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DoorDash Shows Delivery Can Be Profitable—in a Pandemic

(wired.com) – IN THE BEFORE times, hands sometimes went unwashed, “zoom” was a sound made by Mazda commercials, and food delivery businesses lost lots and lots of money. Four companies—DoorDash, Uber Eats, Grubhub, and Postmates—were duking it out for national supremacy. But diners were fickle, swayed by coupons and promotions, with little brand loyalty. There was no clear winner in sight.

App-based food delivery was gaining in popularity. Gross bookings at Uber Eats rose 71 percent last year. But losses were growing too—to $460 million. DoorDash, the biggest of the lot, lost more than $600 million in 2019. The companies spent more and more in a race to capture the US market.

But this spring, as the world began to circle the drain, food delivery apps thrived. Restaurants, many closed by government fiat, had to rearrange their businesses, moving the flourishes and niceties of indoor dining to takeout, and by natural extension, the internet. Workers, suddenly furloughed or laid off and still waiting for government relief, scrambled to sign up as drivers. Diners, some bored at home with little to do, had only the night’s sesame noodles to look forward to.

Documents filed by DoorDash last week as part of its planned initial public offering show the result: The company posted a $23 million profit in the period between April and June. Losses resumed in the third quarter, totaling $43 million. But that fleeting second quarter profit raised the tantalizing question: Can food delivery make money?

According to the filing, DoorDash took in nearly $2 billion in revenue in the year’s first nine months, more than triple the total in the same period a year earlier. Almost 550 million orders flowed from restaurant to delivery person to doorstep. But market research firm Second Measure says the competition remained intense. Each of the big four delivery services has a lower share of exclusive customers than it did two years ago. (Uber announced it would acquire Postmates over the summer; the acquisition is set to close before the end of the year.)

Will the habits formed now survive in a world with a functioning vaccine? And will the companies that thrived in this weird moment survive into the next?

In the filing, DoorDash acknowledges that its gangbusters growth will likely slow in coming months, as “the circumstances that have accelerated the growth of our business stemming from the effects of the Covid-19 pandemic” fade away. But one school of thought says habits are sticky. “Things like Covid and other crises can be a shock to the system that catalyzes this behavior change,” says Arun Sundararajan, who teaches entrepreneurship and technology at NYU’s Stern School of Business. Once people get used to new habits, “there’s a much greater chance that you will continue to display that behavior.” Sundararajan believes food delivery businesses like DoorDash will one day be as profitable as the average business.

Or, not. Len Sherman, who teaches business at Columbia Business School, isn’t convinced that anyone can thrive in the food delivery space. That industry leader DoorDash could only eke out $23 million in profit in the depths of the pandemic is probably a bad sign.

The problem, Sherman argues, is that DoorDash has tried to “graft a third party distribution onto an existing infrastructure”—to force an industry built to do one thing to now do something else. Most restaurants, after all, are not optimized to churn out perfectly packaged takeout meals. Even those oriented to takeout usually had their own, regular delivery drivers, who came equipped with exactly the kind of insulated bags and equipment needed to keep food warm, and who knew where their regular customers lived.

It’s not controversial to say that the ad hoc digital arrangement that DoorDash has created, among restaurants, workers, and diners, has its downsides. The company faced serious criticism last year when a report found that it had been effectively skimming from workers’ tips; the company changed its tipping policy. Restaurants have complained that the company has digitally scraped their menus without their permission and offered sometimes outdated items to customers; eaters, not understanding the distinction, blamed restaurants for the screw-ups. DoorDash notes that laws prohibiting such behavior, which have cropped up in California, Denver, and Tucson, Arizona, will make it harder for the company to make money. And though California’s Proposition 22—which DoorDash spent tens of million to promote—will leave the state’s app-based delivery workers without benefits like a minimum wage, unemployment insurance, and full health care coverage, efforts to give workers more rights and protections may appear elsewhere.

DoorDash seems to know that the restaurant game is rough. So, in the filing, the company argues that its success hacking logistics in the difficult world of restaurants situates it to do the same in other arenas. Over the summer, the company inked a deal with CVS for same-day delivery of grocery and non-prescription goods. It’s currently hiring warehouse and logistics managers. The food delivery business might not be strictly food delivery after all.

2 comments

  1. Hello there! What a fantastic blog! This blog is for every business owner who is looking for a profit in this pandemic. Yes, delivery can be more profitable by following tips and learning more from others’ experiences. So, thanks for sharing such an awesome blog, I appreciate it and will share it with my friends also.

    Liked by 1 person

  2. Hello there! What a fantastic blog! This blog is for every business owner who is looking for a profit in this pandemic. Yes, delivery can be more profitable by following tips and learning more from others’ experiences. So, thanks for sharing such an awesome blog, I appreciate it and will share it with my friends also.

    Liked by 1 person

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