DoorDash CEO Tony Xu seemed a little surprised.
Despite historic inflation, an energy crisis and a war in Europe, his food delivery business kept growing in the third quarter. It handled 439 million orders, up 27% year over year, and generated $13.5 billion in sales, an increase of 30%.
“It's sometimes hard to try to square the two,” Xu admitted during an earnings call Thursday, according to a transcript on financial services site Sentieo. He chalked it up, essentially, to the fact that people need to eat.
“Even though all of us are wondering how to quantify the macro headwinds, food is the most resilient category,” he said. “I think historically, that's shown to be true.”
Sure, everyone needs to eat. But there are cheaper ways to get food than having it delivered. And yet many Americans are still willing to pay for it, Consumer Price Index be damned.
Delivery sales
Indeed, the latest round of earnings results featured some major delivery success stories. Fast-food behemoth McDonald’s, for instance, had one of its best delivery sales quarters ever. Wingstop remains bullish on the service. So are a number of casual-dining chains.
“The delivery business is really strong and the customer has a habit,” said Dave Deno, CEO of Bloomin’ Brands, where delivery as a percentage of sales inched up to 12.4% in the third quarter. “Our third-party delivery sales continue to be really great. And I think people get in the habit of ordering.”
A recent study from software provider Deliverect suggested that Americans are actually ordering more delivery now than they were before inflation set in: 44% of respondents to an August survey said they got delivery three times a week, up from 42% before.
But this is not a case of a rising tide lifting all boats. Domino’s delivery sales fell a stark 7.5% in the third quarter. Executives blamed inflation.
“We believe that inflation will impact delivery more than carryout due to the added expenses of fees and tips in that channel,” Domino’s CEO Russell Weiner told investors. “Our research shows that a relatively higher delivery cost might lead some consumers to prepare meals at home.”
Taken side by side, these results feel like a wash. It makes sense that delivery sales are growing at brands that are investing in it, like McDonalds, and falling at ones that are de-emphasizing it, like Domino’s.
For a more accurate sense of what’s going on, I turn to Applebee’s, which says it has no preference for how customers order. It still does a decent amount of delivery—about 12% of its total sales—and President John Cywinski said those sales have been stable. But he’s curious about what will happen if the economy gets worse.
“If an inflationary environment persists into next year, it will be interesting to see, and particularly for that guest with little in the way of discretionary income, will they choose to economize?” he said in an interview this week. “At some point, service and delivery fees add up.”
DoorDash, the No. 1 delivery provider in the U.S., is also a good gauge for how delivery is doing. But its continued growth does come with some asterisks. For one thing, DoorDash now delivers more than just restaurant food. It said Thursday that its grocery sales have doubled over the past year. That obviously helps its overall growth but tells us little about demand for restaurant delivery.
DoorDash also said it gained 14 percentage points of market share in the U.S. last quarter. So at least some of its growth is from sales getting spread around rather than increasing overall.
That said, the delivery pie has gotten bigger in pure dollar terms. In the third quarter, the three big delivery companies generated a combined $30 billion in sales, a 16% increase from the same period last year.
Some of that, of course, is from higher prices. But as each quarter goes by, and delivery continues to exceed expectations, it becomes harder to envision a scenario where Americans suddenly go cold turkey.