DoorDash is buying food delivery service Caviar for $410 million

New York(CNN Business) On-demand food delivery startup DoorDash has agreed to acquire rival Caviar for $410 million.

Caviar, the premium restaurant delivery service, was most recently owned by payments-services company Square, which bought the firm in 2014 for about $90 million when it was just an early-stage startup.

"We have long-admired Caviar, which has a coveted brand, an exceptional portfolio of premium restaurants and leading technology," said DoorDash CEO Tony Xu in a statement. Xu notes that the deal "enhances the breadth of our merchant selection," giving customers more choices.

DoorDash raised $600 million in new financing in May, valuing the company at $12.6 billion, Xu has said. The on-demand food delivery space is fiercely competitive and DoorDash has emerged as the US leader when it comes to sales, surpassing Grubhub for the first time in May, according to analytics firm Second Measure.

According to Square's release, the cash-and-stock deal — which is expected to close later this year — builds on the existing partnership between DoorDash and Square for Restaurants. Square for Restaurants is a software platform designed to help small businesses integrate online delivery orders with in-restaurant operations. The product was introduced last year.

To many observers, the launch of Square for Restaurants helped justify Square's acquisition of Caviar, which perplexed some when it was announced.

The acquisition should help DoorDash fend off competition from other delivery services such as Postmates, which filed initial paperwork to go public in February, as well as Uber Eats.

According to a DoorDash spokesperson, the services will remain as individual brands for the time being and the company will ultimately do the best for each brand, whether that's combining them or keeping them separate.

DoorDash has faced scrutiny in recent months over its controversial tipping policy for delivery workers, where some tips contributed to their base pay. Just last week, Xu said it would revisit its tipping policies following a New York Times report that put the issue once again in the spotlight.

Caviar no longer applies tips towards worker payments, but settled a class-action suit for $2.2 million in 2018 for not passing on tips from customers to its workers.