DoorDash’s Logistics Opportunity

The Delivery Infrastructure DoorDash has Built Will Help It Expand into Transporting Everything — And Justify Its Valuation

By: Spencer Weiss (M&T ‘20)

DoorDash, the meal delivery startup and $4-billion-valued unicorn, got its start when its founders put in hours delivering pizzas for Domino’s. A team of four Stanford and UC Berkeley students knew they wanted to start a company that would transport food to hungry patrons, so they used the established pizza delivery business to learn about how the process works at scale. Founder Tony Xu says that “They do about 2.5 million deliveries a day. That’s a lot of pizza they’re moving. But if you talk to their head of delivery, that person would tell you that even Domino’s has a hard time getting it right. Either they have too many drivers, or too few. If Stanford throws a midterm, all of a sudden wait times go to three hours.”

DoorDash’s central problem, then, is balancing the two sides of its market — hungry customers and eager “Dashers” delivering as a side hustle. This is because DoorDash has held fast to a particular pricing and logistics model for its delivery partners. Any Dasher, whether traveling via car or bicycle, can accept or refuse any delivery offered, each delivery is worth a fixed rate regardless of time or distance, and customers can tip as they see fit. This can make it tough to meet demand at peak meal hours and can leave some longer deliveries with no willing Dashers. Fortunately for DoorDash, the company has taken advantage of its network of gig travelers to open up related markets.

Catering to Caterers

DoorDash is leveraging its army of Dashers to deliver catering orders for restaurants with an initiative called DoorDash Drive. This can relieve the pressure on restaurant managers who may not have the resources to assign kitchen or waitstaff to drive large catering orders far afield and can fill in order volume for Dashers who hope to make deliveries outside of mealtimes. DoorDash Drive product manager Abhay Sukumaran says that “there’s a very unpredictable nature to this demand. You might get three catering orders one day and you might get 10 the next day. What a lot of these folks are doing are essentially repurposing their store managers or their kitchen staff to run outside, grab a van, and drive the order across town.” Thus, this move by DoorDash represents the use of its logistics infrastructure and delivery network to smooth out demand for both itself and for restaurants, resulting in more reliable revenues for both and in better availability for consumers.

DoorDash has been rapidly expanding its footprint in most major American cities, since a higher volume of Dashers allows it to make deliveries to more locations and increase its speed of service.

Getting in with Grocers

The expansion into catering has been followed up by more recent forays into the delivery of food in other contexts. This year, DoorDash announced a partnership with WalMart to handle the backend of its new grocery delivery service. When customers order food for delivery from WalMart’s website, it will be delivered by DoorDash partners with a white-label service. While this model sacrifices the direct relationship with the consumer that DoorDash normally commands, it does allow DoorDash to collect large amounts of data about delivery patterns for groceries and in new geographies.

The grocery delivery market is a crowded one, with established players like Instacart and the entrance of delivery options from Amazon’s Whole Foods division. Thus, staying in the backend in this market allows it to take a cut without risking its growing brand in such a competitive space. In addition, the grocery market has the potential to prove that DoorDash is a robust solution for any type of business hoping to offer delivery of its products without investing in the employees and infrastructure itself. DoorDash’s webkit makes the process of integrating a delivery option into a business’ website smoother than a home-built solution as well and the DoorDash API works for merchant apps hoping to access customer ordering and supply-chain management.

DoorDash was already one of the fastest-growing meal delivery startups, and its expansion into new markets has accelerated this growth.

Disparate Deliveries

In a demonstration of DoorDash’s commitment to expanding into new delivery markets, Sukumaran said in Drive’s launch post that, “As we look to the future, we know that Drive is just the first step in our mission to allow any local merchant to offer delivery.” Expanding into new markets, tiptoeing into promising areas like grocery delivery, and gearing up to enter delivery of non-food items has led to affirmation from investors. In March 2018, DoorDash raised a $535M Series D round led by Softbank Vision Fund and in August 2018 it raised a $250M Series E round led by Coatue Management and DST Global. These rounds raised its valuation to unicorn territory at $1.4B and then nearly tripled it to $4B in just four months, respectively.

WeissFund and Platform Opportunities

DoorDash’s strategy of building up a network and applying the core competency of its partners on the network to another market has been a ripe area for startup expansion. For instance, Penn Storage, a recent WeissFund portfolio company, is building a platform to match students with extra unoccupied space over the summer with students in need of space to store their belongings. Its use of students looking to put their extra space to use means that it hopes to be able to outcompete established storage solution players who own their own facilities and have to foot the bill to store and transport goods.

At WeissFund, we are excited about these trends in startup strategy and have been lucky enough to fund multiple companies that have taken advantage of this landscape. If you would like to chat about technology or entrepreneurship or are a Penn founder starting a company in the space, please feel free to reach out to us!

Spencer Weiss is a junior studying Bioengineering and Management. He has worked in engineering and product at several early-stage startups (including Twine Labs, backed by WeissFund). He enjoys data journalism, late-night movies, and being surprised when D.C. sports teams are successful. Feel free to reach him at spweiss@seas.upenn.edu.

Weiss Tech House Innovation Fund is dedicated to funding, promoting, cultivating, and supporting student entrepreneurship in the UPenn community. Working on a startup? Interested in partnering? Want to get involved? Drop us a line at apply.innovationfund@gmail.com.