| Hi everyone, it's Ellen Huet. As the pandemic swallowed 2020 and kept us indoors, I've been watching how Covid-19 has affected two companies I cover, DoorDash Inc. and Instacart Inc. They're both in a similar position: The pandemic has been really, really good for business. Customers trapped at home frantically clicked on these services' apps to get essential provisions, like food (and toilet paper). Now, they're eyeing initial public offerings later this year or early next. DoorDash turned its first-ever profit in the second quarter, according to its IPO prospectus, which it released earlier this month. And Instacart reached a similar milestone in April, turning a record $10 million profit for the month. This seems promising, especially for high-growth startups that have almost always lost money. But do those pandemic-fueled windfalls matter in the long run? That's the big question for the multibillion-dollar delivery industry. It's not clear that customers' new habits will stick, and if they do, that rising competition won't wipe out profits. Companies including Amazon.com Inc., Uber Technolgies Inc., Grubhub Inc. and others are driving down prices in the quest for market share. Tri Tran, the former chief executive of defunct food-delivery company Munchery, recently told me that he thinks only a few such companies will be left standing after the pandemic. "The nature of marketplaces is there's a No. 1 and a No. 2 player, and third place is the loser," he said. But there are reasons to think that startups like DoorDash and Instacart will be just fine. Gagan Biyani, who ran meal-delivery company Sprig from 2013 to its shuttering in 2017, said he thought that DoorDash's financials suggested a lot more stability and promise than critics were allowing. Biyani noted that DoorDash had managed to grab 50% of the restaurant delivery market—more than any other competitor. That will pay off in terms of returns to scale: "Whoever has the majority of orders has the ability to provide the lowest price because they have the lowest cost and have density," he said. Biyani also pointed out that DoorDash had, in early 2020, reached a 7% contribution margin. That means that excluding some central costs, it was making 7% on each order, before the pandemic. When Sprig was selling $22 million in meals a year—its peak—it was still losing $5 on every order, Biyani said. "When we finally got to gross margin neutral, we thought we had finally cracked it." To him, that suggests DoorDash has figured out how to take advantage of order density. Instacart hasn't released similarly detailed numbers—its filing likely won't be made public until next year. But in May the company said it was on track to process $35 billion in grocery orders this year, after it rapidly scaled up to meet demand, building out new infrastructure that's likely to persist after the virus recedes. Investors have pegged Instacart's potential valuation at $30 billion. "The market is so big," Biyani said. "People eat every day." —Ellen Huet | 
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