More DoorDash + Lyft for Restaurants?

A few more thoughts from last week's filing, because S-1s are journalist gold.

On Monday, I shared initial thoughts on DoorDash’s IPO filing. It ran a little longer than I expected, and I won’t rehash it all here (though worth mentioning that over $1 billion in the bank is not a bad place to be right now.) 

Read enough tech journalism and you’ll hear a lot about luck. DoorDash was building a solid business pre-Covid (regular readers of this newsletter know I’ve always been impressed by the speed and thoughtfulness with which the business has grown), but pandemic tailwinds pushed the business forward, faster. I think most experts in the space would argue that the pandemic sped up adoption of the inevitable. This is where the industry was heading, and Covid got us there faster. 

You’ll note this theme buried throughout the filing. The pandemic was the biggest boost to the third party delivery business that no one saw coming, and no one is exactly sure if this level of growth and limited profitability (The company turned a slight profit during a portion of 2020) is sustainable.  

Some more early proof: 

The company’s sales and marketing expenses totaled 76 percent of total revenue in the first three quarters of 2019. Sales and marketing expenses were 32 percent of total revenue in the first three quarters of 2020. Of course, total revenue did triple during that time period, as noted by Lucinda Shen in Monday’s Fortune Term Sheet newsletter.

From the filing:

 “The decrease in sales and marketing expenses as a percentage of revenue was driven by increased operating leverage as existing consumers generated a greater proportion of revenue, as well as increased efficiency in our consumer and Dasher acquisition efforts.”

Translation: Enough customers knew, loved, and used us enough that we were able to back off of acquiring new ones a little bit. Those new customers still came, of course. As of Q3 2020, new customers accounted for 15 percent of orders to existing customers’ 85 percent (as measured by gross order value).

Stepping into the newsletter echo chamber, Andrew Genung from Family Meal offered a fair criticism of my Monday thoughts. Specifically to the fact that DoorDash admits in the risks section that it needs restaurants to survive in order to, you know, survive. He writes:

“I think that’s mostly right, but will note that even though it costs money to acquire and onboard new restaurants, the truth is DoorDash — especially in its nebulous position in the middle of the money — has a symbiotic relationship with the concept of restaurantS, but not necessarily your restaurant.”

Here’s my rebuttal: DoorDash is seeking a valuation of twenty-five billion dollars at its IPO. You bet that an individual Main Street business is an infinitesimal portion of that, except all DoorDash needs to do to allay investor concern is to show that it is also working to address the needs of the independent restaurant industry. Enter the $200 million, five-year commitment that the company wrote about on its blog the day before the filing was made public. The initiative is targeted toward Dashers (nee couriers), local merchants (including an expanded cold weather grant program), and food-insecure communities. 

“We pledge to deploy these resources to make meaningful change in the communities we serve. We are excited to experiment with creative solutions for merchants and Dashers alike, acknowledging that some of those experiments will be less successful than others and that there will be important learnings from those misses,” it reads. 

I didn’t say that it was a good game, but that’s the one we’re playing. 

If you want to get deeper in the weeds here, you want to read this Margins newsletter from Ranjan Roy. (You’ll remember “pizza arbitrage,” yes?) So good. 

Lyft for Restaurants? Really? 

Not to be outdone by the other established giants in the on-demand economy, Lyft president John Zimmer said the company was looking to get into restaurant delivery — though not as a direct Uber Eats or DoorDash competitor. “What we’re hearing from restaurants is they’re looking for a partner who will not charge 30 percent commission, but still offer delivery service,” Zimmer told Reuters. Instead, Zimmer said he envisions offering restaurant delivery without a consumer-facing platform. This is an “untapped market,” he believes. 

The fact that this already exists aside, one surprising aspect of recent filings and disclosures by third-party delivery companies is that they reach a relatively small percentage of their potential market. This sentiment is all over DoorDash’s IPO filing, and Uber’s CEO said it a few weeks ago when he said that he believes the total addressable market for delivery is just as large as the TAM for ride-hailing. There is a *lot* of room in on-demand right now, and I suspect companies such as Lyft are feeling some wind in their sails with the recent passing of Proposition 22 in California, which allows them to keep drivers classified as independent contractors for basically ever unless it’s overturned in the future by a 7/8 supermajority in the state legislature. 

But Zimmer is right — the business model has its challenges, especially for smaller restaurants struggling to survive in the most challenging of conditions right now. With coverage across the country, Lyft handles the business of logistics, just as DoorDash and Uber do with robust driver and courier fleets. It’s right there for the taking — though wondering who’s whispering in Zimmer’s ear about how logistically challenging restaurant food really is. Anyone? 

As one restaurant owner just told me: “Something I hold against most delivery companies is that honestly they don’t innovate delivery. DoorDash still doesn’t enable my restaurant to deliver more than three miles or reduce delivery costs. Literally all they are good at is courier-as-a-service and demand generation.” 

What else is happening?

Square launched a kitchen display system (KDS) that partners with its Square for Restaurants point-of-sale system (POS). It displays all tickets, including those for orders placed via third party services like DoorDash, which, you might be surprised to know, has been somewhat of a tall order in recent years. (KDS providers are catching up, the same way POS providers are, though.) 

BentoBox, a restaurant website (and now service) provider, closed a $28.8 million Series C round of funding in October led by Goldman Sachs. BentoBox CEO Krystle Mobayeni says the company will invest in product and engineering teams to continue to grow the business. 

OpenTable is offering free cooking classes with your takeout order. In a targeted email yesterday (to me, in San Francisco), the company offered a free cooking class with Oakland chef Tanya Holland with purchase of a takeout meal from a selection of local restaurants. Interesting that none of the things I wrote in the last sentence have to do with seating diners for a restaurant reservation. An OpenTable rep said that the promotion was sent to diners in San Francisco, Los Angeles, Chicago, and Atlanta. Meanwhile, Beyond Meat, the purveyor of plant-based “meat,” is unveiling its newest iterations of the Beyond Burger in LA this week, and you can try it by booking a reservation on Resy.

McDonald’s says that 20 percent of its sales will come from digital by year’s end. That’s $11 billion.The restaurant chain plans to introduce more digital-first initiatives like a loyalty program (building that on 20 percent digital sales is not a bad idea) and targeted digital-only drive-thru lanes. This concept was a huge hit for Chipotle already — it’s “Chipotlanes” are so popular that the company sped up creation of new ones. 

This week in ghost kitchens, a new facility called Crave Collective launched in Boise, Idaho. Why Boise? According to a rep, “It is one of the fastest-growing markets in the nation and is representative of roughly 150 markets that are expanding rapidly with young professionals and families relocating from major metropolitan areas. These affluent households are bringing their elevated food expectations with them, and Crave is meeting those expectations with the restaurants they love.” Indeed, the included restaurant concepts are not native to Boise, and include three from Bay Area-based chef and restaurateur Michael Mina. Ghost kitchens as potential franchise vehicles is going to be a big story in 2021. One notable point: all delivery couriers for Crave are employees of the company, paid 3x minimum wage, and make only one delivery at a time. Will be interesting to see if this can scale as quickly as it would if it were built on the existing delivery industry’s infrastructure. The company plans to open 10 more locations by the end of next year. 

Momofuku is on GoldBelly. Good news for me, personally. Also good news for GoldBelly, the long-distance delivery service backed by Danny Meyer’s Enlightened Hospitality Investments, which according to this CNBC piece has doubled its restaurant count during the pandemic. The company’s founder and CEO says, like others who have enjoyed the pandemic bump, that he believes recent growth will translate to future business, even post-Covid. “We believe that the nationwide delivery of your favorite foods is going to continue to be a value proposition that’s really exciting for a lot of people, especially those that experienced it and made a deeper emotional connection with our brand and the platform during this time,” he said. 

Expedite is produced by Kristen Hawley in San Francisco.