DoorDash is a dish served piping hot. Will it cool?

THE NEW “TikTok Treats” menu on Postmates in Los Angeles wins no plaudits for gastronomy. It appeals to carb-loving teens: cloud bread and pancake cereal. But the tie-up with the popular short-video app is another sign that food-delivery firms are coming of age. Among teens and millennials, ordering food online is as ingrained a habit as booking an Airbnb, bingeing on Netflix or hailing an Uber.

Just how hooked consumers are thanks to the pandemic is clear from financial documents filed on November 13th by DoorDash, America’s biggest food-delivery company, ahead of its listing on the New York Stock Exchange next month. From January to September it booked orders worth $16bn, up by 198% year on year, earning revenues of $1.9bn. It ferries grub from 390,000 American restaurants.

The majority of America’s 700,000 or so eateries now distribute via a delivery app, notes Lauren Silberman of Credit Suisse, a bank. The pandemic turbocharged a pre-existing trend for convenience food, as more women work and everybody is short of time. In doing so, it has also rehabilitated one of Silicon Valley’s most derided business models.

Restaurants entered the digital realm two decades ago when Takeaway.com in Europe and Grubhub in America put menus online. Restaurants delivered the food themselves and the middlemen were reliably profitable. By contrast, the new “third-party logistics” firms like DoorDash and Uber Eats (whose ride-hailing parent has also bought Postmates) have to divvy up the bills, which average around $30, three ways. Once drivers and restaurants take their cut not much is left.

Until recently none of these newfangled firms made money, even in emerging markets where labour costs are far lower. Lack of obvious economies of scale or barriers to entry meant several rivals were fighting over market share by offering diners generous discounts—and bleeding red ink in the process. They also faced the prospect of a sharp rise in labour costs. Last year California passed a law that required DoorDash, Uber and other “gig-economy” companies to treat app-based workers as full employees.

On November 3rd Californians voted in favour of a ballot initiative which in effect overturns the law—and may discourage other state legislatures from passing similar ones. The law’s defeat on the tails of the pandemic bonanza has once again whetted investors’ appetite for food delivery. DoorDash is hoping for a valuation of $25bn, up from $16bn in its most recent private-market funding round in June. The offering is already oversubscribed. It is hard to argue with growth rates of 100-200% a year, notes Mark Shmulik of Bernstein, a research firm. DoorDash bulls point to Meituan-Dianping, the biggest such app in China, which turned profitable last year and is now worth a cool $230bn.

The American firm’s numbers contained plenty to chew on. DoorDash is generating cash and is profitable on an adjusted basis. Its in-app ads business offers juicy margins. The company sees itself as the digital hub for the convenience economy, connecting merchants, customers and riders; the word “platform” cropped up 646 times in the filing. It has started delivering groceries and convenience-store items. Its logistics arm sells last-mile delivery to other companies, notably Walmart. Looking ahead, high unemployment amid a continuing pandemic downturn should mean lots of cheap labour.

Other facts are harder to swallow—not least that it has taken covid-19 to make food delivery profitable, and then only marginally so. DoorDash warns that growth will slow as the virus ebbs. The share prices of many listed digital firms that benefited from lockdowns and self-isolating consumers, from Amazon to Zoom, dipped on the news of an effective vaccine. And despite their critics’ defeat in California, gig firms will continue to face accusations of thriving on the back of exploited workers. In this respect, DoorDash has already joined the club of listed tech platforms. ■

Editor’s note: Some of our covid-19 coverage is free for readers of The Economist Today, our daily newsletter. For more stories and our pandemic tracker, see our hub

This article appeared in the Business section of the print edition under the headline “Mouth-watering”