How DoorDash Dominated Its Competition
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GM! It's Thursday, May 4th - Today, we explore how DoorDash used 2 techniques to dominate its competition, taking over 65% of the market and reaching a $25B market cap.
How DoorDash Dominated Its Competition
When DoorDash got its start in 2013, it was entering an already crowded pool of delivery service competition– Postmates, Eat24, GrubHub, and UberEats.
Let’s figure out how DoorDash beat the other food delivery services at their own game.
So, What’s the Business?
DoorDash’s business model relies on three revenue streams
Delivery and service fees: Consumers generally pay $1.99-$4.99 in delivery fees on top of a 9-11% service fee based on the total meal cost.
Commissions: Doordash partners with restaurants and charges them a commission that ranges from 15%-30%. If a restaurant agrees to pay higher commission rates, they get the largest delivery area, a warranty program, and their customers pay less in DoorDash delivery and service fees.
Subscriptions: For $9.99 a month, users can wave delivery fees with the DashPass. DoorDash currently has 15M subscribers which amounts to ~$1.8B annual revenue.
Despite continued double digit YOY revenue growth, DoorDash’s valuation has dropped from a high of $80B in 2021 to $21B as investors are rotating out of richly valued pandemic winners.
There could be big upside for DoorDash in the future though. The company is already positioning itself for the next tech wave and has acquired multiple patents for utilizing autonomous vehicles in food delivery services.
How DoorDash Broke Ahead in a Crowded Field
DoorDash beat out the competition through a go-to-market strategy that drove users to their platform and kept them loyal.
These cheap restaurants were overlooked by other delivery services as they don’t generate much in service fees per order. However, DoorDash’s partnership with national chains like McDonald’s and Taco Bell was their secret weapon. By driving users to their platform with easy access to fast food, they earned their money back through advertising local restaurants with pricier bills on their app.
Companies like UberEats and GrubHub focused on expanding their reach into metropolitan areas with more restaurant choices and a market of young professionals with disposable income.
DoorDash made the counterintuitive realization that suburban neighborhoods were a better market to target. Suburbs were underserved by merchants and platforms that enabled on-demand delivery, and suburban consumers can’t just walk to a local restaurant like city-dwellers can. Plus, suburbs are dominated by families that purchase more items per order, and therefore bring in higher service fees.
30% of DoorDash’s headquarter employees work on utilizing data collected from restaurant, dasher, and consumer interactions. They curate restaurant and menu selections for consumers and create the most efficient and highest paying routes for drivers.
Their heavy investment in data allows DoorDash to offer a user experience that can’t be beat by competitors.
With its frictionless platform, consumers don’t switch to other platforms. In fact, 85% of gross order volume comes from existing customers that have used DoorDash for years.
DoorDash further capitalized on its loyal base through its DashPass subscription service that provides a stream of straight profit akin to Costco’s business model.
DoorDash’s success shows that you don’t need to be first-to-market to win big.
Instead, you can find an overlooked segment of the market and focus on providing the best service possible to create a loyal consumer base.
1) Unique Positioning: When every big competitor was focused on large urban markets (e.g NYC, LA, Miami), DoorDash focussed on the suburbs, an open sea in the burgeoning delivery market.
2) A Massive Growth Lever: DoorDash generates revenue primarily from smaller restaurants with higher order volumes and increased take rates. However, it was the collaboration with fast food chains that led to a substantial increase in user adoption.
By partnering with prominent franchises, each location contributed to a surge in user adoption, which DoorDash could then promote to other restaurants. Moreover, if a franchise experienced positive results at one location, the corporate management would advocate for the platform's implementation across thousands of franchisee partners, resulting in even greater adoption.
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