Profit That’s Easy as Pie
If you’re in Manhattan, you probably won’t have a hard time finding a slice of genuine New York-style pizza. There are literally hundreds of options — see the bonus trivia bit at the bottom of this email for more on that — and most of them are probably pretty good.
If you’re in Manhattan, Kansas, though, you probably will have a hard time finding a slice of genuine New York-style pizza. About 50,000 people live in that city in Kansas (compared to 1.6 million in the more famous New York borough of the same name), and as you’d expect, there are a lot fewer pizza places — and most aren’t very good. (Yelp lists the top 10 Manhattan KS pizza places — regardless of style — here, and Pizza Hut comes in at number five. Yikes.) But apparently — and I’ve never eaten there so please do not take this as an endorsement — there’s one clear favorite: AJ’s NY Pizzeria located at 301 Poyntz Avenue, across the street from the Manhattan Town Center shopping mall. It’s apparently a great place to stop for a quick slice or some takeout.
It is not, however, a good option if you want delivery. Its Instagram account leads with “Dine-In, Take-Out, Curbside” — but no delivery. In fact, as their page on Yelp notes, AJ’s doesn’t offer that option. As writer Ranjan Roy — a friend of the owner’s — explained, this was by design: the proprietor of AJ’s “felt it would detract from focusing on the dine-in experience and result in trying to compete with Domino’s.”
So you can imagine how surprised he was when a customer called to complain: over a string of a few days, multiple customers called in to complain that their deliveries weren’t up to par.
The customers weren’t wrong. Somebody had been delivering pizzas made by AJ’s on behalf of AJ’s, just without AJ’s knowledge. That culprit: DoorDash, the now-ubiquitous delivery app and service. DoorDash doesn’t own or operate restaurants; it makes money by providing food delivery services to eateries for a fee (and charges customers a fee a well). But in this case, DoorDash hadn’t yet asked AJ’s for any payment for their services. As Roy explains, DoorDash sometimes employs “a test period where they scrape the restaurant’s website and don’t charge any fees to anyone, so they can ideally go to the restaurant with positive order data to then get the restaurant signed onto the platform.” And in these situations, DoorDash doesn’t necessarily tell the restaurant beforehand. From the proprietor’s perspective, the DoorDash delivery driver picking up the pizza is just another customer, not actually a link in some invisible supply chain.
If the owner of AJ’s was mad about this, you could see why — DoorDash’s delivery people weren’t able to deliver the pizza properly (they probably didn’t have insulated bags, for example), and that reflected poorly on AJ’s. But AJ’s got their revenge. DoorDash, in creating an online menu for AJ’s without its permission, made a mistake: it priced pizzas with lots of toppings, which should have gone for $24, at the same price as plain pizzas — $16. The owner of AJ’s connected with Roy and the two came up with a plan. Roy explains:
If someone could pay Doordash $16 a pizza, and Doordash would pay his restaurant $24 a pizza, then he should clearly just order pizzas himself via Doordash, all day long. You’d net a clean $8 profit per pizza [insert nerdy economics joke about there is such a thing as a free lunch].
The AJ’s owner was skeptical — there’s no way DoorDash would do something so stupid — but Roy convinced him to try. The results:
He called in and placed an order for 10 pizzas to a friend’s house and charged $160 to his personal credit card. A Doordash call center then called into his restaurant and put in the order for those 10 pizzas. A Doordash driver showed up with a credit card and paid $240 for the pizzas.
Then the pair got even more creative. Realizing that there was no need to make an actual pizza — AJ’s was both the business and its own customer in this case, so who would complain? — they decided to just put some baked dough in the boxes, saving on the more expensive ingredients known as “sauce” and “cheese.” DoorDash didn’t catch on.
The ethics of the transaction aside (I won’t share Roy’s view as written, but it involves the word “DoorDash” preceded by a word that shares its first and last three letters with “firetruck”), DoorDash didn’t seem to care. In May 2020, the BBC approached the company for a comment on this arbitrage scheme; DoorDash declined to give one. And as the BBC noted, they probably didn’t care about losing a couple hundred dollars on this test; “DoorDash is backed by investment giant Softbank,” the BBC continues, “which this week posted a record-breaking loss of nearly $13 billion.”
That’s a lot of pizzas.
From the Archives: The Macroeconomic Madness Behind Extra Cheesy Pizza: More pizza economics.