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Does DoorDash Have A Problem?

Does DoorDash Have A Problem?

DoorDash, Inc. has dazzled investors with its fast growing market capitalization, now standing at $70b.  As a result, they are growing their revenue to $4b on an annualized basis. In 2018, its revenue was only 300m. 

This type of exponential growth is sure to see a surge in any valuation. But what will the final verdict be on DoorDash’s shares?  Is their business model potentially flawed?

One member of their community, who requested anonymity, revealed some issues with the business model of DoorDash.

This member identified a flaw in the DoorDash’s delivery system. “I dash myself, and I pick up a lot from a local McDonald’s,” says our contact, “They have told me that they throw away at least 16 bags worth of food every day that are never picked up.”

What is the reason? 

First, according to our contact, there is an important misunderstanding from the perspective of the customers. They are under the impression that dashers are employees that work for Doordash and therefore a tip is nothing more than extra money. Customers also assume that dashers will pick up the order no matter how far the restaurants are.  

These assumptions are reasonable as customers just want their food and nothing more, but they are not true from the dasher’s point of view, and this falls on Doordash for not educating them on how the orders are delivered.From the dashers’ perspective, when a customer who lives 9 or even 14 miles away from the restaurant doesn’t tip, the order is only worth $3.00 for the dasher, despite that they have to drive all the way for the delivery.

As dashers become more experienced, their business mindset develops. They start to understand that it’s not worth the time and effort to drive long distances when they can just wait for a better-paying offer. In this way, DoorDash loses a lot of revenue for refunding customers.  Since the restaurant must get paid for the food as well, DoorDash is basically losing out twice when it issues refunds. 

Quickly, a $14 order that never gets delivered can balloon to $28 in its refund: $14 for the restaurant and $14 for the customer. 

In addition, DoorDash’s delivery system is flawed because it cannot prove whether a delivery was made or not, which opens up the platform for fraud. 

Then, how can DoorDash solve this problem? Our contact gives his idea. Instead of charging a flat fee of $3, DoorDash should take into account the distance from the restaurant and charge 75 cents per mile. In this way, an order that is 14 miles away will show up as $10.50. While it is still a low offer considering the distance, the dasher is at least  getting paid 75 cents per mile, an incentive to drive the distance. While this may discourage customers from ordering their food from some restaurants , it will avoid wasting time of dashers and customers and prevent losing money for DoorDash. 

To solve the second part of the problem, our contact suggests they should amend their policy so that refunds/credits will be issued only when the platform can verify that the customer has made an effort to contact the dasher before reporting their food as never delivered.

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