Welcome to Expedite, a (mostly) weekly newsletter by Kristen Hawley covering what’s important in restaurant technology. Hello, Thursday. (Sigh.)
What’s going to happen to Grubhub?
All eyes are on the third-party delivery industry again after The Wall Street Journal ran a piece last week about Grubhub considering a sale or acquisition. In a shareholder letter timed to coincide with the company’s most recent earnings report in October 2019, CEO Matt Maloney outlined — in great detail — the challenges the company was facing, largely thanks to the increased competition and the pace of business growth.
Since the piece, there’s been some buzz about what might happen to Grubhub. It could find itself a buyer in the form of 1) a competitor: Uber Eats or DoorDash; 2) a big company — both Walmart and Amazon have been floated as potential buyers, or, 3) a restaurant company. Yum Brands (parent of Taco Bell, KFC, Pizza Hut, and now, Habit Burger) is the natural fit here after investing $200 million in Grubhub in 2018 in a highly visible and exclusive delivery partnership. (Grubhub recently won an exclusive agreement with Shake shack, so there’s also that.)
Consumer-facing partners and challenges aside, Grubhub has a significant asset that no one is talking about. The company acquired LevelUp, a digital loyalty platform, in 2018 for $390 million in cash. Since the acquisition, LevelUp has operated as its own business, offering its restaurant customers services even if they don’t work with Grubhub. Labeling LevelUp a loyalty platform is an undersell. The company builds restaurant-branded apps that can incorporate special offers. It’s now marketed as “Grubhub’s development shop” and has designed and developed custom app and web experiences for over 200 restaurant brands. These apps connect directly to a restaurant’s point of sale system, which means they're connected to specials, pricing adjustments, and any other tweaks necessary to personalize an experience for a loyal customer.
This may be a small slice of the company’s overall business, but it does round out the offering to be more than just an online marketplace connecting restaurants with consumers. At the time of the LevelUp acquisition, a Grubhub executive told me that the deal started as a proposed partnership, but that the company very quickly realized what owning the company outright would bring to the table.
As Grubhub has worked to distance itself from the new kids on the block, it’s leaned on messaging that it’s the only company focused exclusively on the restaurant business, with tools to help restaurant customers succeed. The company continues to use this as a point of differentiation.
I have no inside info on who might buy Grubhub or even if a sale is truly an option — the company, of course, denies rumors that it’s up for sale while the press says it’s been on the auction block for weeks. For what it’s worth, no arm of the industry is rolling in rainbows and unicorns. Mad Money’s Jim Cramer wants Uber to sell its Eats business to Grubhub. DoorDash is backed heavily by SoftBank whose outsized investments seem to be coming under scrutiny. Postmates submitted early paperwork for an initial public offering last year that never materialized. Mass media calls third-party delivery "troubled," but it was never all that lucrative to begin with.
So, these huge companies touting big numbers and lofty goals are one thing for Wall Street analysts, but another entirely to restaurants. I still believe the third-party delivery story is deeper than a pie chart representing market share in the U.S. Product offerings are different, and the companies must work to grow restaurant customers while also staying relevant to consumers. In Grubhub’s case, a bunch of recent bad press around so-called questionable business practices isn’t helping. Industry consolidation is all but assured. Maybe it’s just because I’ve been covering this stuff for so long, but I just can’t let go of the idea that each of these companies offer a restaurant something different. Wall Street might not see it this way, but I’m pretty sure most small and medium businesses doing everything they can do to stay afloat in a challenging environment aren’t worried about who’s going to buy Grubhub — they’re worried about making the best tech decisions to attract and retain loyal customers in a tough business.
What else is happening?
Remember those feel-good vibes from last week? Turns out that at least one business that’s marketed itself on sending no trash to a landfill is… sending trash to landfills. An LA Times piece says that, although Sweetgreen has implemented compostable products, in practice they’re not composted. They’re far from the only place this is happening.
....if you think this looks bad inside of restaurants, wait until you hear about takeout and delivery packaging. And everything is complicated by local regulations stipulating what you can and can’t use.
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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