Photo by Markus Spiske on Unsplash

DoorDash enters the online grocery wars with new one-hour delivery offering

August 20, 2020

The food delivery wars are heating up. DoorDash announced this morning that it is now offering grocery delivery for customers in various markets in under one hour.

Customers in the Bay Area, Los Angeles, Orange County, Sacramento, San Diego, and the Central Coast can order from Smart & Final. Meijer and Fresh Thyme are available to customers in Chicago, Cincinnati, Milwaukee, Detroit, and Indianapolis. In the coming weeks, DoorDash plans to add more selections throughout the US with grocers such as Hy-Vee, Gristedes/D’agostino, and more.

By DoorDash’s estimate, this new offering extends to 75 million Americans.

“DoorDash provides another convenient way for customers to get the value, selection, and quality that Smart & Final offers, especially at a time when some are looking to limit trips outside their homes,” said Navin Cotton, director of digital commerce at Smart & Final, wrote in a press release announcing the launch. 

“DoorDash’s on-demand grocery service is a nice addition to our online shopping options and with delivery in under an hour, we know Smart & Final customers are going to appreciate it.”

The startup is also placing an emphasis on the availability of ready-to-eat meals at many of these grocery retailers. Convenience has become one of the biggest selling factors for shoppers while the number of people who cook the majority of their meals at home continues to decline, according to the Harvard Business Review. As a result, grocers have ramped up ready-to-eat offerings to keep pace with competition from restaurants.

Entering the online grocery wars

Before the pandemic, grocery delivery showed sluggish adoption among consumers but the online grocery war between major players like Walmart and Amazon has been bubbling beneath the service. As top outlets refine their offerings and roll out new features like Amazon’s free grocery delivery, one-hour delivery, and more, the competition is getting cutthroat. 

Perhaps one of its few silver linings, Covid-19 has boosted the size of the online grocery delivery pie to $5.3 billion in April 2020 alone, up from $4 billion the month prior. Although this demand may shrink back to pre-pandemic levels, it is making room for competitors like DoorDash to stake claim to market share and an opportunity to convert trial-basis users to permanent customers.

DoorDash will also have to contend with heavyweight Instacart, which just started working with Walmart to offer same-day grocery delivery in four markets in California and Tulsa, Oklahoma. By some estimates, Instacart currently owns 57% of the online grocery game. The grocery delivery logistics service recently raised $225 million to add new services and features, better support its shoppers, adn scale its operations to meet skyrocketing demand. It’s doubled its legion of personal shoppers since March, adding hundreds of thousands of new workers. 

This isn’t DoorDash’s first foray into something other than delivering food from restaurants. It’s DoorDash Drive service is a B2B white-label fulfillment service that provides direct delivery for grocery chains like Walmart, Hy-Vee, ShopRite, and Coborn’s as well as a number of regional independent grocers. It operates in over 800 cities in the US and Canada and has fulfilled delivery orders with its fleet of 200,000 drivers.

Earlier this year, it entered the convenience store game by adding Casey’s, 7-Eleven, Circle K, Waw, CVS Pharmacy, and Walgreens to its list of places where DoorDash app users can shop.

DoorDash is on the move

In June 2020, DoorDash raised a $400 million equity financing led by Durable Capital Partners and Fidelity, which valued the company at $16 billion. Third-party food delivery services like DoorDash, UberEats, and Grubhub have seen a new bout of interest during the pandemic as consumers shelter-in-place while still trying to support local restaurants. Orders placed through third-party delivery platforms jumped 67%, according to NPD Group, even though total orders at restaurants fell by 22%.

DoorDash claims its sales have surged well beyond that of its rivals Grubhub and Uber Eats, both of which have already gone public. DoorDash seemed poised for an IPO in February when it filed a draft S-1, but nothing manifested. It launched a number of Covid-19 relief measures like a service called Storefront to assist restaurants with creating a stronger brand identity through mobile ordering platforms while providing consumer data. It waived Storefront’s fees through the end of the year.

But the service providers continue to face backlash over their alleged mistreatment of drivers, which the companies classify as independent workers. Labor rights non-profit Working Washington released a study in January 2020 suggesting that DoorDash drivers earn $1.45 per hour on average, for example. 

To reach this conclusion, Working Washington compiled data from over 200 DoorDash drivers jobs around the US between November and December 2019. The minuscule takehome pay is the result of deducting fees for mileage, payroll taxes for independent contractors, and last time while waiting for the next delivery assignment.

DoorDash is now facing a lawsuit brought by the San Francisco District Attorney alleging that the company intentionally misclassified workers as independent contractors in violation of the state’s new law that requires gig economy workers to be classified as employees. It’s also facing a potential civil class action lawsuit.

One startup called Dumpling is tackling the alleged labor rights violations in the gig economy by creating a new model that lets workers run their own shopping services.

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