Tech Check is a regular column on restaurant technology by Senior Editor Joe Guszkowski. It's also a newsletter.
Something strange is happening in the restaurant industry.
Consumers are turning their backs on fast-food chains. Because of inflation, the usual go-tos for an affordable meal have simply gotten too expensive, they say. Last quarter, McDonald’s same-store sales declined for the first time in four years.
At the same time, consumers continue to use third-party delivery apps like DoorDash. That’s surprising because, all things being equal, delivery is the most expensive way to get food.
In the second quarter, total DoorDash orders increased 19% year over year. The average ticket size on those orders did not change. People just kept ordering delivery without flinching.
In a comment that might as well have been beamed in from another planet, DoorDash CFO Ravi Inukonda told analysts during an earnings call yesterday that “inflation has not had a big impact on our business.”
So what on earth is going on here? A few things. But before we go any further, it should be noted that DoorDash’s results come with an asterisk.
As you may have heard, DoorDash, the nation’s largest restaurant delivery app by market share, now delivers more than just restaurant food. In fact, its goal for years has been to deliver “every product in the physical world.” So there is a lot more going into that 19% increase than just restaurant food. Besides burgers and fries, it also includes groceries, beauty products, alcohol and pet food.
When I asked DoorDash to provide results for restaurants only, the company declined. “Unfortunately we don’t break out the Marketplace GOV or total orders by category,” a spokesperson said. Darn.
However, the spokesperson said, restaurants are still DoorDash’s biggest and most popular category, and that category is indeed growing.
“We have not seen any decline, because of the selection of restaurants consumers can get when they open our app—and I think that surprised some folks who were perhaps expecting consumer spend to weaken,” the spokesperson said.
When attempting to explain why DoorDash seems to be defying industry trends, selection is perhaps the best place to start. The company continues to add restaurants to its marketplace, and has said repeatedly that it is only just scratching the surface of the restaurant market.
And when a restaurant joins DoorDash, it is quite likely that the restaurant is offering delivery for the first time. That’s naturally going to lead to more delivery orders.
Plus, as CEO Tony Xu pointed out, there are always going to be more restaurants to add to DoorDash, because new restaurants open all the time.
“The total number of restaurants every year almost always exceeds the previous year. But it's not necessarily the same set of restaurants. And that's because restaurants come and go,” he said. “So the room to run on restaurants is almost this perennial body of work.”
That right there is one very good reason why DoorDash’s restaurant business continues to grow on an overall basis. More restaurants equals more orders.
But, according to DoorDash, it is not just getting more orders because it is getting more customers, but also because existing customers are ordering more frequently, which is probably a better measure of the underlying health of delivery.
“Order frequency continues to be at an all-time high,” Inukonda said. “The demand continues to be very strong across the board for us.”
So what else might be going on? Here’s something: Delivery orders are by and large digital orders, and digital orders as a whole are growing.
In fact, as Olo CEO Noah Glass pointed out during Olo’s earnings call this week, digital orders now account for about 80% of all industry transactions, according to data firm NPD.
“That is at the same time that industry transactions on an absolute basis continue to increase,” he said. “So it's not channel shift, it's actual growth within a growing base.”
Delivery is by far the smallest part of that digital slice. That means it has a lot more room to grow, which appears to be exactly what is happening.
“We're still in the earliest innings of the move towards digital and the overall omni-channel experiences that every restaurant and retailer is participating in, and we're lucky to play in the part that is growing,” Xu said.
Digital is growing mainly because it’s convenient. Consumers can now search for and order from most restaurants from the comfort of their phone. Delivery adds another layer of convenience by ensuring that they don’t even have to leave the house to get the food. For many people, that ease is worth the extra price.
And here’s the other thing. There are a lot of ways to avoid paying full price on DoorDash these days. For instance, customers can choose to pay $10 a month for DashPass, which waives delivery fees. The number of DashPass members is at a record high, DoorDash said.
They can also take advantage of one of the many BOGOs, half-off deals and $0 delivery offers that are now common on the app and easily visible under the “Offers” tab.
DoorDash has also lowered its fees by 12% over the past two years for non-DashPass customers.
Even after all that, delivery is still going to cost more than ordering in a restaurant or picking up the food oneself. But the deals soften the blow, and the luxury of not having to get off the couch adds value.
Now, constant discounting is not necessarily a sustainable business model. At some point, DoorDash will need to make money. (It posted a net loss of $158 million in the quarter.) But consumers, especially right now, are looking for deals, and DoorDash is willing to offer them.
And it's not as if consumers are abandoning restaurants entirely. They are just being more deliberate about where they spend. Their calculation is based on service, food quality and convenience as well as price. That formula has produced some clear winners in a tough environment, and they aren’t the places with the lowest prices. Just look at the recent results from Wingstop, Chipotle and Texas Roadhouse for proof.
DoorDash may well be another one of those winners. But it should really start sharing its restaurant results so we can be sure.