Tech companies have long had moonshot visions for changing the way people eat and experience restaurants—some more dramatic than others. But recent signs suggest that the good times are over for these grand-planning tech disruptors: DoorDash, the restaurant delivery titan, announced on Wednesday that it was laying off 1,200 corporate employees, or 6 percent of the company’s workforce. And a company called Wonder, which collaborates with celebrity chefs to offer meals cooked directly from a truck parked in front of a customer’s home, announced this week that it has laid off a significant chunk of its staff. Instead of bringing a chef-cooked meal direct to diners’ front steps, Wonder seems to be shifting strategies to essentially become another meal kit delivery service.
During the pandemic, food tech companies envisioned that restaurants and food brands would change in favor of diner convenience and tech-fueled efficiency. But it seems some companies have fundamentally misunderstood the desires of restaurant-goers and home cooks alike. With business slowing and economic conditions worsening, these companies are making changes to save themselves.
DoorDash founder and CEO Tony Xu said in a blog post that the company grew too fast during the “sudden, unprecedented opportunities” of the pandemic. “We were not as rigorous as we should have been in managing our team growth,” Xu wrote. As a result, operating expenses grew too high, threatening DoorDash’s overall business. In short: The company got overly optimistic about its future, hired too many people, and now it can’t afford to keep them.
The staff cuts happened mere weeks after DoorDash executives offered a rosy outlook for its future. The company shared better financial results than Wall Street expected in November, and said its delivery business remained largely unaffected by inflation as customers continued to place orders, paying higher prices rather than give up a convenient meal.
DoorDash’s assumptions of a bright future weren’t unfounded. As many people dined at home during the pandemic, the delivery company profited as demand soared. It rode a wave of momentum, growing as fast as possible by branching out to new services like grocery delivery, and buying up companies to complement its business. In a deal that closed in June, DoorDash spent $8 billion to buy Wolt, a European delivery service based in Finland. The move boosted DoorDash’s corporate headcount, more than doubling from 8,600 at the beginning of the year to 20,000 recently. More countries, more cities, more restaurants, and more employees would theoretically make the service bigger and stronger. It also made DoorDash significantly more expensive to run, which would have been fine if it kept growing like crazy.
In hindsight, this was all too much, too fast. The company’s CEO claimed full responsibility for the business decisions that led to this week’s layoffs. And he assured current employees that the news wasn’t a sign of more cuts to come, promising to continue hiring, albeit in a “more targeted” way. That could mean focusing less on delivering from restaurants and more on places like convenience stores.