{"id":14169,"date":"2021-03-02T12:26:05","date_gmt":"2021-03-02T17:23:00","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/doordash-winning-the-restaurant-food-delivery-war\/"},"modified":"2021-03-02T12:26:05","modified_gmt":"2021-03-02T17:26:05","slug":"doordash-winning-the-restaurant-food-delivery-war","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/doordash-winning-the-restaurant-food-delivery-war\/","title":{"rendered":"DoorDash: Winning the restaurant food delivery war?"},"content":{"rendered":"

DoorDash is a restaurant food delivery platform founded in 2013 in Palo Alto, California. For the year 2020, it reported $2.9B in revenues[1]<\/a> and is currently a market leader among other food delivery apps such as Uber Eats, GrubHub, Postmates etc, in terms of US market share.<\/p>\n

In this blogpost, I would evaluate the key platform strategies of DoorDash that have contributed to its success and argue whether it seems to have a sustainable competitive edge over other food delivery platforms.<\/p>\n

Why is DoorDash succeeding?<\/strong><\/p>\n

As per certain estimates, DoorDash currently has about 56% market share in the US food delivery segment.[2]<\/a> Despite entering the market almost ten years after its major competitor, GrubHub and having to build scale from scratch, unlike Uber Eats, DoorDash overtook both in 2019 to occupy the leader\u2019s position.<\/p>\n

While COVID-19 pandemic has facilitated exponential growth for all food delivery platforms, DoorDash seems to have taken major share of that growth.<\/p>\n

Taking inspiration from the course note and 性视界 Business Review article by Feng Zhu and Marco Iansiti, Why Some Platforms Thrive and Others Don\u2019t<\/em>, I will evaluate DoorDash basis five fundamental properties of networks: strength of network effects, network clustering, risk of disintermediation, vulnerability to multi-homing and network bridging.<\/p>\n

Strength of Network Effects: <\/strong>restaurant food delivery segment seems to be highly conducive for cross-side network effects. The more the number of customers on a platform, the more incentivized restaurants would be to be present on it and vice versa.<\/p>\n

DoorDash\u2019s early strategy entailed acquiring as many customers and restaurants on its platform as possible. For example, in late 2019, DoorDash partnered with Chase to give free Doordash Pass memberships to millions of its card holders. During COVID, the company waived or reduced commission fees for local restaurants, resulting in addition of over 100,000 independent eateries to its subscription program. DoorDash also aggressively deploys technology solutions and leverages customer data to provide value to its partner restaurants, hence prompting them to join the platform.<\/p>\n

In December 2020, DoorDash launched its IPO to arm the platform with more capital to continue its network expansion strategy.<\/p>\n

Network Clustering: <\/strong>DoorDash has been very strategic about building its footprint. While GrubHub\u2019s early entry allowed it a foothold in north-eastern US, DoorDash has quickly expanded to over 50 cities (vs 17 of GrubHub). DoorDash has more than 50% share of sales in the two biggest Texas metro areas and almost 75% in Bay Area. As the food delivery market is more favorable to local cluster networks vs global clusters, this strategy has worked well for DoorDash.<\/p>\n

Risk of Disintermediation: <\/strong>There is low but existent risk of disintermediation in food delivery sector. While direct ordering would allow both parties to bypass platform fees, low delivery costs (due to high economies of scale) are attractive to restaurants.<\/p>\n

To retain restaurants on its platform, DoorDash has also lowered commissions and launched value added services such as Storefront to help restaurants create their own websites to take pick-up and delivery orders. The service also provides restaurants with customer data, which other third-party delivery aggregators do not typically share.<\/p>\n

Vulnerability to Multi-homing: <\/strong>food delivery sector is highly susceptible to multi-homing as switching costs are low and high competition among delivery apps leads to high customer offers. In fact, all major platforms post return rates below the 30% (except Uber Eats driven by cross-selling with its ride-share platform). To minimize loss of customers to other platforms, DoorDash is aggressively building exclusive partnerships with popular food chains such as Little Ceaser\u2019s Pizza, Wendy\u2019s, Chick-fil-A and McDonald\u2019s.<\/p>\n

However, owing to nature of sector, multi-homing will continue to be a major challenge for DoorDash.<\/p>\n

Network Bridging: <\/strong>realizing the opportunity for leveraging network effects in adjoining sectors (like in case of UberEats and Instacart), DoorDash recently announced partnership with CVS to enter grocery delivery. While, it is still in its nascent stage, the company\u2019s future growth plans rely heavily on leveraging its current network to build leadership in other segments.<\/p>\n

What does the future look like?<\/strong><\/p>\n

Despite the growth spurt, profitability remains a challenge for all major food delivery apps, including DoorDash. The margins are quite thin and while DoorDash turned a $23 million profit in Q2 2020, it returned to a loss in Q3.<\/p>\n

The customers and restaurants equally seem to be getting frustrated with high platform costs, as indicated by the increasing trend in pickups and drive-through orders. DoorDash will have to make active efforts to drive up merchant profitability, to retain them on its platform (the biggest driver of customer uptake). It has recently forayed in the concept of \u2018ghost-kitchens\u2019 that are delivery-only restaurants with low operating costs.<\/p>\n

It remains to be seen if DoorDash will be able to sustain its leadership position in this highly competitive market with competitors either burning cash to expand their network base or new entrants leveraging their existing network to enter food delivery segment.<\/p>\n

[1] https:\/\/www.businessofapps.com\/data\/doordash-statistics\/<\/p>\n

[2] https:\/\/secondmeasure.com\/datapoints\/food-delivery-services-grubhub-uber-eats-doordash-postmates\/<\/p>\n

[3] https:\/\/www.fastcompany.com\/90604082\/future-of-on-demand-meal-delivery-ghost-kitchens-postmates-doordash-uber-eats<\/p>\n

[4] https:\/\/www.cnbc.com\/2020\/06\/19\/doordash-scores-16-billion-valuation-now-top-of-food-delivery-chain.html<\/p>\n","protected":false},"excerpt":{"rendered":"

Amongst all the food delivery platforms benefitting from the COVID-19 induced growth spurt, DoorDash seems to be winning basis its strong platform strategy.<\/p>\n","protected":false},"author":18527,"featured_media":14176,"comment_status":"open","ping_status":"closed","template":"","categories":[2031,377],"class_list":["post-14169","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-food-delivery","category-multisided-platforms","hck-taxonomy-industry-food-and-beverage","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/platform-variety\/","yoast_head":"\nDoorDash: Winning the restaurant food delivery war? - Digital Innovation and Transformation<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-digit\/submission\/doordash-winning-the-restaurant-food-delivery-war\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"DoorDash: Winning the restaurant food delivery war? 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