How Door Dash Captured 55% Food Delivery Market Share and Won Their Category

Welcome to Success Story, the most useful podcast in the world. I'm your host, Scott D. Clary. The Success Story podcast is part of the HubSpot Podcast Network. The HubSpot Podcast Network is the audio destination for business professionals who seek the best education and inspiration on how to grow a business. The HubSpot Podcast Network hosts, act as on-demand mentors, entrepreneurs, startups, and scale-ups through practical tips and inspirational stories. Listen, learn and grow with the HubSpot Podcast Network at HubSpot.com slash podcast network. Today, I'm going to break down the story of DoorDash, the origin story of the founders, how they raised money, how they grew, how they took their product to market, all the different iterations, the ups and the downs. This is going to be a case study that is going to show you how DoorDash captured over 55% of food delivery industry, category, market share. They beat out GrubHub, Postmates, UberEats. They are the incumbent. They are the one to beat. I'm going to walk you through how they did it. This is a case study. This is DoorDash's business growth story. UberEats, GrubHub, Postmates, DoorDash. These companies have been locked in a heated competition for years now. They have been vying for dominance in the food delivery war. However, DoorDash overtook its competitors with a 55% market share in March of 2021, and they are accountable for 56% of all food deliveries in the USA. DoorDash has evolved from a small, student-founded startup to the most successful online food delivery platform in America in just seven years. It is even broken into Australia, Canada, and Japanese markets. It's pretty impressive for a company that is not only a decade old, and it was student-founded. These are not senior tech founders. Let's talk about the students. So, in 2012, Stanford students Tony Zoo, Stanley Tang, Andy Fang, and Evan Moore began working on a small app for small, rather not a small app for small, but a large app for small business owners. They weren't sure what they wanted to build, only that they wanted it to be used by small businesses. So, they interviewed hundreds of business owners in the area asking what their businesses were like, and if there was anything in particular that they needed help with. They tried setting up iPads at the retail point of sales so that customers could answer a short marketing attribution survey, but unfortunately, while some customers were willing to answer the survey, it wasn't conducive to the business that didn't provide enough value, and it was relatively difficult to scale, expensive to install, and maintain what not. So, they also got an idea for food delivery after interviewing a Macaron store owner, where they overheard her turning down a delivery order. They were interviewing her about the POS device, the point of sale device, but they heard her turning down the delivery order. Then they realized that food delivery was an issue for restaurants. There was no scalable solution to deliver food. So, it got to the point where restaurant owners actually turned down orders, versus taking the order, making some money, shipping it up to the customer. Only larger organizations, larger restaurants were well equipped to do this. So, economies to scale, right? So, after asking around again, they found that very few restaurants deliver due to inconsistent orders, small businesses can't afford to have their own fleet of delivery drivers, when they might receive some delivery orders one day, virtually none the next and so on and so forth. So, the four students founded PaloAltoDelivery.com, which only had a Google voice number and menus in PDF format for a few local restaurants. They charged a flat rate of $6 per delivery with no minimum order size, and the four of them personally handled the deliveries. Once the business took off, they started receiving more orders and they could handle. So, they began hiring people to help with deliveries, hung flyers, they also posted on Craigslist. In 2013, after successfully pitching DoorDash to investors at Y Combinator, the company received $120,000 in seat capital, and officially renamed the company from PaloAltoDelivery to DoorDash. It was in 2013 that really, really kicked off their incredible growth. In 2015, after spending two years in Y Combinator, DoorDash was operating in 18 different cities and received $60 million in investment. With the start of its first launch at Canada in 2016, Colse Adventures and Cliner Perkins invested another $127 million into the company. Surprisingly though, DoorDash's valuation went down to 700 million despite the increase in investment. It was a very competitive market. However, they found a way to outgrow the competitive market, which was to buy competitors. First acquisition. In 2017, DoorDash acquired Riksha, a startup that focused on delivery and logistics. At the time, DoorDash was working on its own platform, DoorDash Drive. By acquiring Riksha, DoorDash could integrate some aspects of Riksha's software with DoorDash Drive. This acquisition strategy brought them to the next level. It was in 2018 after they had acquired several companies like Riksha that SoftBank invested $535 million into DoorDash. The Food Delivery Service reached unicorn status with this investment with a valuation of $1.4 billion. After that, they just continued to grow by the end of 2018. DoorDash managed overtake Uber Eats as the second most popular Food Delivery Service in America. Expansion continued in 2019, the company opened DoorDash Kitchen, a ghost kitchen in California. The ghost kitchen concept is the open kitchens where restaurants can just sell from a kitchen. They don't have to have a brick and mortar storefront. DoorDash also acquired caviar, a food delivery app with listings from high-end restaurants that didn't deliver outside the app. And then of course, like with all good startup stories, there is a little bit of luck. So the delivery boom, when COVID-19 hit in 2020, the on-demand food delivery industry blew up. So shelter-in-place orders created huge reduction in foot traffic, meaning that restaurants had to rely on services like DoorDash, Uber Eats, Postmates, and GrubHub. If they wanted to make any sales at all, the massive surge in orders allowed market leader DoorDash to rake in a $1.92 billion in revenue. But despite that, they still weren't generating profits. Instead, the company was actually losing money considering how expensive it was to ship and basically run the shipping and logistics for all the food. In 2020, is when DoorDash finally went public with an IPO at $102 per share when they first went live on trading day, but ended the first day of being public with a share price of $189.51. Despite its lack of profitability, investors seemed to be interested in DoorDash. However, not every major institutional investor was on board. There was a lot of skepticism when the company is this size, but still not profitable. However, some analysts believe that if DoorDash continues to grow even after the pandemic-induced food delivery business boom ends, it might become profitable in the future, however, it is not yet. The DoorDash strategy. So what made DoorDash so successful, we touched on a few points, but ultimately, we have to figure out what made it stand out from its competitors because again, it's a crowded market. So they have to invest in DoorDash definitely played a part in its success, but other companies had money too. It's not just because of the money. So number one was simplicity. First, DoorDash really kept things basic. The app is simple, intuitive, easy to use. This is what captures customers and this is what keeps customers. They made convenience to speed a priority and provided sellers with a user-friendly app that lets them accept orders without ever speaking to a customer. They also focused on a technology first platform. The use technology is a driving force. So DoorDash has been able to stay ahead of competitors by being technology-driven and looking for ways to expand into new markets and double down on a tech that works. So for example, one innovative part of their business model was that customers could order food from any restaurant in their service area, which helped boost their market share immensely during the COVID-19 pandemic. And this also played into the emotional component of ordering from local, supporting local restaurants throughout COVID. So the company partnered with both large and small businesses, not just from the inner city, but also from the suburbs. Additionally, it provided merchants with invaluable data like brand and consumer insights. This kind of data is beneficial to smaller shops that may not have resources to gather it independently. And it's early days, DoorDash would also give discount codes or coupons to users who would review it on the app store, this feedback led to improvements in the app. And lastly, it's sort of always been focused on the future. The company, although is primarily a food delivery service, the company is always looking to branch out to try new things to test to iterate. They're never complacent. So the goal is to provide an on-demand delivery service not just for food, but for virtually anything that needs delivering. So final words on DoorDash, even at its best, the economy that all these on-demand delivery industry and services are based on can still be a little bit unstable, but the point is to maintain a position as a market leader, you will have to constantly be reinventing, be iterating, be trying new things. That's what DoorDash did well, throws entire life cycle. That's what they continue to do today. And that is likely why they will continue to grow in the future. All right, that's it for today. So I hope you enjoyed another case study. If you haven't already, hit that like button, hit subscribe, leave a comment below, and I'll see you again next time.