DoorDash CEO Tony Xu is new industry consolidator in food delivery

During the depths of the Covid pandemic, with restaurants around the country facing an existential crisis, DoorDash CEO Tony Xu had an unconventional proposal. He wanted to cut commissions.

Chief Business Officer Keith Yandell worried that such a move would result in a massive hit to profits ahead of the company’s planned IPO. But Xu made a persuasive case.

“If restaurants don’t thrive, we cannot,” Yandell told CNBC in a recent interview, recalling Xu’s perspective at the time. “We need to take a leadership position.”

The company ended up sacrificing over $100 million in fees, Xu later said.

Since starting DoorDash on the campus of Stanford University in 2013, the now 40-year-old CEO has navigated the notoriously cutthroat and low-margin business of food delivery, building a company that Wall Street today values at close to $90 billion. The stock has emerged as a tech darling this year, jumping 23%, while the Nasdaq is still down for the year largely on tariff concerns.

More than four years after its IPO, net profits remain slim. But that’s not getting in the way of Xu’s mission to become an industry consolidator, using a combination of cash and new debt to fuel an acquisition spree at a time when big tech deals remain scarce. Earlier this month, DoorDash scooped up British food delivery startup Deliveroo for about $3.9 billion and restaurant technology company SevenRooms for $1.2 billion.

“What we’ve delivered for a customer yesterday probably isn’t good enough for what we will deliver for them today,” Xu told CNBC’s “Squawk Box” after the deals were announced.

This week DoorDash announced the pricing of $2.5 billion in convertible debt, and said the proceeds could be used in part for acquisitions.

The San Francisco-based company has a history with scooping up competitors to grow market share. In 2019, it bought food delivery competitor Caviar for $410 million from Square, now known as Block. About two years later, DoorDash said it was paying $8.1 billion for international delivery platform Wolt. The deal was its last big transaction until this month.

When DoorDash entered the food delivery market, it had to face off against the likes of GrubHub and Seamless, which later joined forces. That combined entity was bought late last year by restaurant owner Wonder Group. In 2014, Uber launched Uber Eats, which is now DoorDash’s biggest competitor in the U.S.

“It’s a very competitive market, and I think merchants do have choice,” Xu said in the CNBC interview. “What we’re focused on is always trying to innovate and bring new products to match increasing standards and expectations from customers.”

DoorDash didn’t make Xu available for an interview for this story, but provided a statement about the company’s acquisition strategy.

“We’re very picky, very patient, and conscious that, for most companies, deals don’t work out in hindsight,” the company said. “When we see an opportunity that brings value to customers, expands our potential to empower local economies around the world, and has a path to strong long-term returns on capital, we tend to push our chips in.”

Colleagues and early investors credit a customer-first focus for much of Xu’s success. Gokul Rajaram, who joined DoorDash through its Caviar acquisition, described Xu as “the best operational leader in the U.S.” after Amazon founder Jeff Bezos.

Restaurants haven’t universally viewed DoorDash as an ally. Commissions can reach as high as 30%, which is a hefty cut to fork over. Many restaurants have reluctantly paid the high fees because of DoorDash’s dominant market share, which reached an estimated 67%. In 2021, the company introduced three tiers of pricing, with a basic option at 15% for more price-sensitive businesses.

DoorDash needs the high fees in order to stay in the black. The company’s contribution profit as a percentage of total marketplace volume hovers below 5%.

Colleagues who have known Xu for decades say the food delivery entrepreneur hasn’t changed much since the early days of the company.

Yandell said Xu once took advice from his young daughter, who complained about a routing issue while accompanying him on food delivery orders. All employees,…