DoorDash's bright spot is Dashers
Pain at DoorDash HQ is being offset by strong delivery worker retention
We talked yesterday about why DoorDash is laying off 1,250 people, roughly 7% of its employees. The post goes into a lot more detail, but basically DoorDash hired too many people and found its costs—especially employee comp like salaries, bonuses, benefits, and stock-based compensation—getting out of control. After an initial pandemic boom, growth in revenue and total order value has slowed, while growth in the company’s quarterly loss has accelerated. As CEO Tony Xu wrote in a note to staff regarding the layoffs, “We have and will continue to reduce our non-headcount operating expenses, but that alone wouldn’t close the gap.”
Of course, corporate staff are only one side of the labor equation for a gig economy company like DoorDash. So I thought it was worth highlighting that the other side of that equation—independent contractor delivery drivers, or “Dashers”—has been looking very good for DoorDash lately.
In contrast to the bloated corporate workforce that was a drag on the bottom line, Dashers have been a bright spot for DoorDash so far this year. In the latest quarter, DoorDash noted that growth in revenue (+33% year-over-year) outpaced growth in marketplace GOV (gross order volume, +30% y/y), due largely to “improvements in Dasher supply.” Year to date, revenue is up 33% from the same period in 2021, compared to a 27% increase in marketplace GOV, something else DoorDash attributes to “improvements in Dasher supply.”
Back in the first quarter of 2021, DoorDash reported a “meaningful undersupply of Dashers,” which it blamed on bad weather plus the distribution of pandemic stimulus checks. It turns out that if you give people a bit more money so they aren’t struggling to pay their bills, they would, umm, rather not drive for DoorDash! Or, as the company put it at the time:
We believe the impact of stimulus checks on Dasher supply highlights a critical point about the nature of Dashing; it is an ephemeral and low barrier-to-entry working experience that helps people earn temporary or top-up income. In the U.S., we believe tens of millions of people could benefit from Dashing at various points in their lives… we believe Dashing reduces friction in the labor market and empowers people by providing them with a greater runway to achieve their goals. Our goal is for Dashing to positively impact individuals and the broader economy by creating more opportunities that help more people pursue an education, care for a loved one, or simply save for a special occasion, vacation, or Metallica poster.
With the pandemic stimulus checks now long in the past and many people feeling the pinch of inflation, DoorDash is no longer having any problems with Dasher supply. Quite the opposite: in the second quarter of this year, DoorDash said its “total Dasher costs per order”—a metric that includes delivery worker pay, rewards and perks, and acquisition costs—fell 9% year-over-year, to its lowest since the fourth quarter of 2020. It attributed this to lots of people signing up to deliver for DoorDash organically (e.g., without promos or incentives), to current Dashers sticking around (better retention), and to a “gas rewards program” launched in March that helped delivery workers offset rising fuel costs. The company added that it made these gains in per-order efficiency even as average hourly Dasher pay rose year-over-year.
In the latest quarter, DoorDash reported Dasher costs per order falling again from the same period last year, as well as from the preceding quarter. On a call in early November, DoorDash chief financial officer Prabir Adarkar told investors that the “labor market has normalized” since 2021 and that DoorDash has “made certain product improvements” that have contributed to better retention and slightly higher working hours for each Dasher.
DoorDash’s trajectory with gig worker mirrors what Uber has said of its driver and delivery workforce: that more people turning to platform earnings to help offset rising costs of living, combined with improved app onboarding flows and reduced spending on promotions and incentive pay, have all combined to help the company improve its margins without compromising growth. In other words, the long-promised corporate advantage of hiring workers as contractors instead of employees might finally be paying dividends for these companies, after years of freewheeling spending on finding and attracting those workers to gig platforms. And after this week’s layoffs, contractors are probably looking more attractive to DoorDash than ever.
