Grubhub explains reality

10.30.2019

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Grubhub Explains It All

It’s something that people familiar with food delivery models have talked about for some time: the business has reached a point of unsustainability, and it’s time for a reality check. The pace of change was certainly exacerbated by the high-profile fall of Softbank-backed WeWork, leading investors to ask — finally — so how does this model make money?

Grubhub has been a publicly-traded company since 2014, so has some experience in the public market. It was once the undisputed industry giant, swallowing up Seamless in 2013, which it chose to run as its own brand, and Eat24 in 2017. (Grubhub closed Eat24’s standalone operations a year later.

Meanwhile, newer competitors DoorDash, Uber Eats, and Postmates burst onto the scene with varying business models and practices, but the same logistics-heavy premise: delivering restaurant meals to diners.

Ahead of its third quarter earnings results this week, Grubhub released a 10-page later signed by its CEO and CFO. It’s a state of the industry, sharing results from the quarter ahead of the call, supported with additional context. As someone who covers these companies with gusto, it read to me a lot like “hey, here are the true market forces we’re contending with, please understand them and stop chasing the new and flashy.”

In fact, Grubhub CEO Matt Maloney used the moment to make a statement about the company’s position in the industry. During the subsequent call with investors, he said, “We have more experience in this industry than anyone else. This is an explicit overview of the entire industry and every team that's executing in this space needs to address their strategy in light of the facts that we outlined in the letter."

Whew.

First: the delivery diner is changing. Grubhub noticed its recently acquired new diners were not returning with the same frequency as they had in the past. To quote the letter, “we believe online diners are becoming more promiscuous."

This is the official manifestation of what we’ve seen as third party ordering and delivery has evolved. To the casual end user, all of these services are basically the same. Ad spends, limited time offers, flashy promotions, restaurant partnerships — they all drive brand awareness to various platforms. Maloney made it clear his plan is to turn promiscuous diners into brand loyalists, converting them to Grubhub customers from other services and then keeping them (this is where that $390 million LevelUp purchase comes in).

“The winner in this space clearly has to have a differentiated experience for diners,” he said. (See again: $390 million spent on digital loyalty platform LevelUp.)

More real talk from the letter: “Bottom line is that you need to pay someone enough money to drive to the restaurant, pick up food and drive it to a diner. That takes time and drivers need to be appropriately paid for their time or they will find another opportunity.” Those real-life logistics keep getting in the way of tech progress, huh? Reminder: restaurants are a human business

In a sense, Grubhub executives are having the same problem that so many in the industry are having: communicating their company’s value in a challenging, evolving environment as they deal with intense and often headline-grabbing competition. For the last few years, new competition in the space, often heavily subsidized by venture capital dollars, has steadily encroached on Grubhub’s market share. Deals with large enterprise restaurants are lucrative and great for marketing, but they’re in limited supply.

If investors were listening, they’ve heard these sentiments time and time again on Grubhub’s earnings calls, though not typically in such direct language. The company has used this we-know-best strategy for a while, and whether it was always meant to culminate in this sort of industry manifesto or not, Grubhub has clearly seen the writing on the wall. (I’m pretty sure the other companies see the writing on the wall, too, it’s just not playing out in as large a public forum.) Besides, it doesn’t really matter what the strategy used to be, because we’re here now, at the point that public companies can’t hide the reality of the business.

Grubhub stock dropped as much as 40 percent in the wake of this report, potentially alarming but certainly not surprising.

What does it mean for the future?

Grubhub earnings reports were always some of my favorites to cover, mostly due to CEO Matt Maloney’s no-nonsense style and frequent… strongly voiced opinions. Truthfully, I don’t think this is a story about competition. I think this is a story about a moment in time that restaurant food delivery became suddenly mainstream on a massive scale and, then, a need to temper expectations with a healthy dose of real life.

What else is happening?

OpenTable released a new business-facing feature to help its restaurants fine-tune their dining room flow. The company has talked about the promise of this feature for some time, heralding it as the future of table management, fueled by the insights they’ve gathered from decades in the business. (My words, not theirs.)

Sweetgreen has a new store with a new model, heavy on the tech but light on the transparency. Food prep has been moved out of view of the customer, who orders via kiosk. How long until the “Sweetgreen Is a Lifestyle Brand” thinkpieces?

Uber sweetens the deal for drivers with the creation of a money division. According to CNBC, “The emphasis, at first, will be expanding Uber’s efforts to give its 4 million-plus drivers and couriers around the world access to a mobile bank account so they can get paid after each ride.”

It’s also jumping on that Experiences trend. Uber Moments are available in San Francisco, where users can book an experience like a cooking class through the Uber Eats app. It’s kind of like how Uber shows you public bus routes as an option in its transit app. At first blush it makes no sense, but after some thought it seems like a smart model and potentially a unique marketing channel for food-related business that aren’t restaurants.

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About:

Expedite is produced by Kristen Hawley, a San Francisco-based journalist with over six years of experience covering the restaurant technology industry. Previous iterations of this content were available via Chefs+Tech and Skift Table. Thanks for reading.
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