DoorDash is going beyond food delivery by partnering with Walmart and convenience stores, and it's using a Super Bowl ad to showcase its new one-stop shopping brand shift, execs say

  • DoorDash is the No. 1 restaurant delivery company in the US but has been quietly expanding its partnerships with Walmart, CVS, Walgreens, 7-Eleven, and Macy’s. 
  • The company is now delivering cough medicine, pet supplies, paper towels, and shampoo.
  • Among delivery apps, DoorDash is now the leader for convenience store spending – well ahead of Instacart, according to Edison Trends. 
  • Visit the Business section of Insider for more stories.

Restaurant delivery orders have more than tripled over the last two years, which is driving revenue for delivery operators like Wall Street rookie DoorDash.

But instead of going all-in with food delivery and competing with the likes of Grubhub, DoorDash is expanding its business model to compete with the likes of  Instacart.

Most customers use DoorDash dinner, but the company delivers a range of consumer goods – pet food, cough syrup, cashmere sweaters, and Slurpees from top merchants such as Macy’s, CVS, Walmart, and 7-Eleven.

And Sunday, DoorDash is using the media’s biggest platform, the Super Bowl, to showcase its consumer marketplace prowess. 

“This marks the first time we’ve shifted our brand image from a food delivery logistics company to a multi-category marketplace in a meaningful way,” Christopher Payne, DoorDash’s chief operations officer, said in a statement.

In making its Super Bowl commercial debut, the San Francisco-based delivery company has cast original Broadway “Hamilton” star Daveed Diggs and Sesame Street Muppets. The 60-second ad, which by some estimates costs at least $5 million, features Diggs, Big Bird, Cookie Monster, Grover, and Rosita singing a delivery-centric rendetion of the famed “The People in Your Neighborhood” tune as the Main Street neighbors receive a variety of delivered goods such as ramen, milk, shampoo, birdseed, mango smoothies, paper towels, and cookies. 

“What excites me about this campaign is that it tells the story of how we deliver all the best in your neighborhood in an authentic and engaging way,” Payne said.

Back to basics

While the Super Bowl ad highlights DoorDash’s future, the expanded business model is more of a back-to-its-roots strategy. 

CEO Tony Xu and DoorDash’s other co-founders launched the local delivery service from their Stanford dorm rooms in 2013. Instead of a marketplace app, the startup, then-called Palo Alto Delivery, promoted the delivery of goods from local merchants using fliers pinned to student housing bulletin boards.

The co-founders, who were also the company’s original Dashers or drivers, eventually figured out that consumers sought restaurant meal deliveries more than any other product. The company doubled down on food delivery, leading Xu to refer to DoorDash as “the world’s largest food court,” in a 2017 blog post.

Regardless,  Xu said DoorDash must evolve by adding delivery from new categories. 

“Food is only the first piece of the puzzle,” he said.

Branching out beyond food is also a means to survival.

Delivery consolidation forces companies to pivot

Cowen projects delivery sales to reach $63 billion in 2023. The sector is growing but profitability has eluded most of the major players.

DoorDash briefly turned a profit during a quarter in 2020 when most US restaurants were forced to rely on delivery and carryout to survive during the pandemic.

The lack of profitability and the battle among rivals like Grubhub and Uber Eats has led to consolidation and strategy changes in the delivery space.

Grubhub and Netherlands-based Just Eat Takeaway are merging later this year. Uber, the parent of Uber Eats, bought Postmates and cut 15% of its staff last month.  Earlier this week, Uber made a move to get into the alcohol delivery business by buying Drizly in a stock and cash deal valued at $1.1 billion. 

DoorDash, which went public in December, has been making moves to expand its delivery offerings for more than two years.

That strategy has always been its “core thesis”  – connecting consumers of the “convenience economy” with local businesses, Kofi Amoo-Gottfried, vice president of marketing at DoorDash, told Insider in an interview this week.  

“People are gravitating to a new mode of engaging with businesses, but in that transition, the businesses that line [Main Street] are being left behind,” Amoo-Gottfried said.

The company has built its food delivery business into the No. 1 player in the country by going after the suburbs, and large high-profile chains like Chipotle Mexican Grill. Its platform is used by 18 million consumers in more than 4,000 cities across the US, Canada, and Australia. 

The company has made significant headway in its quest to add more convenience and grocery offerings. 

In 2018 DoorDash began testing last-mile delivery with Walmart, a strategy the company uses with tech-forward restaurant chains like Chipotle.

Dubbed DoorDash Drive, the white label last-mile delivery service is a key part of the delivery operator’s strategy as it allows restaurants and retailers to offer delivery through their own digital channels. 

Given the backlash over marketplace commission fees, which can eat away at restaurant profits, last-mile delivery has become an attractive compromise in the delivery space. 

Walmart and Chipotle, for example, don’t pay marketplace fees when using last-mile delivery. They also retain valuable consumer data as customers order directly from their branded apps or websites. 

Ultimately, this is the mission of DoorDash, Amoo-Gottfried said.

The company aims to act as a bridge between businesses and consumers looking for one-stop shopping for restaurant meals, pet food, groceries, and convenience store goods.

That theme is underscored in the company’s Super Bowl ad, titled “The Neighborhood.”

“As the world moves online, mainstream businesses suffer because they don’t have the capabilities to reach these consumers,” Amoo-Gottfried said. “We’ve always thought about our work as building a logistics platform for businesses.”

Still, it costs millions to run a first-class on-demand platform. To cover placement on the app and other fixed costs like driver pay, third-party delivery operators routinely charge restaurants a commission fee per order, instead of a flat rate. That fee, which can range up to 30%, can eat away at profits.   

The pandemic highlighted these rates, triggering a backlash. Officials in cities and states responded to help restaurants by mandating temporary fee caps. 

Since the initial test with Walmart, DoorDash now delivers from about 1,000 Walmart stores nationwide. Beyond groceries, DoorDash Drive is fulfilling same-day deliveries from more than 500 Macy’s and Bloomingdale’s stores, and more than 1,400 PetSmart stores. 

By building these hyperlocal merchant relationships, DoorDash is offering an on-demand service that competes more with same-day delivery apps like Instacart rather than Amazon or chief rival Grubhub. 

“The platform we’re building is obviously like an intensely different business than Amazon because it’s an intensely local business,” he said. “When you open your app, you’re probably only seeing restaurants within a five-mile radius and businesses within a five-mile radius. That’s how the business has to be built. We want to optimize for the quality of the delivery, and the speed with which we get it to you because we know that matters.” 

More partnerships with national and regional retailers have come online in recent months. DoorDash delivers from more than 1,800 stores through partnerships with Wegmans, Walmart, Casey’s, 7-Eleven, Circle K, Wawa, CVS, Smart & Final, Meijer, Fresh Thyme, and Hy-Vee.

DoorDash is cutting into Instacart’s territory by forging these relationships, and while also creating its own in-house grocery store called DashMart.

The one-stop shopping platform on the DoorDash app sells household essentials and pantry goods from restaurants.  It debuted in eight cities last August including Chicago, Dallas and Redwood City, California, which is also home to DoorDash Kitchen. The ghost kitchen facility is designed for restaurants looking to expand their delivery footprint without opening a brick and mortar store.

DashMarts, which sell basic groceries such as ice cream, potato chips, cough medicine and dog food, have since expanded to 25 cities. 

Diversifying its offerings is paying off as demand for convenience store goods is on the rise, according to the latest data from e-commerce research firm Edison Trends.

Online consumer spend at convenience stores in 2020 grew by 346%, compared to 121% growth for grocery and 112% growth for restaurants, Edison Trends said in a recent report. And, DoorDash is leading the category when it comes to market share spending via third-party delivery apps. 

In January, DoorDash owned a 58% market share of convenience store spending while goPuff’s share was 24%. Instacart and Uber Eats were tied at 8% and Grubhub had a 2% share, according to Edison Trends. 

While DoorDash has been evolving since its inception, Amoo-Gottfried said Sunday’s Super Bowl ad is designed to let consumers know that the company will deliver most anything to their neighborhood. 

“That’s the ambition – to figure out where people are going, what people need, and then figure out how to serve them best,” he said.

Source: Read Full Article