DoorDash CEO Tony Xu got the idea for creating a food delivery company from a visit to a small California bakery about a decade ago.
Xu, then a Stanford M.B.A. student, was touring Bay Area restaurants and retailers with his future DoorDash co-founders when a baker told them that she had a binder of unfulfilled delivery orders to customers she had no manpower to fill. "That was just a very strange moment for us where I said, 'delivery's not a new idea,' " Xu said in an interview earlier this year on the David Senra podcast.
From that start, Xu, his co-founders and their army of nine million "dashers" have built the company to be the kings of gig delivery. On Thursday, Xu announced the company's biggest deal in its 13-year history, the $17 billion acquisition of Instacart.
"The world's biggest companies are becoming larger," he said during an investor call. It was the right time to go on the offense, he said. Its stock jumped 6% in morning trading.
DoorDash -- now a $78 billion company -- has been expanding beyond restaurants to delivering dresses from Macy's, paper towels from Costco and cold medicine from CVS. The acquisition of Instacart gives DoorDash a key position in grocery delivery and a platform to compete with giants like Walmart and Amazon.
Xu has led this company past rival third-party delivery services like Grubhub and Uber Eats with a playbook that included exclusive tie-ups with businesses big and small, incentives to keep customers and an early focus on the suburbs as part of achieving density in the markets it serves.
Born in China, Xu moved to the U.S. as a young kid so his father could attend the University of Illinois to study engineering. He watched his parents hustle. His mother, who had been a practicing doctor in China, worked at a local Chinese restaurant in the college city of Champaign, Ill. Xu has said he got an appreciation for restaurants by washing dishes while his mom served tables.
To better fit in, he changed his name from Xu Xun to Tony Xu. The inspiration: the character Tony Micelli from the 1980s sitcom "Who's the Boss?"
Xu went to study industrial engineering at UC Berkeley. He spent time at McKinsey, eBay and Square as digital commerce was expanding. After meeting his co-founders at Stanford, the group launched delivery service PaloAltoDelivery.com in 2012.
In 2013, they founded San Francisco-based DoorDash with Xu as CEO. The company used investments from Sequoia Capital and other VC firms to woo restaurants to the platform with deals, angling for exclusive contracts that would feature their menus just on DoorDash. Those tie-ups became particularly central to DoorDash as it moved from independent restaurants into chains like Cheesecake Factory.
A key strategy was to deliver in the suburbs rather than cities, where competitors like Uber Eats and Grubhub focused. Cities offered more restaurants and people, but also complicated logistics like navigating apartment buildings and double parking. Suburbs, like Palo Alto where they first began their business, had abundant parking for drivers to get in and out. Suburbanites were clamoring for more food options beyond Chinese or chains.
"You'd be walking for miles," Xu said on the podcast.
Investor money started to cool, leading food-delivery companies to pursue mergers and IPOs. DoorDash swallowed up premium delivery service Caviar in 2019, along with several logistics companies.
DoorDash filed to go public in February 2020. The next month, DoorDash's business surged as it got a once-in-a-lifetime swell in orders due to the pandemic. When DoorDash went public in December 2020, Xu and his co-founders became billionaires. The company's stock shot up to $182 a share on its first day of trading from an initial price of $102.
As DoorDash expanded, Xu faced more scrutiny of the brand he built. States and cities went after the company's pay practices, with DoorDash settling multimillion-dollar lawsuits. Chicago accused the company of posting restaurant menus on DoorDash without the proprietors' permission and luring in customers with deceptively low fees that later grew. DoorDash settled the Chicago lawsuit last year and said it no longer participated in the business practices.
In 2021, DoorDash looked at buying Instacart, which had been the dominant third-party grocery delivery service at the time. It never pursued the deal and struck a deal with Kroger in 2022 to expand its reach into grocery, a habitual ritual with big order sizes.
DoorDash's stock has been in the doldrums, down 20% so far this year, on pace for the worst year since 2022. The Instacart deal could help power its growth story and make DoorDash a more formidable player in grocery. More than 80% of grocery shopping is still conducted in stores.
But the deal could face regulatory scrutiny given both parties will have a sizable stake in third-party grocery delivery.
Asked about regulatory challenges, Xu said Thursday that the combination will help bring delivery and marketing technologies to smaller grocers trying to compete with the biggest platforms. Instacart's brand and platform will be maintained after the deal, as the service has many loyal customers, he said.
"The biggest companies are eating more and more of the pie," he said.
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