How New Vertical Sectors Are Driving DoorDash's Growth Momentum

During the peak of the COVID-19 pandemic, with many stores closed and people sheltering at home, Walgreens wanted to serve customers in the safest, most convenient way possible. In July 2020, the company partnered with DoorDash to offer on-demand delivery of health and wellness products, household essentials, groceries, beauty products, and personal care items, said Stefanie Kruse, vice president of Walgreens' digital commerce group.

"DoorDash has a very strong history in on-demand delivery and can quickly meet customer promise times," Kruse said. "Seeing their work in restaurant delivery gave us confidence they could do something similar in retail and convenience."

Kruse said it only took a few months for Walgreens' delivery with DoorDash to go live. After contract signing and term negotiations were completed, the service launched within weeks. Walgreens had the application programming interfaces and services to integrate with DoorDash and quickly roll out on-demand delivery. DoorDash's mobile app, technology, and scale matched Walgreens' scale and needs. Since DoorDash covers nearly every market in the U.S., extending its delivery service to Walgreens' 8,000 stores was relatively easy.

"Having the ability to cover nationally and deliver for customers across the country is very important," Kruse said.

Walgreens is just one of many retailers that have joined the DoorDash platform as it expands into new verticals. Although DoorDash started in 2013 in Palo Alto, California, as a small restaurant delivery company, it has since expanded into multiple categories, including convenience, grocery, and other retail verticals. In recent months, the company has formed partnerships with retailers such as Sephora, Tractor Supply, Dick's Sporting Goods, Raley's, Grocery Outlet, Sprouts, Giant Eagle, and Weis Markets.

"While we started with restaurants, our goal from the beginning was to get every purchasable item to your doorstep in minutes, not hours or days," said Shanna Prevé, DoorDash's vice president of enterprise sales and business development.

Profitability through density

Since launching the convenience marketplace as its first non-restaurant category about three years ago, DoorDash has seen significant growth. In the third quarter, that category improved variable profit and is expected to reach positive variable profit this year, company executives said in a Q3 2022 shareholder letter. Variable profit is calculated by subtracting order management and support costs from revenue. Gross order value in the grocery marketplace grew 100% year over year in the third quarter, and DoorDash's profitability improved both sequentially and year over year.

"By expanding beyond restaurants, we believe we are providing more ways for existing consumers to use our service and more opportunities for new consumers to try us for the first time," the letter said.

The share of first-time orders coming from consumers in non-restaurant categories has grown, executives said.

"The key to profitability in this business is density," said Michael Schaefer, head of beverages and foodservice research at Euromonitor International.

The more orders there are in a given area, the shorter the distances drivers travel to deliver them, and the easier it is to maximize profits on larger orders, he explained. DoorDash is the largest player in U.S. restaurant delivery, which means it has a larger base of couriers and can more easily attract other players like grocery and convenience. Schaefer noted that DoorDash has dense courier networks not only in urban areas but also in suburbs, which becomes an advantage for the company because those markets are less competitive.

But that doesn't mean growth in these categories will be smooth sailing. While DoorDash has some of the best restaurant options among third-party delivery providers, it still lags behind competitors in non-restaurant categories, said Third Bridge analyst Nicholas Cauley.

"Retail and grocery partnerships will be a growth driver for DashPass, and that will also create opportunities for higher average order values," Cauley said.

Finding depth in grocery and convenience

While grocery delivery is just as competitive as restaurant delivery, Prevé said DoorDash's advantage lies in having built a platform with millions of monthly active users and 10 million DashPass members. DashPass, DoorDash's $9.99-per-month subscription plan, reduces delivery friction by waiving delivery fees, making customers more likely to try grocery delivery. Another reason grocery has grown so quickly is DoorDash's ability to offer a wide range of products to different types of customers.

In February, DoorDash launched Express Grocery with Albertsons, offering delivery in 30 minutes or less, Prevé said. It has also been offering ultra-fast delivery in 10 to 15 minutes in New York City, particularly in Manhattan and Brooklyn.

Prevé is most interested in the DoubleDash feature, which allows customers to order from a restaurant or other merchant and then add another item from a nearby merchant, delivered by the same courier. DoubleDash was born out of the company's effort to expose its 25 million monthly active users to more options. The product began in 2021, initially with a group of merchants including 7-Eleven, Walgreens, and Wawa. Earlier this year, DoorDash expanded DoubleDash to allow consumers to add alcohol orders from nearby liquor stores.

"Even in categories like convenience, where we have long-term partners like Walgreens, we're still innovating," Prevé said. "We're still launching new products that attract new customers, and then we can bring those new customers to merchant partners in that vertical."

How DoorDash helps retailers build a delivery channel

DoorDash only seeks to enter businesses that can be profitable, Prevé said. When considering a new vertical, a segment must be viable for drivers and allow them to make money. It must also help attract new customers to existing merchants, such as grocery stores, and meet the needs of their consumer base. Then DoorDash focuses on how to make the experience work for all three parties. For DoorDash's grocery and convenience partners, 70% to 90% of customers who shop on the DoorDash platform are net new customers for those partners.

"When we see something like that, we really want to focus on it and see how we can continue to grow it," Prevé said. "We know we'll eventually be profitable."

Ensuring customer retention depends on the customer experience, including product selection and quality. "Did you receive what you ordered? It sounds simple, but it's very important," Prevé said. "Then did we deliver within the promised time? At a high level, these sound simple, but they actually take a lot of work, persistence, and iteration to get right."

"What I think you'll see in the future is continued partnership, continued innovation, and continued iteration based on the elements that have worked across all our other verticals: selection, quality, speed, and customer satisfaction," Prevé said.

For convenience retailers like Walgreens, delivery has become an important way to reach more customers and increase awareness of private-label products. Kruse said Walgreens has also partnered with DoorDash on the DoubleDash service, which helps drive incremental sales and customer growth. DoorDash's fast time-to-market capability also helped Walgreens launch alcohol delivery from 4,000 stores.

"This is another great example of our ability to move quickly and collaborate, because from a regulatory standpoint it's obviously very complex," Kruse said. "When we think about the holidays and last-minute entertainment needs, this is a great advantage for us."

DoorDash has also enabled Walgreens to fulfill its one-hour delivery promise. While Walgreens has other delivery partners, DoorDash is its largest strategic partner for one-hour delivery. "A big part of our relationship is, how do we build something meaningful for customers? How do we work together and really learn from each other? So we've shared a lot of great learnings with DoorDash about what works and what doesn't," Kruse said.