DoorDash is laying off 1,250 employees and sounding the alarm on the food delivery industry. 'Today was a wake-up call for DoorDash,' CTO said.

• CEO Tony Xu said DoorDash is laying off 1,250 people in a Wednesday memo, Bloomberg reports.
• The company is firing 6% of its workforce in an effort to cut back on operating expenses.

DoorDash CEO Tony Xu says the company is cutting costs by laying off 1,250 people.

In a Wednesday memo first viewed by Bloomberg, Xu wrote the company was making an effort to cut back its operating expenses — coming in at $2 billion in the third quarter — and would lay off around 6% of its workforce.

The layoffs impacted talent recruiters and sales trainers, as well as workers at Wolt and Bbot, two startups DoorDash recently acquired, according to DoorDash and various LinkedIn posts.

"While our business continues to grow fast, given how quickly we hired, our operating expenses — if left unabated — would continue to outgrow our revenue," Xu said in the memo. "We must keep this level of discipline moving forward and act with the hunger, efficiency, and creativity of the younger startup we once were while leading with the responsibility of the market leader we've become."

The Covid-19 pandemic served as a big boost for DoorDash and food delivery services like it. Restaurant deliveries were up 95% in September compared to the same month in 2019. DoorDash joins a bevy of restaurant disruptors and food tech companies that have been forced to lay off workers after growing at a rapid pace during the pandemic.

"Today was a wake-up call for DoorDash, for us to manage our operating expenses more rigorously moving forward," Andy Fang, cofounder and chief technical officer, said in a LinkedIn post. He said he is "still bullish on the business" but that the company had "made mistakes."

Layoffs are sweeping all tech sectors, from Amazon to Gopuff. The foodtech sector, in particular, has been spiraling as diners' buying habits continue to shift amid record inflation. Hundreds of workers have lost their jobs at restaurant tech startups like Nextbite, Sunday, ChowNow, Lunchbox, Gopuff, and Reef.

In his memo, Xu said the company must continue its money-saving efforts to close the gap between its $1.7 billion in revenue and $2 billion in operating costs.

The food delivery giant "will continue to reduce our non-headcount operating expenses, but that alone wouldn't close the gap. This hard reality ultimately led me to make this painful decision to reduce our team size," Xu said.

The layoffs come in a year when the company made two strategic acquisitions to expand outside the US and boost its services to restaurants.

In March, DoorDash bought Bbot, a software company that allows customers to make mobile orders and pay at the table. Now part of DoorDash, the company's tools, such as QR code ordering, are being bundled with DoorDash products geared for restaurants. In June, DoorDash closed its acquisition of the Finnish food-delivery company Wolt.

VC investment in restaurant and foodservice tech firms, from ghost kitchens to delivery robots, slowed for the fourth consecutive quarter this year, according to PitchBook. Food tech startups raised $2.7 billion in the third quarter, down 63% from last year, and down from $5.6 billion in the previous quarter.

The publicly traded DoorDash is not immune to market volatility. In its latest quarter, the company reported a $295 million loss, up from $101 million loss for the same quarter last year.

The company has been pouring its resources into expanding outside of traditional restaurant delivery over the past year by striking delivery partnerships with supermarkets, convenience stores, and retailers. In September, DoorDash hit a milestone when its non-restaurant partnerships exceeded 75,000 stores representing a wide range of retailers such as Sephora, Big Lots, PetSmart, Dick's Sporting Goods, Target, Total Wine & More, and Office Depot.

Shares in the company have jumped an estimated 2.5% since the layoffs were announced.

A DoorDash spokesperson said "no service shutdowns" are tied to the layoff announcement. As stated by Xu, the goal of today's layoffs are to achieve "more efficient growth," the spokesperson said.

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