This week, DoorDash dropped a bomb with a $17 billion agreement to acquire the grocery delivery provider Instacart.
Ostensibly, the deal has little to do with the restaurant universe, because this would amount to a combination of third-party supermarket delivery providers, and not one involving restaurant deliveries.
But it does matter, ultimately, because DoorDash is becoming an increasingly powerful intermediary between consumers and companies that provide food to those consumers. That gives it tremendous leverage with both restaurant chains and supermarket brands.
As it is, DoorDash is the dominant delivery provider across all channels, accounting for 59% of spending, according to Consumer Edge. An acquisition of something like Instacart would only intensify that dominance.
In theory, DoorDash would have a broader base of consumers on its platform. And the higher delivery density could lower its costs and keep down charges to restaurants and grocers. But that assumes that whatever savings would be passed onto the company’s customers, which seems doubtful at best.
Synergies that come from combinations almost never translate into lower prices, only stronger profits for the company making such synergies, if they really exist.
As it is, the business of third-party delivery is less competitive than many think. The perception is that restaurants have to be on all the platforms to get the full benefit, because they theoretically have to get access to all the customers. Subway, for instance, requires its franchisees to be on all platforms available in their market.
As such, they lack the type of negotiating power that restaurants have with, say, Coke and Pepsi, or Sysco and US Foods and Performance Food Group, who bid on contracts to work with foodservice companies. While big brands were able to negotiate deals with the providers, they have a lot less negotiating leverage these days if they want to generate delivery sales.
Nor can the delivery providers argue that the sales are incremental, especially at this point.
The delivery providers’ leverage can come into play in a variety of ways, such as when there are disputes over deliveries, or the spending required of restaurants to get better play on the apps, or the fees they charge to be on the app, which range from 15% to 30% of the cost of the order.
DoorDash has also quietly made acquisitions to provide other types of services, including financing, through DoorDash Capital. It has an insurance offering, white label delivery, and other services.
And now the company wants to buy Instacart, which would give them even more leverage in the delivery game.
We’re certainly not the only ones asking this. There are already antitrust questions about this deal.
As it is, the FTC has launched a personalized pricing inquiry and has ordered airlines, ride sharing companies and delivery companies, including DoorDash, Instacart, and Uber, to turn over information. The agency also just sued the point-of-sale provider Toast on hidden fees and 24/7 support claims.
At a time when consumers, meaning voters, are concerned about inflation, it’s a good bet the federal government is going to give extra scrutiny to deals like this. (Side note: This is also why the agency is taking longer to analyze the Sysco-Restaurant Depot deal.)
The best bet for restaurants, one way or the other, is for other competitors to push into the business. My tech-focused colleague Joe Guszkowski recently wrote about the incursion of Walmart, as well as plans by Olo, to do just that. And maybe that’s the argument DoorDash can make, that it needs to expand its business to fend off such competitors.
Yet those competitors will not have an easy time of it, as he wrote. And it won’t get easier if DoorDash ultimately does buy Instacart.
