We all lived in the future. A future full of cheap, on-demand services ready to satisfy your every whim. Need a ride, welcome Uber. Need an idea for dinner? Blue Apron will deliver a five-star meal kit to your home. Need a dozen Krystal burgers at 2am? Postmates brings it to your doorstep. But the era of cheap Uber and other subsidized on-demand services is coming to an end. Yes, that’s right, the Millennial lifestyle subsidy is ending.
Those of us who lived through the dotcom era will find it eerily familiar. Most millennials were learning to drive when the last era of subsidized on-demand services hit the ground running. It ended up being a dumpster fire of cutting edge businesses trying to prove that profit is not needed in the new world order.
Who can forget Pets.com sock puppet ads? That company lost $147 million in the first nine months of 2000 before the sock puppet became just a sock again.
Remember the Webvan product delivery service? In 2001, Webvan announced a $1 billion investment in grocery warehouses. By the end of the year, Webvan had shut down.
But could today’s irrationally former on-demand delivery services suffer the same fate? Can you even imagine a world without Uber, Lyft and others Shaka Taco? How would the Tik-Tok generation survive without the restaurant delivery apps Postmates, Grubhub, and Doordash? And how would Millenials survive without subscription services like Blue Apron and HelloFresh Gourmet Meal Kit? Not to mention Airbnb and HomeAway, where customers pay to stay overnight in someone else’s home. Is this really the end of champagne wishes and caviar dreams for an entire generation?
There’s a good chance you’ve never heard of these programs. If so, that might be a good thing.
So what’s changing in the field of on-demand delivery? It turns out a lot. You see, many of these companies are subsidizing operations with the help of a freelance investor. Uber, for example, burned through $20 billion in venture capital before filing for an initial public offering (IPO) to raise additional capital. According to BuzzFeed, in 2015 Uber was burning through $1 million a week in subsidies to drivers and riders – only in San Francisco. This burning rate is not sustainable. But it’s the same economy that subsidized many $8 Uber rides. Rides that cost more like $20-$30 today.
In addition to the free movement of capital, these companies feasted on cheap debt. Credit unions lent millions at very low interest rates to subsidize current operations. This free cheap money stops. As a result of rising interest rates, inflation and many other negative economic factors.
There are other negative forces wreaking havoc on the on-demand delivery service industry. Take, for example, gasoline, a key component in the delivery industry. When Uber launched in San Francisco in 2009, there was gasoline $2.35 per gallon. And the economy was flooded with cheap labor as the Great Recession left money tight for many workers. Unemployment peaked in October 2009 and amounted to 10%. It was the perfect time to start a gigeconomy business. A gig economy is a free market system in which organizations hire temporary independent workers for short-term commitments.
Fast forward to 2022. In San Francisco, gas levels have reached average $6 per gallon, according to the US Energy Information Administration. USA unemployment rate 3.6%and businesses are experiencing labor shortages.
Uber drivers average about $20 an hour. But each driver has to bear the costs of travel, parking fees, car maintenance, petrol and insurance. Not to mention the wear and tear on your personal vehicle and the occasional drunken vomit in the back seat. That $20 an hour looked pretty good in 2009. Today, fast food restaurants like In-n-Out Burger to pay an average of $18.06 per hour and up to $24 per hour for top performers. As a result, on-demand delivery services are experiencing a labor shortage.
Not surprisingly, most on-demand delivery services have never turned a profit. The poster child is Postmates. Postmen is one of the most popular food delivery services in the country. Postmates has accumulated losses of nearly $1 billion since its inception.
Yes, the Millennial lifestyle subsidy is ending abruptly. Now we’ll find out how much consumers are really willing to pay for on-demand convenience. Stay tuned for updates.
My writing should be a conversation. That means you have to participate. Come on, I know you have an opinion about these delivery services. Let’s listen. No one will show up at your door. I will answer even if we disagree with each other.
One quick favor, if you like my email, would you subscribe a few friends or family members? Just add their email address below. It’s free and they can always unsubscribe. We already have 10,000 subscribers and many more casual readers. You can really help me grow and get noticed by major print publications. Your help will be very important to me 🙏.