTC and the original settlement, which received a lot of initial gushing press adoration for being "historic," but doesn't appear to have lived up to any of its original promises. After not providing enough money to live up to that $125 cash payout offer, victims were forced to jump through hoop after hoop to try and get the funds, which won't wind up being anywhere close to $125 whenever the checks do arrive. The entire process is now bogged down in the courts after victims fought for a more equitable settlement for the hack.It's another example of how headline-grabbing fines usually tend to be performative. There's no genuine compensation coming for most victims of Equifax's lax security, and efforts to actually craft meaningful penalties for companies (like say, an actual US privacy law) remain bogged down in partisan bickering. As a result we see scandal after scandal, followed by pseudo-punitive tap dances where the actual victims are lucky to see a dime. Rinse, wash, repeat.
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posted at: 12:00am on 23-May-2020
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