DoorDash recently received a large influx of money, $535 million in cash from SoftBank, Sequoia Capital and GIC, a Singapore based sovereign wealth fund. DoorDash CEO Tony Xu is totally excited, and understandably so at the recent investment round success, and plans on taking DoorDash from a 600-city company to a 1,600-city company, all in the US.
According to Xu, investors are warier these days of which gig economies to invest in. He said, "the best investors are investing in the winners." However, SoftBank is perhaps hedging its bets on the rideshare and delivery gig economy system. There is some market consolidation expected in the future, where so many competitors will converge, just as Uber has done in Asia.
DoorDash is a delivery service gig; this means it has an app that connects between customers and suppliers, where the delivery process is managed by self-employed delivery people that own their own mode of transportation. The difference in the delivery market came when smartphones could act as logistics planning offices. Algorithms and GPS maps replaced route planners, software code replaced telephone calls, and suppliers could consolidate their wares in a virtual warehouse. (Or menu)
Dashers, which is the DoorDash name for their delivery people, takes a percentage of the food order cost as well as a delivery fee that is ranged between $0 and $5. This is supplemented by a service called Drive, which allows customers to order from restaurants directly, without the use of the app, and the delivery will be sent by the dasher.
One of the new changes that is expected to happen with the influx of so much cash is adding a new mix to the current food delivery service. At present DoorDash only delivers prepared food (meals) and now they intend to expand their delivery service to all other products and commodities. As Xu said to the media "Drive can handle any kind of delivery of any size, any shape. If you can do food, you can do anything else," including retail items large and small."
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DoorDash is a growing and learning economy; Xu adds that they collect "hundreds of millions of data points," and need to know about every parking space, road condition and detour to be successful. What Xu intends to do with the money is to become "the last-mile logistics platform for every city."
Xu explained that DoorDash collects all its data from every delivery made, "All of that information now can be digitized for the first time really because of the power of mobile. DoorDash would not be here, and the technologies with regards to DoorDash and many other companies similar to DoorDash would not be possible without the power of a computer inside your pocket."
DoorDash performs a 57-item checklist when launching a new city service; this includes what kind of vehicles are required, how many drivers they will need and what are the zip codes as well as which restaurants do they need to include in the list.
According to Xu "Outside of New York City, 90 percent of restaurants still don't deliver. So, there's a long way to go before we're able to offer the convenience that New York has always seen."
My Take:
Anyone with an app can become the next DoorDash as well as overtake them. Success is in how you manage your spend. The cheaper your service is to restaurants, the higher rate of success you will have in building up a solid reputation and online menu. Paying delivery people is based on a delivery fee and tip, you need to maintain a good base delivery fee that is charged directly to the customer and not the restaurant. You take a small percentage from the restaurant since their profit margins are very low, less than 25%. If you charge a large percentage per meal, you will bankrupt restaurants, which is what is happening with UberEats. If you maintain a low percentage of income, such as 5% on meals, only charge the customer for the delivery fee, and allow for tips, then you will reach that golden triangle of success for everyone. Now the real trick is in managing your operations and marketing costs. This is where the investor's money comes in at first. You need that money to develop a local office which will act as your marketing front to local restaurants as well as a service support center for your delivery people. You will need to add a BPO call center in Asia to minimize overheads for your customer support services, and basically, you should be making a lot of profit from small increments of income per delivery.
There is nothing glamorous in logistics; it is a supply chain engineering service that has been going on for thousands of years. All that DoorDash has done is market itself successfully. Immediate success is in the marketing, continuous success is in the business model and customer satisfaction.