DoorDash announced on Oct. 29 that it will buy Instacart for about $17 billion. Mergers and acquisitions usually happen for the benefit of shareholders. But to get the deals passed by regulators, companies say they are for the benefit of consumers and employees. So it’s no surprise the DoorDash announcement leads with benefits for consumers, delivery drivers, and local retailers. 

Consumers and drivers will get the short end of the stick 

Let’s be clear: DoorDash is buying a competitor and is using its inflated stock price to do so (its price-earnings ratio is a whopping 90+, in contrast to Amazon’s which is around 20). DoorDash’s announcement called out several outcomes of the acquisition: more choice for shoppers, better exposure for stores, two memberships for the price of one, and more ways to earn for drivers and delivery personnel. Much of what is likely to happen is Microeconomics 101:  

  • Less choice for shoppers over time. Because DoorDash and Instacart have significantly overlapping businesses, both in grocery and in same-day retail, a merger gives a combined entity more leverage to deprioritize or even reject unfavorable consumers. In our experience, e-commerce companies are often highly aggressive with consumer acquisition in the face of competition, even losing money to win market share. Acquisitions buy the market share and limit consumers’ options and comparison shopping power.   
  • Higher membership fees in the long run.  DoorDash claims it will make “two memberships for the price of one.” Presumably, they will refund one membership for anyone who belongs to both programs. That may make sense if there isn’t much overlap. But we foresee instead that this combined entity will raised its membership fees over time, just as Netflix and Amazon have done. Promotional membership rates intended to thwart competition are unnecessary after merging with the primary competitor. 
  • Lower pay for drivers and delivery people. On-demand delivery services often face bursts in demand: think of winter storms or the Super Bowl. Competing for good drivers during high demand periods often requires higher pay and surge prices. One platform creates a monopsony that benefits the combined entity, not drivers and delivery personnel. What about competition from Uber Eats or Amazon? Amazon’s central fulfillment model makes it a very different player that is not competitive with DoorDash at this time. Uber Eats is similar but smaller and could also benefit from lower driver fees (Uber’s stock rose slightly on the news of this acquisition). 

The real beneficiaries are the shareholders 

The benefits to shareholders, however, should be substantial. In order for a $17 billion acquisition to make sense, two brands with overlapping services and geographies will have to be combined. Combining order routing, consolidating marketing spend, supporting a single retail media network, and reducing headcount by consolidating similar overhead functions are all obvious outcomes. That’s why we expect the eventual merger of the two brands even though the DoorDash CEO said in the press release announcing the acquisition that they will remain separate. We sometimes see CEOs do that to allay the fears of skittish employees and maintain stability while planning for changes to come.  

Anticipate the consolidation 

As this all settles out, business leaders should: 

  1. Expect both companies to keep talking up local grocers, worker opportunity, and membership savings through a long antitrust review. Just remember whom the deal was designed to benefit. 
  2. Evaluate your agreements with both entities and be prepared for renegotiation, because the combined org will do the same.
  3. Keep customer experience at the top of your priority list and make sure that changes don’t sully the experience in that last mile before your products are in your customers’ hands. 
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