I profited on the Coronavirus Pandemic today.

That wasn't my intent at the outset, but it was what happened as I decided to sell a low-cap stock I picked up months ago that was surging on the back of the COVID-19 Pandemic. I strongly suspect the stock still had plenty of room to keep growing, and certainly when I bought in, I intended to hold the stock for the long term. However, the more I learned about the fundamentals of the company in question, the less good I felt about owning even a relatively small stake in their success.

The company in question? Waitr Holdings.

They are a local restaurant food deliver service, in the same space as UberEats or DoorDash. The seem to differ primarily through a focus on smaller markets than either of their over-capitalized competitors, and I decided to invest early this year as a customer of the company who felt, from what I'd seen, that they were partnering with local restaurants in many markets around the country, and I'd been using the service rarely, but consistently for several years. I felt that their low stock price was more a signal of a bad investor pumping and dumping them into the IPO, and as a publicly traded company they were being held to different standards than their tightly-held competitors.

That was all true, but as I started learning more about the fundamentals of Waitr's relationship with the restaurants, I found myself not wanting to be a shareholder. I'm not even sure I'll continue to be a customer.

Ranjan Roy recently published a post about DoorDash, and how they were bringing delivery to a pizzaria that had never contracted with DoorDash, and in doing, were causing customers to be upset due to poor service, that this restaurant wasn't even offering. He goes on to discuss the incredible quantity of money that DoorDash loses every quarter, as they scramble to reach scale.

This article was the thing that pushed me over the edge. I knew Waitr was losing money, though I had believed they had a way to profitability. I also firmly believe that Waitr has not, and under current leadership, will not, engage in the kind of "trial run" shenanigans that DoorDash was engaged in, but the reminder of how fundamental the problems in this space were was enough to spur me to action.

However, I'd already decided to sell, even before the article, because it was becoming increasingly clear that Waitr's path to profitability was not built on partnership with the Restaurants they work with, but rather via a parasitic relationship that, long term, was only going to harm the restaurants.

In January, Waitr issued their second round of fee increases on restaurants within 6 months. Barely enough time for owners to adjust to the previous terms.

What were these new terms? 30% of the gross of every transaction run through the restaurant. Plus $0.30 + 3.01% of each transaction in credit card handling fees. They've gotten a lot of flak over the credit card handling, but those rates are similar (though slightly higher) than what Square, a company that specializes in payments, takes for e-commerce, though it is probably quite a bit higher than what most restaurants pay for their own in-store fees. Credit Card processing on the Internet is riskier (more fraud), so the processors charge more.

But that 30%? That's a truly bad number. If that's the number Waitr needs for profitability, they don't deserve to exist. The average Restaurant in the US only has a profit margin of 3-5%. Most retail operations sit closer to 12-15% on average. Almost every restaurant is basically constantly on the edge. And that's with us subsidizing their employees wages.

I suspect there are people out there trying to build Food Delivery businesses built on flat fees, which would be more fair to Restaurants. However, with Restaurants frequently raising their in-app prices in an effort to break even, and consumers increasingly catching on to this practice, I no longer think that the industry has legs at all. Not to mention that without dedicated delivery infrastructure, most restaurants just aren't set up to deliver on quality the food they ultimately deliver.

It also ruins the dining experience of many restaurants. These restaurants often have to set aside parts of their dining areas for delivery drivers to loiter while they wait for food to be packaged. This costs them tables in those spaces, but the loitering drivers also tie up waitstaff or the host station, making the dining in experience less valuable and desirable.

If you care about restaurants, order from them directly. These delivery services aren't getting these restaurants more exposure. They're leeching off the restaurant's already thin margins, and this will only end with fewer restaurants.