It didn't take long for DoorDash (NYSE:DASH) to reach the top of the restaurant delivery heap.
Founded in 2013, well after rivals such as Uber and Grubhub, DoorDash now reigns supreme over the restaurant delivery universe with 57% market share, according to data analytics firm Bloomberg Second Measure. Uber Eats was second with just 21%.
DoorDash took the pole position in food delivery by focusing on the needs of the restaurants rather than just the consumer. It prioritized ensuring food was delivered hot and worked with restaurants to increase their sales, rather than just saving money for the customer. DoorDash also focused on chain restaurants in underpenetrated areas such as suburbs, giving it an important edge.
After the pandemic surge, there's little doubt now that the once-maligned business model is viable. DoorDash is on track to generate close to $40 billion in gross order value this year, around $4 billion in revenue, and expects to be profitable on an adjusted EBITDA basis, forecasting a profit between $0 and $300 million.
While those numbers are impressive, especially after revenue has tripled during the pandemic, it's the company's second act that investors should really be watching.
From restaurants to retail
DoorDash may be on top of the restaurant delivery world, but the company has bigger plans than that. In its recent shareholder letter, management said: "We believe the transition toward omnichannel local commerce will be a decades long transformation that remains extremely early in its life cycle. In Q1, we made tremendous progress in building the tools to enable this transition and growing the scale of our platform."
DoorDash is preparing for that transition in a number of ways. In 2018, it launched DashPass, offering free delivery from thousands of merchants for a flat fee of $9.99 a month. If that sounds a lot like Amazon.com's Amazon Prime, that's not a coincidence. In many ways, DoorDash seems to be borrowing from the e-commerce giant that it seeks to disrupt. Much as Amazon started as a bookseller and used that position as a beachhead to enter basically every other retail category, DoorDash seems to think of restaurants in the same way.
Restaurants are the category that is best suited to fast delivery, but now that the company has the digital infrastructure in place to support instant delivery as well as millions of delivery workers it calls Dashers on its rolls, scaling up to non-restaurant merchants isn't difficult. The company has even introduced its own delivery stores called DashMarts that offer everything from cough medicine to pet food to spice rubs to packaged desserts.
A work in progress
Opening its delivery platform to a wide range of local businesses, including drugstores, supermarkets, and hardware stores, gives DoorDash a ton of growth potential as the company has a clear edge over Amazon in delivery speed. It can deliver items in 30 minutes or less from its merchants unlike Amazon, which requires one to two days or more to deliver most items.
However, general merchandise is still only a small part of DoorDash's business today. In the first quarter, the category made up just over 7% of total orders, but grew 40% sequentially from the fourth quarter of 2020, showing the company is attracting merchants to the platform. Looking at DoorDash's own shows that the interface is still primarily focused on restaurants.
DoorDash also introduced a feature called Storefront, allowing merchants to set up their websites, essentially putting it in a direct competition with Shopify. The company said non-restaurant orders through Storefront and Drive, which is focused on large orders, quintupled in the first quarter from the year-ago period.
DoorDash isn't alone in pursuing a wide range of local merchants. Uber has adopted a similar strategy as has Instacart, the delivery app best known for bringing you groceries.
For DoorDash and its peers, the value proposition for local commerce delivery seems to be there for both customers and merchants. Customers generally want delivery as fast as possible, and merchants know that one of the best ways they can compete with Amazon is by making convenient delivery available through a platform like DoorDash.
Challenging Amazon won't be easy. The tech giant ranks at the top for customer satisfaction and its own loyalty program, Amazon Prime, has already attracted more than 200 million members around the world.
Still, DoorDash's execution in restaurants should inspire confidence in investors, as should its blistering growth during the pandemic. The company is taking a long-term approach as CEO Tony Xu believes it's "extremely early" in the evolution of local commerce like non-restaurant merchants.
There's no doubt that this is a multi-year growth opportunity for DoorDash, and the potential in the category will help support the stock's price tag as it faces difficult comparisons in the restaurant category over the rest of the year.