For a business that runs an unimaginably complex network of eaters, restaurants, and couriers, Doordash has a fairly simple business equation. It generates nearly all of its revenue from fees generated through its marketplace, both on the consumer and merchant side. It measures the total transactions processed as Gross Order Volume (GOV) and the percentage of what it keeps as the Take Rate. In a heavily VC-fueled market, customer acquisition is their most critical cost as a percentage of revenue. To succeed, Doordash must maximize GOV and Take Rate, while minimizing CAC.

Maximizing GOV

Doordash rode the tailwinds of pandemic lockdowns to 200% GOV growth in the first three months of 2020 vs the same period in 2019 (after 185% growth 2019 vs 2018). While this type of growth may taper a bit as we emerge from COVID, we think it's reasonable to expect some long-term habit changes for consumers and restaurants, alike, in its wake. This should continue to expand the market for digitally-driven dining, while allowing Doordash to penetrate further beyond the 3% of total off-premise dining it currently captures.

DoorDash’s growth has exceeded its peers and broader market, cornering 51% of market share in 2020 vs just 17% in 2018. Importantly, it dominates in suburban markets (58% share), which it stands to benefit from both in terms of unit economics and resiliency post-pandemic. As we'll see in a look at its flywheels, DoorDash generates accumulating advantages vs smaller competitors as it scales, which is clearly encouraging for its growth prospects.

The platform has also identified adjacent markets like, grocery, convenience, alcohol and drug stores to increase TAM and GOV. It leverages its white-label delivery and logistics solution called DoorDash Drive for a higher take rate. It's already secured a key partnership with CVS toward that end. This In the future, basically any local retail category could hypothetically be delivered through Drive, providing ample growth opportunities for GOV. However, this is obviously a monstrously crowded space.

Maximizing Take Rate

Doordash generates nearly all of its revenue from fees generated through its marketplace, both from the consumer and the merchant side. Partner merchants enter a contractual agreement with Doordash to pay a commission on orders facilitated on the platform. They also offer business services like marketing, onboarding, and more but the revenue from these is not material. In addition to merchant commissions, consumers pay fees per order including a fixed delivery fee and a variable service fee based on the total dollar value of the order. They've also introduced the DashPass on the consumer side. This model generates subscription membership fees and, consequently, zero delivery fee and less service fees per order.

The path to expanding take rate is less clearly lucrative. The company has demonstrated that they are able to earn more from customers as they retain them for longer (take rate for 2016 cohort was 15% vs 2018's 13%). Further penetration into markets with less time-sensitivity than an order of hot food should help to decrease costs on the delivery side. However, on the supply side, the already thin margins of the restaurant business don't really have many more points to earn from.

Minimize CAC

As venture dollars pour into the food delivery space, the competition for consumer, courier and merchant attention has increased. Doordash has exhibited the ability to capture increasing value from its customers as they age, benefitting the numerator in any CAC ratio. For example, the 2018 cohort of consumers increased their spend by 1.65x in their second year, an even steeper trajectory of similar growth to earlier cohorts. Sales and marketing and promotions spend associated with existing consumers is also significantly lower than the spend associated with new consumers (from 10% in year 1 to 2% in year 2 and beyond), creating operating leverage.

THE SPOT:

Xiao Bao Biscuit

THE CITY:

Charleston, SC

Okonomiyaki with pork candy and draft beer. Pad kraw po and dumplings. Go with a group and order everything off their small menu. There are no misses

https://www.xiaobaobiscuit.com/

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