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How does DoorDash make money?

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The food delivery and takeout business have been booming since pre-pandemic times and the pandemic has only made these options more attractive to diners looking for a fancy meal and a meal on a budget alike.

DoorDash is yet another platform offering food delivery and takeout services to US diners, offering no contact delivery since the social distancing norms were put into place.

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How does DoorDash make money?

Table of Contents
How does DoorDash make money?
What is DoorDash and how does it work?
A Brief History of DoorDash
What makes DoorDash’s business model so innovative?
Future Growth Engine
Competitors
How Does DoorDash Make Money?
Bottom Line
FAQs

What is DoorDash and how does it work?

  • DoorDash is a technology company connecting consumers to restaurants locally through independent contractors and boasts of hosting self-styled businesspeople who can earn by making deliveries at their convenience and ease.
  • These people are called DoorDash Dashers on the app and are responsible for being delivery partners to the consumers and the restaurants in specific localities.
  • DoorDash works for the customer by allowing them to search for restaurants, choose their desired meals, and pay for them through the app itself. It then gives them an estimated delivery time and sends their order to the restaurant of their choice.
  • The restaurant receives the order via their chosen order protocol and works on cooking the dish while the DoorDash Dasher assigned to the order makes its way to the restaurant. The Dasher picks up the order from the restaurant and delivers it to the consumer within the estimated delivery time stipulated on the app.
  • The Dasher keeps 100% of the delivery fee, boosts, and tips

A Brief History of DoorDash

  • When students named Tony Xu, Evan Moore, Stanley Tang, and Andy Fang from the Stanford University were receiving input on a smartphone app for small business owners in the fall of 2012, a macaron boutique owner told them about her difficulties meeting the demand for deliveries. PaloAltoDelivery.com was started in the Palo Alto district, in the state of California in January 2013, and in the summer of the same year, it got $120,000 in venture funding from Y Combinator in exchange for a 7% interest. It was rebranded and further named DoorDash, in June 2013.
  • By March 2019, DoorDash had done better business than major competitors UberEats and GrubHub and had also beaten Uber Eats as the most popular food delivery service in the United States, based on consumer spending in 2018, maintaining this position in the following year.
  • It opened DoorDash Kitchen, its first ghost kitchen in California in 2019 with four eateries and thereafter raised more than $2.5 billion from investors by mid-2020.
  • Amid the COVID-19 pandemic in April 2020, DoorDash announced that it had "stockpiled tens of thousands of gloves and bottles of hand sanitiser" and was giving them away for free to delivery drivers. It was also established by the company that it had adapted the ‘contactless delivery’ option as its primary SOP for all drop-offs. Additionally, DoorDashbagged the title of the ‘fastest-growing meal delivery service business’ for that month.
  • The company began its "Reopen for Delivery" programme in October 2020, in which brick-and-mortar restaurants have shuttered. In light of the coronavirus pandemic, DoorDash also joined forces with local ghost cookhouses & kitchen-diners to accelerate and smoothen meal delivery and takeaway services.
  • The company opened its first restaurant location in November 2020 in collaboration with an eatery called Burma Bites.
  • The company went public on December 9, 2020, after obtaining $3.37 billion in an initial public offering. From a high of $257 in November 2021 to a new low of $74 in March 2022, the price has varied from an initial opening of $182 to a low of $112 in May 2021, a high of $257 in November 2021, and a new low of $74 in March 2022.
  • As of February 2021, women account for 55 per cent of the company's drivers.

What makes DoorDash’s business model so innovative?

DoorDash has made fast progress, overtaking competitors like UberEats and GrubHub with remarkable talent and speed, and it has hence become worthy to question how DoorDash’s business model has caused it to garner so much success so quickly.

One of the ways DoorDash has made strides is by using a strategy of audience segmentation. 

  • DoorDash divides its consumers into two groups: Users and Restaurants, rather than lumping everyone into one category and treating them all the same. Businesses can segment their audiences in a variety of ways, such as by region, age, gender, interests, education, and so on. It is understood that simplifying advertising and marketing communication can be undertaken by segmenting target groups distinctly. When a brand manager understands the audience they're trying to reach, they may modify their communication style, images, and tone to speak to that group more effectively.
  • Users are the first set of people that use DoorDash. They are people who want convenience and high-quality meals delivered to their homes – and are prepared to pay for it.
  • Restaurants make up their second audience, and DoorDash frequently targets those that can't deliver or don't have enough seating for dine-in. DoorDash recognises who is most in need (and hence most responsive) of their services, which has aided their strategic growth.
  • Finally, DoorDash has "Dashers" who are looking for consistent but flexible work. Though they are not technically consumers of the service, they have the app that separates them from the other groups, making it easier to keep a consistent workforce.
  • DoorDash can also control income and achieve more profits by utilising its drivers to conduct deliveries rather than outsourcing to a third party.

Further, DoorDash is dedicated to solving logistical issues and developing a simple, easy-to-use tool that outperforms the competition.

  • To achieve this goal and differentiate itself, DoorDash understands that giving additional value to its partners is critical to building a great brand. DoorDash has earned a reputation for providing more than simply meal delivery services. While many of their competitors can assist restaurants in reaching a larger audience, none of them offers the same level of meaningful, nuanced consumer data as DoorDash.
  • As a result, DoorDash provides access to Drive, its unique customer insights tool, in order to improve the experience for their Restaurants. Drive provides DoorDash with a leg up on the competition by providing information on the most popular products as well as statistics on nearby communities and delivery timeframes.
  • Because many small, local eateries can't afford to collect such detailed customer and brand information on their own, collaborating with DoorDash is a very enticing option.

In addition, the Drive app provides access to their huge "Dasher" fleet of drivers, configurable delivery options, and direct point-of-sale integration to Partner Restaurants.

DoorDash needed a strong and original marketing approach to compete against existing meal delivery service providers and win.

  • DoorDash concentrated on places with less competition, such as the suburbs and smaller cities, rather than aiming to beat its competitors in their home territory (big inner cities).
  • DoorDash was able to capitalise on a gap in its competitors' marketing methods by separating itself from Uber Eats and GrubHub and claiming its position in the food delivery market.
  • By catering to new locations and target demographics, DoorDash achieved success and added value to a previously underserved part of the population.

Future Growth Engine

DoorDash continued steady growth through 2021 and tripled its sales in the pandemic of 2020. DoorDash grew into an industry behemoth by partnering with restaurants that didn't previously offer delivery.

Grubhub, on the other hand, has traditionally solely dealt with eateries that deliver their food. The firm has also concentrated on suburbs and smaller cities.

DoorDash was positioned for success in 2020 since indoor dining was reduced or stopped in many areas as a result of these decisions.

In addition, the company provides convenience, alcohol, and food delivery services. It's pitching itself to investors as a delivery firm, not just a food delivery company, in an effort to break out of the restaurant delivery intermediary market.

Competitors

DoorDash has many competitors in the market that are also in the food delivery and takeout business but may have vastly different marketing strategies when compared to DoorDash.

Some of these competitors are UberEats, GrubHub, Zomato, Deliveroo, Slice, Swiggy, Olo, and Postmates.

How Does DoorDash Make Money?

DoorDash makes money in a variety of different ways and it is with these multiple revenue streams that DoorDash has achieved the success it presently holds.

The multiple revenue streams come from varied consumers and users of the applications created by DoorDash. Here is a list of revenue making strategies employed by DoorDash to make money


1. Restaurant Commissions 

  • Restaurants are charged commissions by DoorDash for food delivered through their app. DoorDash charges a 20% commission since it expands restaurants' reach and relieves them of the burden of hiring and managing their own delivery teams.
  • This means that DoorDash charges the restaurant $20 on each $100 food order it receives.This helps DoorDash to support the restaurant while simultaneously ensuring that the entire delivery fee can be handed over to the delivery partner without demanding any payment from Dasher for using the app.

2. Delivery Fees

Customers who buy food through DoorDash pay the firm's delivery and service costs, which typically range between $5 and $8 per order. This covers the delivery costs.

For a $100 order of food, the customer usually pays a total of $105-$108 on the app to cover the cost of delivering the food to them in addition to the cost paid for the food to the restaurant.

3. Advertisements

Restaurants can use DoorDash to increase their visibility. While the app lists every accessible eatery, user reviews determine which ones appear first.

Advertising increases a company's visibility on the app and can increase orders. Restaurants, in turn, pay DoorDash for advertising their products or goods on the app, hence creating revenue for the app.

4. Subscriptions

DoorDash offers a membership service called DoorPass to its consumers. Subscribers pay $9.99 per month and receive free delivery and discounted service costs on restaurant purchases over $12 and grocery items over $25.

Customers save an average of $4 to $5 for every order as a result of this. DoorPass improves customer loyalty, which is a difficult task in the industry.

Such loyalty and membership services are common among food delivery apps nowadays and the customer loyalty facilitated by such programs is a fair bait for the minimal loss in revenue sustained on each order by the app as a result of the pass.

5. Corporate Catering

For businesses looking for a catering alternative, DoorDash offers corporate meals. They can place group orders, specify a budget, and have food delivered individually packaged to a central office site or employees' residences if they work from home.

DoorDash charges discounted rates to the businesses for providing these corporate meal plans and their corporate catering business, having shifted to the work from home model along with the employees during the pandemic, has helped DoorDash sustain itself and even make strides during the lockdowns.

6. DoorDash Drive

Rather than using the DoorDash app, DoorDash offers white label delivery services that are linked with a company's systems. DoorDash can work with restaurants or other businesses to handle delivery for orders placed on their website.

For this service, the enterprises pay a set delivery cost to the company which contributes towards the company’s revenue. This also helps DoorDash portray itself more as a technology behemoth to investors rather than just as a food delivery company.

7. DashMart

DoorDash is a service that allows convenience stores to deliver retail and domestic items to clients via the DoorDash app. Convenience stores pay a commission of 20% of the service to the company.

This broadens DoorDash’s horizons to delivery of other domestic products also, apart from food from restaurants, hence setting it apart from competitors like GrubHub and UberEats that only focus on food delivery and takeaway.

8. Other Companies

DoorDash has several different businesses that generate money for the company. Caviar, Scotty Labs, and Chowbotics are among them. Caviar is a high-end delivery service that works similarly to DoorDash and is aimed at upmarket eateries.

Chowbotics is a company that offers robots that make custom bowls of cereal, yoghurt, and salad. Scotty Labs is developing self-driving cars.

Bottom Line

DoorDash has risen to the top of the online meal delivery business in the United States by combining technology, improved value propositions, and a thorough grasp of the market.

DoorDash has approximately 390,000 Partner Restaurants and 18 million users as of 2021, with a 45 per cent market share. Their rise to dominance in meal delivery has been quick, though not without some setbacks.

DoorDash's track record isn't perfect, with complaints of withholding tips and a data breach in 2019.

However, it's evident that DoorDash has learnt from its past mistakes and will utilise them to improve its service, offers, and policies in the future — as well as to strengthen its brand image.

FAQs

How do DoorDash drivers make money?

DoorDash drivers can take 100% of the delivery fee paid by the consumer on their order and are also able to make any additional tips or boosts that have been paid by the customer.

How much money does DoorDash get per order?

DoorDash gets 20% revenue from the restaurant with which the order has been placed and makes an additional $5-$8 per order from the customer.

Does DoorDash take money from restaurants?

DoorDash actively takes money from restaurants only for advertising them on the app. Otherwise, it takes a 20% restaurant commission on each order that has been placed with the restaurant via the DoorDash app.

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