For Restaurants, Delivery Is a Catch-22

One out of ten people reading this article will have food delivered to their home this month via their smartphone. Data from shows 38 million people in the US now use food delivery apps at least once a month, up 21% from last year. Private company DoorDash is the largest player in the delivery space, closely followed by Grubhub (NYSE:GRUB) and Uber Eats from Uber Technologies (NYSE:UBER).

Man delivering food to woman


Restaurants are turning to these delivery apps out of necessity. Comparable sales measure repeat revenue at existing locations; traffic measures repeat customers. And for years both metrics have repeatedly disappointed in the restaurant industry.

YearComparable salesRestaurant traffic


Seemingly unable to entice more customers into restaurant locations, the industry is turning to what is commonly called “off-site” transactions, primarily fueled by these delivery apps. This industry change and rapid adoption has created a new set of problems. For restaurants, it improves sales, but delivery fees negate a significant portion of the profits. And for delivery apps, necessarily competitive pricing impacts their profits as well. 

Companies are handling these new problems in different ways.

Negotiating better terms

Wingstop (NASDAQ:WING) delivery orders can be placed either with Wingstop or its exclusive partner DoorDash. It had predicted that the majority of orders would come through, but in the second quarter the company noticed more orders were coming through the DoorDash platform. That caused Wingstop to pay more in commissions than planned.

So Wingstop simply reached out to DoorDash immediately and negotiated a better rate. The new commission deal was implemented at the end of the third quarter which means the benefit won’t be seen until next quarter.

Wingstop successfully negotiated a better rate likely because of its exclusive relationship with DoorDash. While many restaurants partner with multiple delivery services, that’s not the route Wingstop plans to go. It’s unlikely that restaurants with multiple partners could work a deal like this. As we’ll see, delivery companies are in stiff pricing competition with each other, and aren’t likely to want to negotiate their restaurant commissions lower.

Are you cheating on your app? 

When a delivery order is processed, restaurants pay delivery partners an individually negotiated commission, typically about 20% of the transaction. Grubhub in it’s third quarter averaged a 22% commission on orders processed through its app, up from 20% in the third quarter last year.

A delivery commission isn’t easy money up for grabs. In a recent shareholder letter, Grubhub called its users “promiscuous“, alluding to consumers shopping around for the best deal. Grubhub, in its third quarter earnings call, clarified its belief that it already offers the best value among its peers, and therefore has no plans to attract customers through further discounts and promotions.

In a competitive pricing environment I believe Uber is better positioned than its peers. It has other business segments like ridesharing contributing to revenue, so it can afford to discount its delivery service in order to gain market share. And indeed that’s what it’s doing. In Uber’s third quarter call management mentioned how Uber Eats is now included in its subscription service. Subscribers to Uber Pass will get free delivery on food, and Uber can absorb that cost for now. Its competitors might not be as flexible.

This might be the winning solution

When El Pollo Loco (NASDAQ:LOCO) reported its third quarter 2019 earnings  the stock popped about 30% as it beat expectations in both revenue and net earnings. For the quarter, comparable sales were only up 1.1%, but comp-sales surged 4.2% in September alone. One of the primary drivers for September’s surge was delivery. El Pollo Loco had previously partnered with just DoorDash, but during the third quarter it added Postmates and Uber Eats. Soon it will also add Grubhub and in November it even plans to add ordering via Amazon‘s Alexa to make delivery simpler. 

El Pollo Loco is clearly going all-in on the delivery strategy to boost sales. But it’s tackling the commission problem in a different way that could be a win-win scenario for both restaurant and delivery services. Fielding questions in its earnings call, management said that it’s created a special delivery menu with special pricing. Small ticket items aren’t available for delivery and prices are raised 13% to 15% compared to its regular dine-in menu.

In this way, El Pollo Loco aims to maintain the profit margin it wants without the delivery service losing out on its commission. The customer is asked to essentially pay a convenience fee. And so far, those customers haven’t pushed back. This is a good creative move for El Pollo Loco and ultimately the model we could see more restaurants emulating over time.


DoorDash Won Food Delivery by Seizing the Suburbs and $2 Billion

(Bloomberg) — There aren’t many jobs in Davidson, North Carolina, that offer the flexibility and decent pay that Alfonso Auz was looking for. He tried a bunch of gigs, including driving for Uber, before eventually settling on DoorDash Inc. Auz, 47, usually makes at least $150 a day delivering food from restaurants in his hometown, without having to commute to the nearest job center, Charlotte, 40 minutes away. “I usually turn on the app while I’m still at home,” Auz said.

Towns like Davidson are at the center of a strategy that secured DoorDash a firm position atop the U.S. food delivery market, said Tony Xu, DoorDash’s chief executive officer. The suburbs, he said, were underestimated by competitors, giving DoorDash the opportunity to forge nationwide exclusivity deals with the likes of the Cheesecake Factory and Chili’s. “While our competitors focus on the cities, we focused on the suburbs,” said Xu. “That’s how we were able to become the market leader.”

The other part of the strategy, according to analysts, rival businesses and venture capitalists, involves a war chest of about $2 billion. That’s how much DoorDash has received from investors in the six years since the business was established, and almost two-thirds of it came in the last 18 months. SoftBank Group Corp., the Japanese conglomerate whose investments have reshaped Silicon Valley, took an interest in DoorDash last year and helped lift the valuation of the unprofitable company to $12.6 billion this past May. Other backers include Sequoia Capital and Singaporean government investment funds.

Today, DoorDash is the prime example of SoftBank’s investing philosophy seeming to work as intended. Behind SoftBank’s $100 billion tech fund is the idea that an ample supply of money can propel a company to the top of a market. DoorDash accounts for 35% of online food delivery sales in the U.S., according to Edison Trends, a market research firm. DoorDash’s rise has come at the expense of the other major delivery apps from Uber Technologies Inc., Grubhub Inc. and Postmates Inc., which have all lost share in the last year. DoorDash is in 4,000 towns, compared with 500 cities for UberEats. “DoorDash came out of nowhere,” said Hetal Pandya, an analyst at Edison Trends.

Critics say DoorDash followed the SoftBank model down a destructive path of growth at all costs and a backward business model that doesn’t account for profit. DoorDash may find itself unpalatable to public market investors, who have largely turned against big unprofitable stocks. The company has been eyeing an initial public offering next year. “We believe we have the right unit economics to enable us to build a sustainable and profitable business,” said a spokeswoman for DoorDash.

DoorDash’s spending has impacted competitors. Grubhub shares fell 42% last week in their biggest one-day drop ever, after the company gave a dismal forecast and published an unusual, 10-page manifesto signed by the CEO and financial chief. In it, they throw shade at competitors, saying Grubhub is the only profitable food delivery business. A week later, Uber reported fewer-than-expected food delivery orders in an otherwise favorable quarter. The stock fell to an all-time low the next day.

Fast food restaurants aren’t faring much better. Delivery apps charge restaurants fees, sometimes as much as 30% of sales, which cut into profit margins. That has pushed larger chains to negotiate lower fees in exchange for exclusive agreements, as Shake Shack Inc. did with Grubhub. However, going with the third-place app contributed to an underwhelming quarter and reduced sales targets for the burger chain, whose stock dipped 21% Tuesday. The old-fashioned way of hiring drivers isn’t a reliable option, either. The CEO of Papa John’s International Inc. said Wednesday that a shortage of drivers is forcing the pizza company to work with the app providers.

Just a few years ago, DoorDash was struggling to find investors and agreed to cut its share price to raise capital. By late last year, annual sales had tripled. But questions remain about how sustainable the business is. Over the summer, a DoorDash investor prepared an informal presentation arguing the merits of a sale of the company to Uber, according to a copy of the document obtained by Bloomberg.

Uber, which also counts SoftBank as its largest shareholder, is sitting on $12.7 billion in cash, and its CEO, Dara Khosrowshahi, told analysts on a conference call this week that the company is open to acquisitions in food delivery. However, Khosrowshahi has also committed to cut spending in service of turning a profit by 2021. Representatives for the companies declined to comment on the prospect of a merger. Mike Walsh, an early Uber investor, said DoorDash is probably too big for Uber to swallow.

Instead, DoorDash made a purchase of its own. The company spent $410 million in August for Caviar, a food delivery app owned by Square Inc. “We have a lot of money in the bank,” said Xu, the DoorDash CEO. “We are in no rush to spend it all.”

Geographic comprehensiveness comes at no small expense to DoorDash, but it’s what draws many restaurant operators to the app. About 80% of Chili’s locations are in the suburbs, and DoorDash is helping bring in customers who may not otherwise eat there, said Steve Provost, the chief concept officer for Chili’s parent company Brinker International Inc. “The idea of non-pizza delivery in the suburbs is a relatively new phenomenon,” he said.

DoorDash’s sprawl throughout American suburbia hasn’t hurt its position in major cities, though. Holly Richards, a 29-year-old executive assistant in San Francisco, said she prefers DoorDash because of its competitive prices, wide selection and, most importantly, its generous refund policy. UberEats would only give her a 20% off coupon when she complained that her Indian dumplings arrived cold, Richards said: “DoorDash is the only company that has offered me a full refund for food that did not arrive in a timely matter.”


Reengineering the menu for better delivery

Delivery is big business these days, with consumers getting it more often than they used to and from a greater number of restaurants.

Consumers are willing to wait an average of 30 minutes for food to be delivered1. While that doesn’t seem like too long of a wait for the customer, 30 minutes is a long time for prepared food to stand before being eaten, and as such, restaurants have to plan ahead to ensure the food they offer is still in optimal condition—hot and crisp, fresh and cold, etc.—by the time it gets to the customer.

One way to mitigate issues with food arriving in less-than-stellar condition is to streamline the menu. Many restaurants don’t offer their entire dine-in menu for delivery customers. A general industry trend is to reduce the number of items offered. By doing so, potential customers can find something more quickly when scanning their delivery app and restaurants don’t have to worry about how to deliver some of the more delicate items that dine-in customers may order.

Rewriting the menu

Simplifying the menu means more than offering fewer items. By using less copy to describe items, too, restaurants can get more listings on a screen. In other words, the goal is to encourage less scrolling so consumers don’t become overwhelmed by choice.

Rewriting the menu descriptions to be optimized for third-party delivery platforms also allows operators to steer customers toward products that travel well or generate the biggest profits.

Reengineering the menu to ensure foods are in their best shape when they arrive is good business, and can be critical for ensuring repeat customers and minimizing loss. After all, food that tastes just as good as it does when dining in is the No. 1 purchase driver when consumers choose a restaurant to order takeout or delivery from1.

Consider packaging

Once the right mix of menu items has been chosen, restaurants should also consider the types of packaging they’re using, as well as the carrying bag their drivers use, to transport the foods. Using the right packaging, including insulated containers for hot food, vented containers for fried foods that need to remain crisp and containers that have separate compartments to keep meal components apart, helps ensure food arrives to the customer in tip-top shape.

Insulated bags should also be considered. Any steps restaurants can take to help ensure the food they offer for delivery arrives in the best possible condition will make those 30 minutes a breeze to get through.


The Big Flaw in Grubhub’s Business Model Just Became Wildly Obvious

Restaurant delivery is only getting more and more popular among customers, which ought to be great news for Grubhub (NYSE:GRUB). But the service provider’s third-quarter numbers were plain awful, and its guidance was ugly, too. In this segment of the Oct. 29 MarketFoolery podcast, host Chris Hill and Motley Fool Asset Management’s Bill Barker dig into precisely where it’s all going wrong — its costs, competition, the value proposition for its partners, and one key difference between a delivery customer and a dine-in patron. They also weigh questions of customer loyalty, and whether the stock looks like a buy after this latest steep plunge.

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Oct. 29, 2019.

Chris Hill: Let’s move on to Grubhub. Third quarter and coinciding guidance for Grubhub… I’m going to just use the word disaster, because that’s what’s happening to Grubhub’s stock today. Their sales were weak. Their guidance for the fourth quarter was somewhere on the range of disappointing to terrible. Shares of Grubhub the last time I checked were down 43%.

Bill Barker: Yeah, there was no good news for owners of Grubhub here. The competition continues, it continues to drive down prices, it continues to drive up costs, and it continues to erode market share for Grubhub. I think that, of the many questions that can be asked about Grubhub, is are you sure that you can convey how you are helping the businesses you partner with? That really is not coming through on any of their calls. They have started out with a pretty high price for the delivery service, and that is eroding through competition, and restaurants are not making enough money on the incremental meals that they’re needing produced to serve what Grubhub is able to provide, in terms of possibly new customers, possibly just customers that are therefore not going to the restaurant. And if they’re not going to the restaurant, they’re maybe eating the same amount of food, but they’re not purchasing alcohol. And that’s where, as you know, restaurants make all their money. I’m just saying that because you know so much, not that I’m alluding to —

Hill: [laughs] Not that that’s always my go-to move when I go to a restaurant. I’m reminded of what’s playing out now with delivery services, is somewhat analogous to what we saw play out with credit card companies and restaurants over the last 25, 30 years. American Express charged a bit more, and with the rise of Visa and MasterCard taking a smaller cut from restaurants for their transactions, they became a more popular choice. So, whereas American Express as a card was very much a status symbol, and I’m sure some would argue, on some level, may still be, in terms of restaurants and increasingly retailers, as Visa and MasterCard became more ubiquitous, they basically went to American Express and said, “No, we’re not interested in paying you more for transaction costs, so we’re no longer accepting your card.”

Barker: Yeah. I think that’s true. Over time, the price will find itself for what the service that Grubhub is actually bringing is. In that vein, what Grubhub pointed to in the call, and has been highlighted in more than one article that I’ve seen, is that Grubhub referred to the consumers as being more promiscuous with their choice of food delivery services, implying that they understood that there was a monogamous relationship that they had with customers.

Hill: This is in the letter, it’s attributed to CEO Matt Maloney. “We believe online diners are becoming more promiscuous.” And let me just suggest that either they were trying to be a little cheeky with the humor there, to try and soften the blow of this abysmal report, or, on some level, they actually believed that; they believed that the value proposition that they were offering restaurants and diners was so amazing that they thought, “Well, once you try us, you’re never going to do DoorDash or anyone else.” 

Barker: Uber Eats.

Hill: Yeah. And, by the way, both of those are bad ideas. Going for the humor or actually deluding yourself into thinking, in 2019, when consumers have more choices than ever before, someone is going to “get married” to Grubhub.

Barker: As to using humor, and that being a bad idea, you may be correct in that that draws attention to itself. We are guilty of trying to use humor to lighten up situations, or cover the fact, when we don’t know what we’re talking about, just go to humor. I think that, in this particular case, it’s the combination of humor and the word promiscuous, which connotes sex, right? 

Hill: Yes.

Barker: That’s what grabs attention.

Hill: And, let me go back to something you just said, which is using humor to cover the fact that we don’t know what’s going on —

Barker: Why didn’t they just use non-sexual humor, I say. Next time.

Hill: Do better, communications team at Grubhub. 

Barker: It ends up not being worth the quality of the laugh. Perhaps they got some laughs on the call and they used that. But here they are, stuck with us talking about this rather than the business, although they don’t really want us talking about the business today either. 

The other point that you have brought up is, they may believe — and I think that is part of the business plan — “Hey, how do we get people to really be married to our business, and to not use the competition? How do we create brand loyalty? How do we stop people from going anywhere else? And if we can do that, then we’re going to have a great business.” And to date, they have found they cannot do that. And the reality is probably that it’s just an app on people’s phones. They don’t have that much loyalty to Grubhub vs. DoorDash vs. Uber Eats. The person bringing the food to them is always going to be somebody different than the last time, so they don’t have a personal connection. They do with the end restaurant, but they’re not going to have it with the middleman.

Hill: Yesterday the stock was $59 a share. Today it’s in the low $30s. Do you buy it at this price? Or are there more than enough questions that this is in the don’t touch zone?

Barker: I don’t think they’ve provided the answers that an investor would want to have to know where this thing shakes out against the competition. They are talking about spending more money. They’re talking about their costs going up. We already see that their market share is eroding. Where do the profits end up being? Are they able to survive, keep the level of profitability that they need to satisfy their debt covenants? If the margins decline further, the answer to that is, they will not. They need to provide answers to that.


N.Y. ride-hailing drivers file suit against Uber, allege they are owed millions in undercut wages

Ride-hailing drivers in New York City have filed a lawsuit against Uber that claims the company wrongfully deducted taxes from their paychecks and did not pay them the full income they earned from rides.

The lawsuit was filed in federal court in Manhattan on Wednesday by the New York Taxi Workers Alliance, an organization with about 22,000 paying members that advocates on behalf of drivers. Roughly half of the alliance’s drivers do their work through apps such as Uber and Lyft, the group says.

The lawsuit says 96,000 drivers are owed money for two violations. The drivers allege that Uber deducted money from their paychecks for both the state’s sales taxes and a surcharge meant to apply to rides between states. They claim their contract with the company requires them to be paid the passenger’s full fare minus Uber’s service fee. The lawsuit also alleges that the company used a manipulative system of payments in which customers were paying a higher fare than what was being reported to drivers, with Uber pocketing the difference.

“This surreptitious use of double definitions of the ‘Fare,’ a defined term under the contract, resulted in Uber charging higher fares to passengers than those it reported to drivers,” a complaint filed in the case states. “Uber then pocketed the difference, depriving drivers of their contractual share of the full fare charged to customers.”

The company did not respond to a request for comment.

The lawsuit, which was first reported by Bloomberg Law, says the group of drivers is owed an estimated $5 million. The three Uber drivers named in the suit, Levon Aleksanian, Sonam Lama and Harjit Khatra, asked a federal judge to approve class action for the nearly 100,000 drivers affected.

The lawsuit is part of a wave of attempts to strengthen the hands — and bolster the wages — of so-called gig economy workers, the most prominent class of which is ride-hailing drivers. Where companies such as Lyft and Uber were once heralded for disrupting stodgy industries, attention has turned to the ways in which workers on largely unregulated digital platforms can be exploited, misled and subject to wage theft and misuse.AD

Companies such as Instacart and DoorDash, whose business models rely on workers using their apps, have drawn harsh criticism in recent years for deducting customer tips from the payment given to them — essentially pocketing the funds.

In New York City, attention has swelled on the plight of drivers, more than 78,000 of whom do work for the ride-hailing apps. In 2018, eight professional drivers committed suicide, including one, Doug Schifter, who fatally shot himself in front of City Hall after writing a Facebook post about his financial hardships.

The city approved minimum-wage protections for app-based drivers at the end of the year, requiring they get paid $17 an hour for their work, the first for any major city in the United States.

In California, a state bill recently signed into law by Gov. Gavin Newsom (D) expanded rights and protections for ride-hailing drivers and would force companies such as Lyft and Uber to classify their workers as employees rather than individual contractors. The move came after months of organizing among ride-hailing drivers.AD

Uber, Lyft, DoorDash, Postmates and Maplebear, the parent company of Instacart, spent $110 million fighting the law, Bloomberg Law noted.

Similar proposals are being considered in other states, including New York and New Jersey.

The New York Taxi Workers Alliance has been involved in many of these efforts.

Bhairavi Desai, the executive director of the organization, has watched as public awareness has grown around the ride-hailing industry. In 2015, New York Mayor Bill de Blasio’s ideas about regulating the industry were so unpopular that he quickly retreated in the face of a robust public relations campaign from Uber.

Other officials in the state ignored the group’s pleas to try to ensure drivers were eligible for benefits such as unemployment when the work dried up Desai said in an interview.

“Politically, we were just frozen out,” she said.

But the tide has been turning in recent years, and multiple lawsuits have documented the ways in which workers were treated by the company.

“Once the drivers started organizing, all the reports started to come out about what the drivers were facing,” Desai said. “That’s when consumers and the public at large really started to take a second look.”


Company that bought Bite Squad signals it paid way too much

The company that in January bought Bite Squad, the Minneapolis food-delivery firm, on Thursday wrote off much of that deal.

It had been the most valuable acquisition involving a Twin Cities tech startup this decade.

Waitr Holdings Inc. disclosed a $192 million write-off as it announced quarterly results Thursday, contributing to a $220 million loss for its July-through-September quarter.

The move came just days after Waitr disclosed that it had laid off many of Bite Squad’s corporate employees in Minneapolis. The amount accounted for most of the $321 million Waitr paid to acquire Bite Squad in January. Much of the rest of Bite Squad’s value was in the form of long-term debt that remains on Waitr’s balance sheet.

It marked another stunning development in the app-based food-delivery business, where companies have seen sky-high valuations plummet in recent months after growth slowed and investors pressed executives to shift their focus to profitability.

Waitr has lost 97% of its market value since April. Last week, the shares of the industry’s largest publicly traded firm, GrubHub, dropped 42% in one day after its executives warned that the business had become a commodity more quickly than expected.

Waitr executives declined to comment directly about the industry assessment GrubHub executives put forth. But they said they are putting profits first now.

“It’s hard to comment on growth and what can be expected,” Adam Price, Waitr’s chief executive, told investment analysts. “The management team’s primary focus is controlling our cash and putting us on a clear trajectory to be a sustainable business.”

Waitr effectively doubled its size with Bite Squad, reaching 700 towns and cities in 27 states. Even so, its national market share remained in the single digits, well below larger firms like GrubHub, Postmates, Door Dash and Uber Eats.

On Thursday, Waitr said it would halt delivery services in 38 markets, mainly in smaller cities that are new to its network. Price said executives did not see a clear path to profitability in the markets.

Adjusted for one-time gains and losses like the write-off, Waitr said its loss amounted to about $15.4 million in the quarter. Revenue was $49.2 million.

Waitr founder and Chairman Chris Meaux last year attracted Texas billionaire Tilman Fertitta to buy the firm and list it publicly through a special-purpose investment firm. Fertitta also owns Landry’s Inc., operator of Golden Nugget casinos, restaurant chains like Bubba Gump Shrimp Co. and Rainforest Cafe and the NBA’s Houston Rockets.

Bite Squad’s founder, Kian Salehi, remained with the combined company for a few months after the transaction but left it this spring. He now runs a venture firm in Minneapolis.


Louisiana-based food delivery company Waitr goes deeper into the red in third quarter

Louisiana-based food delivery company Waitr will cease operations in 38 “clearly unprofitable” markets over the coming months as the company’s leadership tries to find a “trajectory for a sustainable business,” CEO Adam Price told investors Thursday.

The third quarter of 2019 — Price’s first quarter as CEO after founder Chris Meaux resigned and took a position on the board in August — saw the company lose $220.1 million, or $2.89 per share, after only losing $6.5 million in the third quarter of 2018. In the second quarter, Waitr reported a loss of $24.9 million, after reporting a profit in the same period of 2018.

Price emphasized the company’s efforts to streamline the business and reduce overhead costs, such as the market closures and a 50% reduction in Waitr’s sales staff. 

“There was not a clear path to profitability,” Price said of the 38 markets. “We just didn’t see a way to get there with the resources we have.”

Price didn’t offer much information on the markets slated for elimination, but did say they had been launched relatively recently. A spokesperson said Tuesday that no Louisiana markets are going to be impacted. The closures are expected to come in the next 30 days.

Waitr seems to be moving away from the idea of selling, according to its third quarter financial report released Thursday, though it “remains open to potential value creating opportunities.”

In August, the company’s board began a “strategic alternative review process” to determine ways the company could increase value for shareholders. Among the potential options were selling assets, merging with another company or selling the business.

But the board concluded Waitr “will best serve the interests of its stockholders at this time by focusing on executing its strategic plan as an independent public company,” according to the report. Price said that, despite recent turnover with the company’s leadership, the management team is united behind the plan to streamline the business.

The company’s stock price closed at $0.45 a share Thursday, down 3.6% and well below its heady 52-week high of more than $15.

The company’s revenue saw a 153% increase from the third quarter of 2018, to $49.2 million from $19.4. Revenue from the Bite Squad merger totaled $24 million for the third quarter.

The number of active diners on the app largely stayed the same from the second quarter of 2019 at 2.4 million, but it is an increase from the 843,000 users in the third quarter of 2018.

“We made progress in the third quarter streamlining our operations and making improvements that consistently create a better customer and restaurant partner experience, while also setting us up to reduce expenses now and in the future,” Price said. “During the quarter, we started implementing changes that are expected to result in an incremental $25 million to $30 million of annual savings in FY 2020. We remain dedicated to stabilizing the business in terms of cash flow and charting a clear path towards profitability.”

The company announced Tuesday it would be scaling back its workforce and closing “a subset of low-performing markets,” according to a company spokesperson.

“Eliminating jobs is the last thing a business ever wants to have to do,” Price said. “Actions taken this week were done to best position Waitr for the future and enable the company to continue providing a consistent, reliable experience to our customers, and valuable relationships to our restaurant partners.”

The company will be providing separation packages, and is “committed to supporting them,” the spokesperson said.

On Thursday’s investor call, Price also addressed the new restaurant agreement the company released in July that drew criticism from Waitr’s restaurant partners. He said about 75% of the restaurants that left the platform because of the change have returned and there has been an overall increase in active restaurants.

The new agreement did not impact Bite Squad markets or national chains.

In October, the company announced the resignations of two board members — Sue Collyns and Scott Fletcher — and the chief financial officer, Jeff Yurecko. The company said the resignations “were not related to a disagreement with the Company over any of its operations, policies or practices.”

In September, Waitr President Joseph Stough announced his resignation. On Sept. 6, days before Stough’s resignation, former Louisiana Attorney General Charles C. Foti Jr. announced that his law firm was investigating whether Waitr “made materially false statements in connection with its going public transaction, its Secondary Offering and in connection with the partial stock based acquisition of Bite Squad.” 


Waitr reports net loss of $220M; company looks to stay independent

Waitr Holdings Inc., the Lake Charles-based mobile app food delivery business, went deeper into the red as the company reported a net loss of $220.1 million, or $2.89 per share, as of third quarter.

By comparison, Waitr lost $6.5 million during third quarter 2018.

About $192.1 million of the losses stemmed from goodwill and intangible asset impairment charges in addition to $2.2 million of non-cash stock compensation expenses.

Waitr has $52 million in cash on hand left, down from $72 million as of June 30.

Waitr, which has significant operations in Lafayette, generated $49.2 million in revenue during third quarter, up from $19.4 million during the same time frame last year. About $24 million of that total revenue stemmed from Bite Squad’s sales, the food delivery startup the company acquired this year.

Gross food sales during third quarter grew to $161.4 million compared to $77.7 million during third quarter last year. Of that, $74 million was related to Bite Squad. Gross food sales refer to food and beverage receipts in addition to taxes, tips and fees.

The company’s CEO, Adam Price, said the business made progress in streamlining operations and saw $2 million in cost savings during third quarter so far. 

“We started implementing changes that are expected to result in an incremental $25 million to $30 million of annual savings in FY 2020,” Price said. “We remain dedicated to stabilizing the business in terms of cash flow and charting a clear path towards profitability.” 

The company’s board of directors also completed its strategic alternative review and decided to keep the company publicly traded and independent but remains “open to potential value creating opportunities.”

It declined to share future earnings, citing a lack of chief financial officer, who left in early November alongside two board members. Waitr’s leadership is in restructuring mode with a single goal – breaking even – its top executive told analysts on a conference call. 

“It’s hard to comment on growth and what can be expected because the management team’s primary focus right now is controlling out cash and putting us on a very clear trajectory to a sustainable business, that’s the priority,” Price said. “We have to come back and show people that this is a sustainable business.” 

Towards that goal, Waitr laid off about 300 workers this week and estimated that it will save $19 million in annual salary expenses as a result. The company cut its sales team in half and implemented a more automated process for sales and even driver route assignments. It was the second layoff in the past six months. It also decided to remotely manage some of its markets rather than have employees on the ground. 

The company laid off most of its operations and dispatch staff in Minneapolis, the former headquarters of BiteSquad, in an effort consolidate operations in Lake Charles, according to the Star Tribune newspaper.

It is exiting 38 markets due to lack of performance, which were “clearly unprofitable”. For example, Waitr is halting delivery in Dothan, Alabama in early December – about a year after starting operations there. It’s also pulling out of Lincoln, Nebraska. 

Several months ago, Waitr attempted to renegotiate contracts with higher fees among independent restaurants in an effort to spur higher volume sales. Since then, about 75% of restaurants have returned to Waitr, according to the company.

The average Waitr order was $36 and it had on average about 48,100 orders each day. It served more than 2.3 million diners as of third quarter, up from 842,500 one year ago. The company has seen an increase in market share in its strongest existing markets over the past three months. 

Waitr’s stock was trading around 45 cents per share as of market close and dropped to 44 cents per share in after hours trading. It’s down from a 52-week peak of $14 per share in March. The company’s market capitalization was $34 million. 

The company may be delisted from the Nasdaq stock exchange about a year after the company it went public if its stock price doesn’t rise above $1 per share by the end of November. 


Uber Eats readies ad sales for restaurants

Ads are coming to Uber Eats. TechCrunch reported that Uber is seeking an executive to help develop and run a new ads business.

Under pressure. This makes sense for several reasons. Restaurants have been conditioned by other ad platforms, including Google and Yelp, to pay for placement and exposure. And Uber is under significant pressure from investors to generate more revenue from more sources amid growing skepticism about the company’s capacity to turn a profit.

Uber Eats competes primarily with GrubHub, DoorDash and Postmates – although Google My Business also offers food ordering, as does Yelp. According to one estimate, Uber Eats has 20% share of all restaurant delivery sales in the U.S. DoorDash has 34% and GrubHub has 30%, while Postmates has 10%.

Heading toward $2 billion. There are multiple estimates of the value of the global food delivery market. They vary wildly, but the market is worth many billions of dollars without question. Uber Eats generated $1.13 billion in gross revenue on $6.45 billion in gross bookings for the first six months of 2019. Net revenue was $576 million.

Uber CEO Dara Khosrowshahi said on a recent earnings call, “We continue to be the number one and number two player in online food delivery category in multiple geographies, including the U.S., Japan, France, Mexico, Australia, New Zealand.”

Advertising could ultimately add hundreds of millions of dollars to the top line for Uber Eats. Yelp, for example, had roughly $943 million in revenues in 2018, not all of which is advertising. However, Restaurants and Home Services are the company’s two strongest verticals. Yelp only sells ads in North America, while Uber Eats operates in more than 500 cities globally.

Why we should care. Uber’s revenue from its primary business, ride-sharing, was $3.1 billion in the second quarter. Accordingly, Uber Eats could become a significant business and contributor to revenue.

The more interesting question from a market and marketer perspective is whether Uber Eats could ultimately become a destination for restaurants generally and rival Google and Yelp over time as a platform for restaurant promotion and advertising.