Doordash charges $16 for a $24 pizza, so the pizzeria bought its own pizzas and made money

In the latest edition of The Margins newsletter, Ranjan Roy tells the story of his friend who owns a pizzeria. He charges $24 for a deluxe pizza but, for one reason or another, Doordash lists the pizza for $16. As an experiment, he ordered 10 pizzas from his own pizzeria and had them delivered to a friend's house. Sure enough, a Doordash driver came to his pizzeria and paid $240 for the pizzas.

Trade 1

We went over the actual costs. Each pizza cost him approximately $7 ($6.50 in ingredients, $0.50 for the box). So if he paid $160 out of pocket plus $70 in expenses to net $240 from Doordash, he just made $10 in pure arbitrage profit. For all that trouble, it wasn't really worth it, but that first experiment did work.

My mind, as a combination trader and startup person, instantly had the thought - just run this arbitrage over and over. You could massively even grow your top-line revenue while netting riskless profit, and maybe even get acquired at an inflated valuation :) He told me to chill out. Maybe this is why he runs an "actual business" while I trade options while doing brand consulting and writing newsletters.

But we did realize, if you removed the food costs this could get more interesting.

Trade 2

The order was put in for another 10 pizzas. But this time, he just put in the dough with no toppings (he indicated at the time dough was essentially costless at that scale, though pandemic baking may have changed things).

Now suddenly each trade would net $75 in riskless profit ⇒ $240 from Doordash minus ($160 in costs + $5 in boxes).

This got a bit more interesting. If you did this a few times a night, you could start to see thousands in top-line growth with hundreds in pure profit, and maybe you could do this for days on end.

So over a few weeks, almost to humor me, we did a few of these "trades." I was genuinely curious if Doordash would catch on but they didn't. I had visions of building a network of restauranteurs all executing this strategy in tandem, all drinking from the Softbank teat before the money ran dry, but went back to work doing content strategy stuff.

Was this a bit shady? Maybe, but fuck Doordash. Note: I did confirm with my friend that he was okay with me writing this, and we both agreed, fuck Doordash.

Image: Jumpstory/CC0