“Ghost” Restauranteur Sells to Uber

Uber Eats has purchased New York City “ghost” restaurant, Ando.  Ando, for those who don’t know (which I presume is about 99% of you since they only had one location in one city), was a popular NYC “ghost” restaurant, which means it was delivery-only, no customers allowed inside.

Ando was founded by two-star Michelin chef, David Chang.  As a Michelin-awarded chef, he is rather well-known in food circles.  And as a high-profile delivery-only restaurant owner in Manhattan he became well-known to Uber Eats as well.

Eater reports that he has a “track record for refining and rethinking things we didn’t think needed refining and rethinking.”  And that may be just the combination of experience and innovation that Uber Eats was looking for when they decided to buy his venture.

The reasons Uber purchased Ando are unclear.  However, Forbes tells us that in “Los Angeles, Postmates quietly leased a commissary kitchen space so its restaurants can reach new customers and sell even more. On the first day, Tatsu Ramen made 150 bowls of ramen in the first five hours. Now, multiple restaurants are working in Postmates’ spare kitchen space and the company says it’s considering adding additional locations.”

Apparently, these companies are building warehouses where the restaurants can all come in, make their food and have it served from a central facility.  The drivers can then all meet in one place to pick up the food.

However, not to be too negative about it, it doesn’t seem like too big of a leap to think that if Uber Eats has such a facility that it might not be long before they think, ‘what do we need the restaurants for?  We have a master chef, why don’t we just make our own food?’

In other words, Uber Eats becomes the largest restaurant in the world!

Ando’s “Ghost” location on West 14th Street in Manhattan.

The Scary Thing About Uber Eats

The scary thing about Uber Eats is the huge cost they’re adding to a restaurant’s operations. Uber is currently charging restaurants 30% of the total bill to handle the deliveries.  That’s on top of the fees it charges the customer.

That is a huge cost burden to restaurants when you consider that the average profit margin in the restaurant business is very slim.  The typical restaurant makes a profit of between just 1.5%-3.5%.

It should also be noted that Uber shares no portion of the 30% fee it charges restaurants with the drivers.  It pays drivers a miniscule amount for the work they do.  They even have a version of uberPool where a driver will be directed to pick up two orders at the same restaurant and deliver them to two separate customers who are in close proximity to each other.

Uber pays the driver of these “pool” deliveries the same as if he had delivered only one meal to one customer.  Uber pockets the difference.  Uber can make up to 90% on these trips leaving the drivers with sometimes less than 10% of the total “fare” for the trip.

GrubHub, Postmates, and Seamless are charging restaurants from 12%-24%.  But Uber says anything less than 30% would be “unsustainable”.

It’s hard to imagine how making anything less than $17-20 on a $50 food order is unsustainable.  Especially when you consider that Uber has no food costs, no restaurant costs, no driver costs and no car costs.

Uber has restaurants paying for and preparing the food and drivers paying for the cars that deliver the food.  Uber’s cost is running their office and keeping the servers up and running.  $20 though will pay for a lot of server power – enough to accommodate several thousand orders at least.

It’s Uber’s traditional M.O.  Use other people’s assets, bring them some customers, charge a sky-high fee for doing so.  Then later, when everyone is on board, increase the fees you charge the service providers, in this case, the restaurants and the drivers.  And increase what you charge the customers without sharing any of that with the drivers.

What Motivates Restaurants to Sign Up for such an Expensive Service?

It’s more business.  A lot more business.  The New York Times reported in September that a Brooklyn restaurant owner signed up for Uber Eats and he was very nervous on the first day.  He had always handled the delivery portion of his restaurant’s business on his own.  But he says on the day they started with Uber Eats, the orders came pouring in.

“We weren’t prepared for the volume that came in” through Uber Eats this year, Mr. Gordon, 46, said. “I myself, as an owner, had to work three weeks straight cooking on the food line just to keep up.”

So, that’s the motivation… it’s a way to get a lot more business.  At least, for now.

This is all starting to remind me of what happened to the professional Black Car business when Uber moved into a market and I’m wondering if the end result might be the same.

Today, the professional, veteran Black Car drivers who made it possible for Uber to get started, would tell you they wish they had never joined Uber.  Because Uber has ruined the whole industry as a business where the little guy – the drivers – could actually make a decent living.

Uber: Promise & Hope

When Uber first started in New York city, where I live, it was a great time of excitement and hope!  Passengers were ecstatic to have a new and better way to get around and veteran black-car drivers were hopeful that it would provide a new and lucrative path to more business.

Indeed, when Uber first started, that’s exactly the promise they held out to drivers.  When they came into the New York market, as they had done in the original California markets, they came in as a high-end, luxury, Black-Car service.  They only took on professional veteran drivers who were already licensed as black-car/limo drivers, which means the drivers were all already working in the industry.

These veteran drivers who were fed up with the ways they were treated by their employers and dispatchers (otherwise known as Black Car Bases), were excited about a new alternative in the market.  They happily jumped ship and started driving for Uber in their down time.

The reason they jumped so quickly was because Uber promised them amazing pay!  They promised them they’d make far more than they were making with their current black-car bases.

And indeed, Uber paid them much better than their original black-car bases did.  But perhaps just as important as better pay, Uber also introduced a fairness and honesty into the system that black-car drivers hadn’t experienced before.

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In fairness, Uber promised to send passengers to drivers based on one criteria alone – proximity.  Whichever driver was closest to the passenger would get the call.

This eliminated one aspect drivers despised in the black-car industry which was the habit of most dispatchers, to send out the best calls to their favorite drivers.  This infuriated drivers to no end, because only a very few were favored.  It also led to a system of bribery where drivers would actually “tip” the dispatchers for good calls.

The other factor in swaying drivers was that Uber actually paid drivers once a week, as promised.  And they did in fact pay them every single week.  Which is more than could be said for a lot of the black car bases around New York, which seemed to have a never-ending pool of excuses for delaying payments to drivers or sometimes just out and out cheating drivers out of payments.

Uber: Broken Promises & False Hope

The good times lasted for the first couple of years.  The drivers who got in on Uber in the very beginning made a lot of money.  I’m talking well into the 6-figures.  I’ve seen driver invoices from back then showing that earning $1,000+ a day was a pretty regular occurrence.

When Uber decided to create uberX, however, in response to a new startup called Lyft, everything changed.  Originally, Uber was held back in how many drivers it could bring online because it was tied to the pool of already-existing, professionally-licensed black-car drivers.  Uber didn’t recruit for new drivers outside of this pre-existing pool of licensed drivers.


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But, when they created uberX and decided to do so illegally, by bringing in anybody and everybody who had access to a car, without getting them licensed, as required by law, everything changed.

By bringing in thousands of new drivers into each market, drivers found themselves waiting longer and longer in between calls.  This waiting time resulted in lost income.  Drivers who were previously making something close to $300,000 a year were now going to make far less, perhaps well below $200,000.  Okay, so I know you’re not exactly feeling sorry for them yet!  But, that is a gigantic year-to-year drop in income – and it was only the start!

As time went on, Uber continued to add thousands of new drivers each year – far more than any amount of demand could possibly consume.  And at the same time, they started slashing their prices.  Today in most of the country where Uber has operated for more than four years, prices are far less than half what they were in the beginning.

What Uber Did to the Professional Driver

In the end, what Uber has done to the professional drivers who made it possible for Uber to get started, is they have totally devastated their industry.

Today even if these drivers decided to go back to their original bases and drop Uber altogether, it wouldn’t help them.  Because the black-car bases have had to drastically cut their prices to stay competitive with Uber.

And they have far less business per driver because of the simple fact that Uber has added more than 100,000 drivers to the roads of New York City.  With that many drivers, there’s just not enough business to go around.

Basically, Uber has destroyed the industry that used to provide a decent living for drivers.  Now most drivers are barely making minimum wage.

Will Uber Eats do the Same to Restaurants?

The question is, will Uber do the same to restaurants?

Will sit-down restaurants go the way of book stores in the wake of Amazon?  (Totally disappeared).  It’s not an unfair question.  In looking at Uber’s past, it’s looking highly likely.

By adding a huge additional cost (delivery) higher than anything restaurants had ever paid before for deliveries, Uber might just put a lot of restaurants out of business and the only ones that survive will be the ones who are willing to go “ghost”!

It may be that in the end, the only way restaurants can survive in an Uber Eats world will be by going 100% delivery.

Could the Future Look Like This?

Here’s a side-by-side comparison of what Uber did to the professional Black Car industry (on the left) and what it might look like if they do the same thing to the restaurant business.

Uber’s Original Black Car Service (past) Uber Eats (possible future)
Uber lured in veteran professional black-car drivers by bringing them a little more business than they had before.  Uber’s fee they charged drivers was just about what drivers were paying to their black-car bases but Uber’s rates were (unsustainably) higher – and they paid on time. Uber Eats lures in restaurants by initially bringing them a lot more business than they had before.  Even though their 30% fee is sky high, the restaurants are willing to pay it in exchange for the additional business.
After a while, word got around that drivers who had signed up with Uber were making a killing. After a while, word gets around that restaurants who partner with Uber Eats are making a killing.
Today, every black car driver in New York is signed up with Uber – and the companies they used to work for are for all practical purposes dead. A lot of new restaurants begin to sign on until just about every restaurant in town is a “partner” restaurant.
No driver in New York can make a living without doing at least some work with Uber. With delivered dining becoming so popular no restaurant will be able to succeed unless they are partnered with Uber Eats.
Uber kept bringing on so many new drivers that no one driver was able to make a living anymore.  All drivers had more downtime than ever before and this downtime drastically cut into their earnings. Uber eventually signs on almost all restaurants and the initial surge in new business for the first restaurants that signed on, disappears.

 

Now, no restaurant is getting much business from Uber Eats anymore.  But they’re not getting walk-in business either as the world has gotten addicted to ordering for delivery.  Those orders are now spread over many more restaurants, making it nearly impossible for any one restaurant to earn a decent living for its employees or owners.

Wrapping Up

I know this is a dystopian view of the future, but it is based on Uber’s past.  We certainly hope it won’t end up this way, but we strongly encourage restaurant owners to think long and hard before signing on with Uber Eats.

You may think you can do it for now and opt out later.  But once Uber has a huge marketshare – you and all restaurant owners may be working for them with no ability to turn back.

What do you think about the outlook of the on-demand restaurant industry? Do you agree or disagree? Let us know in the comments below!

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