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DoorDash buys Caviar as the delivery business keeps consolidating

The continued maturation of the third-party aggregation business is both good and bad news for restaurants, says RB’s The Bottom Line.
Photograph courtesy of Square

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Third-party aggregation service DoorDash on Thursday announced that it has acquired one of its smaller rivals, Caviar, from point-of-sale provider Square for $410 million in cash.

It was the second deal in the third-party delivery business this week. Earlier, Delivery.com acquired Mr. Delivery, a smaller provider based in Austin, Texas.

The deals promise to speed an inevitable consolidation in the growing delivery business. Waitr late last year bought regional player Bite Squad, for instance, and there are reports that large provider Postmates is eyeing a potential merger with one of its rivals.

As industries emerge, they jockey for market share and supremacy, and as some companies grow larger they swallow smaller competitors that can no longer keep pace. Such consolidation can make the remaining companies stronger, giving them more power to negotiate with their customers.

Fewer delivery companies can make it easier for restaurants, in part because they’ll have fewer companies to deal with, which makes things easier for operators as well as their own tech staff.

There’s a growing sense among executives that delivery providers have their own groups of customers and their own markets, and so restaurant companies are following suit by shifting toward multiprovider delivery strategies and away from exclusive deals.

McDonald’s recent deal with DoorDash, and its ultraquick adoption by the company’s franchisees, is proof positive of this shift. The company had worked exclusively with Uber Eats for nearly two years before changing that strategy.

Burger King is using multiple providers, too, rolling out delivery with Uber Eats.

Yum Brands works with only one provider—Grubhub—but the Pizza Hut and Taco Bell parent company is finding that customers have their own loyalties. “There are people loyal to Pizza Hut, there are people loyal to Grubhub,” Yum CEO Greg Creed said Thursday, noting that its pizza brand is starting to put its services on the Grubhub app and deliver the pizzas itself.

Working with Grubhub “enables us to get broader reach,” he said.

As these services grow, however, their own negotiating leverage grows with it, and restaurant chains will be forced to deal with them if they want to offer delivery. And the services themselves may find it advantageous to continue consolidating. Small players will themselves be forced to do the same thing.

The DoorDash acquisition of Caviar underscores all of this. San Francisco-based DoorDash said that Caviar has a complementary geographic footprint, providing it with “new and unique customers” as well as a selection of premium restaurants.

Getting access to more households as well as more restaurants is vital for the services as they seek to beat out rivals.

As it is, DoorDash is rapidly gaining market share and now is available to 80% of U.S. households, the type of penetration large brands like McDonald’s and Burger King covet as they look to expand delivery.

“The acquisition further enhances the breadth of our merchant selection, enabling us to offer customers even more choice when they order through DoorDash,” Tony Xu, CEO of DoorDash, said in a statement.

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