Once the darling of the restaurant-to-home delivery business, Grubhub’s TV commercial tagline “click, click, food,” may be in danger of becoming an internet relic. With the explosive growth of well-heeled competition in this market space, there is increased skepticism from Wall Street and investors.
Despite its current lofty standing, in which the Chicago-based company works with more than eight million restaurants and serves more than 290,000 meals per day, near and present dangers loom. Stock analysts believe that, as Grubhub moves beyond its primarily urban clientele, order size and frequency will drop. As their competitors look to robotic delivery of food, Grubhub said it would be making minimal investments in its delivery infrastructure in 2017. One analyst believes being acquired is the best hope for the company.
On a more micro level, many of Grubhub’s challenges are as a result of slow reactions to dynamic market conditions in the food delivery space.
By not creating a more significant barrier to market entry, companies such as Amazon and Uber have easily invaded Grubhub’s territories. With other businesses to leverage, both companies can more easily afford to absorb losses and invest heavily in costly advancements in logistics and consumer-facing content.
Postmates and DoorDash have inked deals with Starship Technologies to experiment with robotic delivery of food. While Uber presses forward with self-driving cars, Grubub has done little to think to a more streamlined future. There has been talk of adding a chat feature to its ordering app to allow customers to communicate with restaurants. This feature could be too little, too late.
In what was pegged as an April Fools Joke, Grubhub announced a new delivery feature called Delivery X which would allow the company to bring food to out-of-the-way places by using a fleet of folks on skateboards and parkour techniques. That vision might seem funny as a hyperbole, but thinking out of the box may be just what Grubhub needs to retain marketshare.
Some of Grubhub’s problems are common to businesses that grow as a result of buyouts and acquisitions of smaller companies, attempting to bring together disparate systems and cultures. The biggest of these deals was in 2013 when Grubhub merged with New York-based food-delivery stalwart Seamless (which owns more than half of the combined company). Add to that mix such firms as Dotmenu, LA Bite, Delivered Dish, AllMenus, Menupages and more.
Focusing on major metro areas such as New York and Chicago, which account for about 75% of its orders, has allowed the company to rack up $493 million in 2016 revenue. Moving into smaller metros will require expenditures in advertising and onboarding new drivers. Drivers in the food-delivery space are a fickle bunch, with many signing on to multiple providers and sticking with the ones that offer the best deals and flexible hours (or shifts, as they are known in that industry). It will be difficult to lure drivers from Amazon and Uber given they offer multiple revenue streams in the ridesharing and package delivery areas.
Laying Grubhub to rest in the graveyard of web failures is premature. The company has a market cap in excess of $3 billion and deals with California Pizza Kitchen and Fatburger in its portfolio. The company recently added the capability for customers to use their Amazon Echo devices for voice ordering. CEO Matt Maloney was heavily criticized for an email he sent to employees attacking the newly elected president, Donald Trump, but his ability to grow the company and take it public speaks to his leadership.
Before all is said and done, many players in current restaurant delivery space will go bust or—for the lucky ones—be acquired. Grubhub is teetering on the fence at the moment and will need to do more than delivering clever April Fools jokes to survive the market maelstrom.
