Dive Brief:

• DoorDash has entered into a definitive agreement to acquire Finland-based food delivery company Wolt in an all-stock transaction worth about $8 billion, the company announced Wednesday. The transaction is expected to close during the first half of 2022. 
• Wolt operates in 23 countries in Europe, primarily in the Nordic region, Central and Eastern Europe. Wolt co-founder and CEO Miki Kuusi will run DoorDash International, reporting to DoorDash CEO and founder Tony Xu.
• Following the close of its biggest transaction since it went public in late 2020, DoorDash expects to increase its international scale, accelerate its product development and improve investment efficiency.

Dive Insight:

While DoorDash has slowly expanded outside the U.S., entering Canada, Australia and Japan in the last few years, this transaction will crack open the European market, a region long dominated by Deliveroo and Grubhub parent company Just Eat Takeaway. Uber Eats has focused on expanding in this region as well, especially through grocery delivery. The third-party aggregator aims to become the number one or number two delivery provider in the countries it operates in. 

The transaction will open up 22 new markets for DoorDash, including Germany, Denmark and Sweden, according to Reuters. Without this acquisition, expanding into these markets would have taken more time to organically build out, BTIG analyst Jake Fuller, told Reuters. Investors responded positively to the transaction, and DoorDash shares rose 16% on Wednesday after the deal was announced. 

The opportunity to capture market share in these European segments is a major boon. The estimated food and grocery market in Wolt's regions is $1.2 trillion, but there has only been a 6% online penetration, according to a presentation on the acquisition. The total estimated retail market within Wolt's countries is $2.6 trillion, but online penetration has only reached 13%.

DoorDash and Wolt's business models are highly compatible. Wolt delivers not just from restaurants, but also from grocers and retailers, two areas that DoorDash expanded into within the last year. Wolt has over 4,000 employees, which will allow DoorDash to expand internationally while preserving its management bandwidth in the U.S. That will allow DoorDash to continue to go after large opportunities in the U.S. while increasing its focus on restaurants, DoorDash CFO Prabir Adarkar said during the company's Tuesday earnings call. 

Wolt brings in expertise in building up an efficient model in a difficult environment. Nordic countries are filled with small cities, low population density and high labor costs, all of which pushed Wolt to create a highly efficient logistics model that can be profitable, Kuusi said on the earnings call.  

"We [had] to build a product that consumers loved. There was no room in our margin structure or our bank account to make up for poor quality products with a huge customer acquisition spend," Kuusi said. "We had to make our marketing spend work by using our product to retain consumers at higher levels than what we saw at competitors."

The company, which was established in 2014, has grown to an annualized gross order value of $2.5 billion as of the third quarter, growing 130% year-over-year. It also has 2.5 million monthly active users and average monthly order frequency of three or more orders, according to an investor presentation. 

"[Wolt's] become very, very efficient not only in its drops per hour, which includes idle time, by the way, but also just in how it's thought about everything from the consumer experience in conversion to customer support, to localization and so forth," Xu said during the company's earnings call.