Delivery business is dodgy all around, especially these days

It was an item typical of internet publishing, not quite news yet still fascinating, all about Grubhub pricing.

It described a Chicago pizza place that delivered through the app-based delivery Grubhub that only got to keep about $375 out of more than $1,000 in March sales. The rest went to Grubhub for fees, commissions and promotions.

This attracted the attention of Twin Cities advertising writer Darren Tibbits, who with his partner Jordan Rohweder had just started a new Minneapolis ad agency called Skully Rebels.

Although Grubhub said restaurants usually do much better, they were bugged that costly delivery takes money from restaurant workers already in crisis.

They decided to create a public-service ad campaign for Facebook and other sites called simply Sack the Apps, meaning just delete the delivery services from your phones. That's if you are serious about helping favorite restaurants — and their workers — get through this pandemic.

"All up and down my block I see these delivery services dropping off food for people," said Rohweder, who lives in Minneapolis. "If people think about this and those restaurants they know and love, maybe they should just be going and picking up directly from the restaurants themselves."

The Minneapolis ad creators know that the drivers sure need work, too, but delivery doesn't work great for them, either.

If you have never tried one of these services but maybe still have heard of the delivery company DoorDash, it might be because of the uproar last year when it became clear DoorDash wasn't letting drivers keep their tips.

A post this year on the gig economy website the Rideshare Guy broke down the compensation for driving in northern California for DoorDash and got to about $20 an hour.

"I'll take it," he wrote of the $20. "It's not a living, but it's OK for some extra cash."

The thing is, there was no line for smartphone expenses on this spreadsheet. This is gig work, after all, not paid work for an employer that provides the tools. An even bigger omission was no line for the car the driver must provide, a big capital expense. Of course, no talk of health insurance or a 401(k) match.

As an industry, delivery has boomed, including here in the Twin Cities. Nearly 7 out of 10 Minnesotans still employed in April were working with private-sector service companies. Of the long list of service categories, the only one that saw a big increase from last year, up more than 14%, was couriers and messengers.

By now you must be thinking that the companies are piling up the profits, but that is not the case. Among the other articles that recently popped up on the internet was a fantastic post on a business and technology blog called Margins, all about how DoorDash gets new accounts while being appallingly sloppy with its money.

It described how a pizza shop owner last year started getting customer complaints for its delivery service, cold pizzas and the like, except it had no delivery service. DoorDash, it turned out, had been delivering his product without his knowledge.

This practice is apparently common, taking over delivery for a restaurant whether it's invited to or not. This case, though, had a pricing quirk after the DoorDash computer scraped the pizza shop's website for data.

DoorDash started selling customers the pizzas for $16, including the deluxe pizzas that actually cost $24. Once the shop owner (with help) figured this out, he placed an order for 10 of his own shop's pizzas for $160 through DoorDash — which dropped by and paid him $240.

The point of the story is that a big Silicon Valley business that has raised more than $2 billion in venture capital happily gives it away at the rate of $8 per pizza box.

DoorDash, still closely held, reportedly lost about $450 million last year, on sales of about $900 million.

Grubhub also loses money and is still discussing a merger with Uber Technologies. Writer Ranjan Roy, in his Margins article, dryly noted that Uber Eats was described as the company's most profitable division in a quarter when it lost $461 million.

"Just think of all the meetings and lines of code and phone calls to make all of these nefarious things happen which just continue to bleed money," Roy wrote. "Why go through all this trouble?"

The last investor money that went in to DoorDash came at a price that valued the whole company at $13 billion. There are two explanations for how billions of dollars can keep going into a business that doesn't make money and seems to defy common sense.

One is that the companies that attract all the venture capital are expected to acquire customers and market share so aggressively that rivals either drop out or decide not to jump in at all. When the shakeout is over, the winners can raise prices and then start making money.

The other is that these businesses won't need to make money so long as there are investors willing to accept the first explanation, and keep buying stock at ever higher prices. The early investors make money without the company making money.

What is really odd about that, of course, is that the investors are largely institutions, not traders talking up a $2 public stock hoping to quickly unload it, a tried-and-true approach known as a pump-and-dump. If this really was the thinking, it had to unfold in slow motion.

As a consumer, it's hard to know the right thing about delivery. We want our dollars spent on restaurants to go to people who create the value and need the work. At our house we have mostly picked up at the curb. But we once ended up clicking on delivery thinking it was the restaurant's service. Instead, a DoorDash driver showed up.

Here was a Minnesotan, at our house, doing a hard job. We added to the tip.

In cash.