If you don’t know the saying, coal miners used to take canaries into coal mines with them. Canaries are more sensitive to dangerous gases than humans are. If the canary died, the miners knew there were dangerous gases present and would leave the mine.
As we think about the venture subsidization of third party delivery, one should logically wonder when this collapses.
We’re already witnessing significant contraction of the last-mile, fast delivery providers, whose business model was tenuous even by conventional third party delivery standards. Frankly, until there’s automation in that space (robots, cars, whatever), the math just feels really challenging.
Even then, the physical world isn’t neat… how do you go up stairs? How do you navigate an apartment complex? For better or worse a human making $10/hr (or substantially less in other countries) offers the highest chance of success in food delivery.
But as prices increase, there’s already a natural trend for diners to trade down, or out entirely. In other words, diners spend less on food by patroning restaurants with lower check averages or by shifting food spend into grocery. For simple math, a healthy meal from a grocery store can be made for $5; that same meal at a restaurant starts at $12. When you’re unemployed or short on funds, you’re just going to spend the hard $5 at a grocery store at cook it yourself to save the difference.
You know what people aren’t going to do?
Spend 40%+ or more to deliver that same food from the restaurant.
Sure, the investment banker working all night will use the company card to order delivery, but the average American won’t.
Housing prices (rent + mortgage) have moved in tandem over the past two years and are broadly up 34% since the start of the pandemic.
Not including Uncle Sam’s bite at your apple, housing is the number one cost to American wallets.
If your number one expense increases by 35% and your income is up a paltry up 4.5%, what do you think happens?
You pull back on other spending.
Kinda need a place to sleep.
Kinda.
Well, then everything else has also increased by 10%, so you really need to reel that spending in ASAP.
40% premium to Doordash on TOP of the premium of ordering from a restaurant vs shopping at grocery stores?
LOLz. Feels like a real gratuitous luxury.
No doubt there’s a massive asset bubble thanks to Fed/Bernanke printing since 2008; one need look no further than the housing market as evidence. When prices go up 35% and income 4%, one of four things HAS to happen:
- Banks relax lending standards nationally (like they’ve been doing for a long time in states like CA) so people can borrow at 10x+ income instead of the conventional 3-4x income. As if the US didn’t have enough debt, but okay
- Incomes rise rapidly to match parity with asset increases. If you think inflation is bad now, what do you think will happen if everyone’s salary was to go up by 35%? Possible, but this creates a whole other set of challenges
- About 16% of people are pushed out of the housing market permanently. These people can’t afford the increased cost of home ownership through a combination of taxes + mortgages (we calculated the 16% figure by seeing how many folks would be unable to afford today’s mortgage at a median home price of $430K using a 3x multiplier) and are forced to live in rentals that are much smaller than their homes
- The housing market collapses.
For funsies look at this graphic of home price to median income. See a cliff coming soon?
If you were to short a set of companies, you have to think that the convenience of delivery would be one that is screaming to nosedive.
People value their time, but that definition changes dramatically when your net worth is axed in half, you’re hearing whispers of layoffs, and what money you do take home can’t fill up your car anymore.
Who doesn’t like using investor subsidies to have their food delivered? Turns out that eventually the music stops.
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