DoorDash’s grocery business is going so well, even its CEO seems surprised
The company also predicted a growth slowdown in 2024.
If you would have asked DoorDash CEO Tony Xu three years ago if the company could grow from zero to 100,000-plus grocers on its platform, he might not have said yes. (It has.)
That’s according to Xu on his company’s fourth quarter and full year 2023 earnings call last week. Also potentially unbelievable? That 20 percent of DoorDash customers order items outside of its core restaurant offering. (That’s true, too.)
“And I think if you asked me, would these things continue to grow as quickly as they have?” he added — “I'm also not sure.”
DoorDash expects to grow this year, though not as fast as last year. That could be the reason that the delivery company’s stock dropped 11 percent in after-hours trading following the company’s earnings release. Groceries are a critical part of this growth. In a shareholder letter accompanying the earnings call, Xu and chief financial officer Ravi Inukonda promised to “invest aggressively” in new verticals and international markets.
Xu credits DoorDash’s rapid grocery growth to “the largest local commerce base of users that are shopping with the greatest frequency.” That means, he said, grocery purchases on the platform are incremental — DoorDash is adding more sales for grocers, not cannibalizing their existing customers1.
As always, Xu offered a peek behind the curtain during last week’s call; here are a few of his standout remarks about grocery, the next frontier in digital delivery dominance.
Xu’s quotes have been pulled from an earnings call transcript and have been lightly edited for clarity.
What’s next for DoorDash grocery? Bigger baskets…. and beyond.
Initially, DoorDash went after small grocery orders. Now that it’s inserted itself into the space, it wants them all.
Xu said: “If you think about DoorDash's entry into the grocery space, which happened about three years ago, we really started by nailing this top-up use case, where we're solving the middle-of-the-week run and delivering the items that are consumed the most often, your berries, your dairy products, your cereals, your coffee. We're now shifting a lot of the work toward solving bigger baskets… solving for a different use case for the consumer.
“I think we're also going to have to do other things, too, because when I look at the structure of grocery, most of the behavior for consumers still happens offline where consumers are purchasing groceries inside physical stores. That tells me that we still have, as an industry, a long way to go to getting a product good enough such that it can replace the offline experience2. All of this is going to be done in concert with grocers. It's this kind of continuum…we want to make sure that we can solve for more than just one dimension. Speed is one of those things, but there's going to be other factors that we have to get right as well.”
…at home, and abroad.
When DoorDash acquired Finland-based Wolt in 2022, it immediately secured a major presence outside of North America — and another huge opportunity for grocery expansion.
Xu said: “I would say, across the board, the penetration levels in terms of our coverage of consumers as well as the merchants that we have remaining to serve is still quite low — certainly lower than where we are in the U.S., but even lower, I would say, to where they can be given the runway that we see. It's about making sure that we're efficient and disciplined, whether we are in search of product-market fit, improving it or scaling it.”
Actually, grocery is still a massive opportunity for DoorDash.
When Xu talks about grocery, he talks about it as if the company is just getting started — probably because it is. It’s the same way DoorDash’s executives approached its core restaurant business in the past3.
Xu said: “If you pan out and look at the industry, digital sales or e-commerce penetration of grocery is still among the lowest, if not the lowest, across all categories of e-commerce. There are many reasons. First is how do you make sure that you can get exactly what a customer wants delivered to their home? If you look at one of the challenges that grocers have, whether it's through their physical stores or their online channels, it's not knowing how much inventory that they actually carry.
“There are other barriers around affordability. I think customers largely expect to pay similar to what they pay inside the store when they get something delivered. And when you look at selection, that's something that we're just working toward. It's happening pretty rapidly and consistently. I think the final thing is that it's just going to take a bit of time.I think most people in the country or in the world know DoorDash and Wolt as a place to get lunch or dinner delivered. I think it takes some time to get everyone to know that you can get your city delivered.”
What else?
Lately, images of chef José Andrés standing in front of disaster — war, fire, floods, and more — have become as common as photos from his restaurant kitchens. His nonprofit, World Central Kitchen, shows up like a kind of Doctors Without Borders, feeding people who need it most. Last week I spoke to WCK’s CEO and its director of emergency response about their ongoing work in Gaza. — Fast Company
Curious how Uber’s thinking about the future? Here’s the company’s recent investor update, always interesting to read. — Uber
It’s been a minute since a restaurant chain snapped up a tech company. Inspire Brands, parent of Dunkin’, Arby’s, Sonic, and others acquired Vromo, a company that builds software to help manage deliveries. Inspire Brands is also reportedly considering an IPO. — Nation’s Restaurant News
Point of sale provider Toast laid off 550 employees, or about 10 percent of its workforce. Concurrently, the company reported earnings that beat Wall Street expectations. It will commit $250 million toward stock buybacks. — CNBC
Instacart laid off 250 workers in an effort to “reshape” the company. It’s in the name of my least favorite business term: “streamlining operations.” — TechCrunch
Here’s one thing that rapid scale can do to a growing independent restaurant: Etta’s five bankruptcies have left a collective mess. — Eater Chicago
When AI goes too far, it probably looks like this McDonald’s hiring personality test. What even… is it? — Futurism
I tried Kernel, the new robot-assist restaurant in New York from Chipotle founder Steve Ells, a few weeks ago. It’s open now to all on Park Avenue South; here’s a review. — Bon Appetit
It’s worth noting that this was the pitch to restaurants before Covid, too, and it was largely true; delivery sales were incremental. Then in March 2020 everything changed, including our behavior, and some of it — like using third-party apps to get dinner — stuck.
Replace, huh? That sounds an awful lot like the quiet part, said out loud.
Honestly, if you would’ve told me ten years ago that DoorDash would be today’s market leader, I wouldn’t have believed it myself. Surprises abound.
Solid issue today, thanks for all the extra protein!