DoorDash teams up with grocer Loblaw as ultrafast delivery rivalry heats up

US delivery company DoorDash has signed an exclusive deal to build warehouses for Canada’s largest grocery chain, intensifying its competition with rival Instacart.

The warehouses will handle delivery within 30 minutes for about 5,000-8,000 products sold under Loblaw’s “President’s Choice” brand, licensed to a newly-created DoorDash subsidiary. The companies did not disclose financial terms of the partnership.

The agreement is the first of its kind for DoorDash, the US market leader in restaurant delivery, as it seeks to build out its capabilities for rapidly delivering groceries and convenience items. It hopes it can establish similar arrangements with grocery chains in other markets, including the US, where total online grocery sales topped more than $7bn in May, according to advisory firm Brick Meets Click.

“Our ambition has always been to meet merchants where they are and to help them lean into . . . the digital convenience economy,” said Fuad Hannon, DoorDash’s head of new verticals.

The deal escalates its rivalry with Instacart, which had previously been an exclusive partner to Loblaw and hopes to establish its own warehousing partnerships for some of its 750 retail partners in North America. Instacart will still carry Loblaw on its marketplace, but customers will not have access to the selection offered for sub-30 minute delivery.

Setting up dedicated warehouses is considered the next frontier for online grocery. The format allows the companies to fulfil more orders per driver per hour, compared to having workers go into stores to pick items and take them to customers.

The stakes for both companies are high, with confidence in growth-oriented tech business, particularly those in the ecommerce sector, at a low point.

“The direct models of these companies are not particularly profitable,” said Neil Saunders, managing director of GlobalData Retail. “I think that they’re very keen to push into being seen as solution providers.”

Instacart was once valued by private investors at $39bn but readjusted its internal valuation to $24bn in March, citing the stock market downturn. It filed paperwork in May to prepare for a potential initial public offering, though no timeline has been announced. The stock price of DoorDash, which went public at the end of 2020, has dropped about 58 per cent since the start of the year.

Crucial to Instacart’s future will be its ability to pivot from its core delivery business, which is growing more competitive, into a platform business offering logistics, warehousing and advertising. Florida-based grocery chain Publix is the first to partner with Instacart, with warehouses operating in Miami.

Instacart and DoorDash are partnering with grocery stores as they expand their delivery options, while another competitor, Gopuff, has a go-it-alone strategy that relies on its network of warehouses and owning its own inventory.

Instacart maintains it will not own any inventory, hoping to distinguish itself from its competition and reassuring grocery chains it will not look to directly compete.

Hannon would not comment on whether the agreement between DoorDash and Loblaw included assurances limiting direct competition. The online grocery market is still in its nascent stages, he said, and both companies were focused on growth.

“These are massive categories that are less than 10 per cent online penetrated,” Hannon said. “So we think that there is just a significant opportunity to grow the pie.”