That Subscription Life: Grubhub + Lyft
Two U.S.-focused companies forge a delivery-mobility partnership.
FIRST: Apologies for the delay. I forgot to un-check a box that sent this to paid subscribers only yesterday. I don’t think that paywalls are what the restaurant industry needs right now and I’m committed to maintaining this newsletter as a free resource, though I do appreciate support from those who can upgrade to paid subscriptions. You’ll still get the same info at the same time! (As long as I, uh, don’t screw it up again.)
Lyft and Grubhub have a new partnership. Lyft Pink members — those who pay a monthly subscription fee to enjoy perks like discounted rides and priority pickups at the airport — will now receive complimentary Grubhub+ subscriptions. Grubhub+ is also a monthly subscription service that offers subscribers free delivery and member perks from 200,000 restaurants. Alone, it costs about $10 per month.
More on this in a second, but first:
As mentioned last week (and then mentioned even later by the Wall Street Journal), Uber revealed more info about Postmates in a Friday, September 25 regulatory filing.
I hold myself to a high standard, and, what I know faithful readers of this newsletter also understand, is that most third-party delivery companies who have been in growth mode have also taken losses — for basically ever. In July these companies — accused of profiting from a pandemic — still posted large losses. (That doesn’t mean they didn’t profit somehow from the pandemic, but it does mean they aren’t showing actual profits because of it.) I’m not sure how this continues to be surprising, but I also think a more useful application of that surprise is to consider how these companies are building a path to profitability. I’m going to keep doing this.
Uber is purchasing Postmates for over $2 billion to take a larger slice of the market. It’s why the company wanted first to buy Grubhub, and why legislators and regulators threw red flags upon hearing of that proposed deal. So, it follows, in the high stakes game of food delivery, acquiring new customers and winning a bigger slice of the pie is the only way forward.
Which brings us to…
That’s lifetime value vs. customer acquisition cost. I’m not a marketer and I know that some of you are, so I won’t attempt to overexplain this. The important thing to understand, in the context of the news, is that when a growing company sees value in converting someone to a customer they can justify spending more to win them over. Obviously a company wants the lifetime value of a customer to be significantly higher than the cost it pays to win their business.
Uber has said it will reduce marketing and advertising costs in its continued effort to become profitable. While it will still work to attract new customers (of course), it’s also focused on increasing order size and frequency from the customers it already has. The company has done a good job of tying its delivery service to the original rideshare business, linking the two in our consciousness while mobilizing its fleet of drivers to perform both duties.
The Grubhub-Lyft partnership is meant to attract loyal customers. It’s a good move from two companies with strong presences in the U.S. and Canada, allowing them to focus on the domestic market and against a shared competitor. (Remember, a significant portion of Uber’s business comes from outside the U.S. in both mobility and delivery.) As Lyft has built itself into the anti-Uber (also remember #DeleteUber), Grubhub has also worked to leverage itself as a platform that focuses solely on restaurants in a not-so-veiled dig at its competition.
In fact, in an email announcing the partnership, a Grubhub spokesperson wrote, “Bottom line: The partnership allows Lyft to focus on what they do well – rideshare and transportation – and Grubhub to focus on what we do well – food delivery.”
In the early months of pandemic lockdown, April, May, and June, Grubhub did $2.36 billion in gross food sales and just under $460 million in revenue, but operated at a loss due to pandemic-related expenses. A year prior, the company reported $1 million in net income, an obvious anomaly in the business of modern food delivery.
To wrap: sure, I guess it’s surprising that growth-minded companies are so far in the hole, but it’s also literally reported at least four times a year. But a little bit of context goes a long way to describe a complex situation when the stakes are so very high.
What else is happening?
Uber Eats is delivering more things. (Flowers, pet supplies, other “unique finds” from local shops.)Ironically, this sounds… a lot like Postmates. As a new Fortune piece points out, “In its announcement of the deal, Uber called Postmates ‘an early pioneer of delivery-as-a-service.’” Anyone else remember Uber for kittens? Or Christmas trees?
DoorDash partnered with restaurant industry data firm Technomic for an economic impact report. The report lands as DoorDash is preparing for its IPO and contains statistics like “67 percent of operators say DoorDash was crucial to their business during Covid-19,” and, “65 percent say they were able to increase profits during Covid-19 because of DoorDash.”