DoorDash introduces search page ads for restaurants

by Dash inc

has started selling restaurant ads, which appear at the top of search results on its app, as companies in the largely unprofitable food delivery industry delve deeper into advertising to drive sales.

The company has already made marketers pay to run ads with free shipping or discounts and banner ads, but hadn’t offered ads above its search results before it began testing the tool earlier this year.

DoorDash has also built an ads platform that allows restaurants to buy the listings through a bidding system without the help of an ad seller. The restaurants only pay for sponsored listings when users click through the ads and place orders. The self-service system is designed to help local restaurants strengthen their brands, DoorDash said.

“Any mom and pop shop can walk in, set a budget, and we only collect dollars when they receive a transaction,” said Toby Espinosa, vice president of DoorDash Ads. Shoppers can choose to target their sponsored offers to new customers, existing customers, or all customers, but DoorDash hopes to expand the targeting categories to include other user groups, such as frequent burger shoppers.

In addition to the new services for restaurants, DoorDash introduces “Featured Listings” for consumer goods brands to improve their placement in the convenience and grocery categories.

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The move comes with an increasing number of consumer-facing companies, including Walmart inc

and CVS Health corp

, give advertisers more ways to reach consumers using retailer data.

DoorDash, which was founded eight years ago, turned a profit in the second quarter of 2020 as demand for home deliveries surged at the start of the Covid-19 pandemic, according to documents filed for the IPO last year. but it never made an annual profit. It reported a net loss of $102 million for the three months ended June 30. The company says more than 450,000 merchants sell through its platform.

But DoorDash is careful not to scare consumers away in the competitive grocery delivery business by shoveling too many ads into its app. For restaurants, only a sponsored listing will appear above search results or in cuisine-specific sections of the app. Two ads are allowed for other sections, such as Grocery, Convenience, Pets, or Alcohol categories.

“We cannot distort the consumer experience. You’ll never see us go far overboard,” said Mr. Espinosa. “We built an ad platform that attempts to align incentives between the advertiser, the consumer, and DoorDash.”

Demand for food delivery has surged amid the pandemic, but restaurants are struggling to survive. In a highly competitive industry, delivery services are struggling to gain market share while facing increased pressure to lower commission fees and provide more protection for their employees. Video/Photo: Jaden Urbi/WSJ

DoorDash declined to disclose how much of its revenue comes from ad sales or how much revenue it plans to generate from the new advertising products. The company said its goal for its advertising services is to increase the success of its merchants, not just its own profitability. “We believe this connects us to our trading partners, which creates the best long-term outcome for everyone,” said a DoorDash spokeswoman.

DoorDash holds more than half of the US market share for delivery apps, ahead of rivals like Grubhub Inc. and Uber Technologies inc

Uber Eats and Postmates, according to Bloomberg Second Measure, a consumer data analytics company.

But each company increasingly competes not only for consumers but also for advertisers.

Uber, which has a growing ad business, last year introduced sponsored listings in its Uber Eats app in the US with a pay-per-click model that bills merchants every time a consumer clicks the ad, too if you don’t buy any. Grubhub operates a marketplace that allows restaurants to earn better placement in search results and offers other marketing tools on a commission-based system. The CEO of this company said earlier this year that advertising is key to the company’s future profitability.

Nicole Milnthorpe, chief financial officer of Florida-based casual dining chain Smokey Bones, said her company works with many outside delivery companies, but its main partners are Uber Eats and DoorDash. With 60 full-service Smokey Bones restaurants across the US, two ghost kitchens and two supply-only chains, she said different types of promotional tools give chains flexibility.

“Different markets respond differently to different types of marketing,” Ms Milnthorpe said.

Smokey Bones ran an ad test on the keyword “barbecue” in DoorDash search results and in the app’s grill category and saw a more than 30% increase in deliveries in DoorDash, according to Ms. Milnthorpe and a panel of consumers who saw the ads.

“A lot of what we’ve seen from other partners or just different advertising metrics is based on impressions, and it’s very hard to equate an impression with an actual order,” she said. “A pay-for-acquisition is a very, very clear metric.”

write to Megan Graham at megan.graham@wsj.com

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