Close Ad

The Spoon

Daily news and analysis about the food tech revolution

GrubHub

Rhode Island’s Proposed Bill Would Ban Delivery Services From Listing Non-Partnered Restaurants

Rhode Island legislators have introduced a bill that would ban the likes of Grubhub, DoorDash, and Postmates from listing non-partnered restaurants on their sites without prior written consent, according to Restaurant Dive.

The bill was scheduled for consideration on Tuesday evening. If passed into law, food delivery services would be fined a civil penalty of up to $1,000 each day they were not in compliance. Restaurants would also be able to bring legal action against the delivery service.

According to WPRI Eyewitness News, the bill came about when the Rhode Island Hospitality Association (RIHA) approached House Judiciary Committee Chairman Robert Craven for solutions to combat third-party delivery sites’ controversial practice of listing non-partnered restaurants without their knowledge or consent.

DoorDash, Postmates, and Grubhub all follow this practice, arguing that it helps local businesses attract more customers, and at a cheaper price point, since non-partnered restaurants don’t pay a commission fee for orders. 

To put it lightly, restaurants don’t necessarily see the practice as beneficial. The recent showdown between Grubhub and San Francisco restaurant Kin Khao resurfaced the point that restaurants’ reputations (and therefore, business) can suffer when a third-party site promises customers delivery and/or pickup orders the restaurant can’t actually fulfill. Case in point: Kin Khao is a Michelin-starred fine-dining restaurant. It’s food is meant to be experienced in the actual restaurant, not from a plastic takeout box. It was listed on Grubhub’s site without the owner’s knowledge or consent, and thanks to a technical mix up with another Grubhub restaurant, customers were led to believe Kin Khao would deliver.

That’s one example among many, and more restaurants are getting vocal about their feelings on the issue. “If we don’t know that the food is traveling 20 or 30 minutes out to a customer, we can’t prepare it accordingly,” one owner told WPRI. “If there’s a mistake made, we can’t rectify it. So for us, it’s about having control of the customer experience to make sure it’s of the quality and caliber that we want.”

The RIHA said it has received multiple complaints over the last year from Rhode Island restaurants that have been listed to third-party delivery sites without their knowledge or consent.

If the proposed ban goes into effect, other cities and states could follow with similar legislation, most likely major metropolises like San Francisco and New York, which are already cracking down on the Wild West tactics of third-party food delivery.

Week in Restaurants: Ghost Kitchens Might Be Hurting Small Businesses

Food delivery has a dark side. That we knew, but it does seem to be getting more airtime lately, with legislators and restaurants alike pushing back against some (okay, most) of the practices companies like DoorDash, Grubhub, and Uber Eats employ. We saw more of that this week when a San Francisco restaurant owner took Grubhub to task and urged others to join her. Judging from Grubhub’s latest earnings call, though, the service isn’t budging on certain practices.

Read on for more on those as well as other noteworthy restaurant news from around the web this week.

Ghost Kitchens Get an Oversight Hearing in NYC

Ghost kitchens are all the rage, but not everyone is thrilled with them. On Thursday, New York City council members held an oversight hearing to discuss whether ghost kitchens are a friend or hindrance to local business, and if they need to be regulated. “Are you a threat to our mom-and-pop restaurants, or should you be embraced as a partner that’s going to help them continue to flourish and grow?” councilmember Mark Gjonaj asked ghost kitchen operators at the hearing. (Gjonaj has also been vocal when it comes to third-party delivery in NYC.)

Kitchen United CEO Jim Collins was present, as was Zuul Kitchens cofounder Corey Mancione. While regulatory measures were not discussed, the event definitely puts a spotlight on the more controversial aspects of ghost kitchens. The main debate at last night’s hearing was whether ghost kitchens hurt small, independent restaurants by lessening overhead costs for bigger chains, who have the deep pockets to more easily embrace off-premises ordering.

Image via Unsplash.

TripAdvisor Unveils a Review Aggregator for Restaurant Operators

TripAdvisor launched a new tool on Wednesday that aggregates restaurant reviews from multiple websites so that owners and operators can view all of them from a single dashboard. Dubbed Review Hub, the subscription-based feature gathers reviews from Facebook, Google, Yelp, and “other major review sites” into one place. The aggregated view promises restaurant owners an easier, faster way to spot trends in feedback, see what’s working and what isn’t, and respond to customers more consistently. Subscriptions are available on both a monthly and annual basis.

Planet Hollywood Founder Launches a Virtual Restaurant Network

Robert Earl, known as the founder of Planet Hollywood, has launched a virtual restaurant concept called Wing Squad, which is available exclusively through third-party delivery platforms Grubhub, Uber Eats, DoorDash, and Postmates. The online menu is fairly streamlined, offering up just wings, sides, and a few desert options, all of which is cooked in ghost kitchens. The restaurant is currently available in 16 cities, including Los Angeles, San Diego, Detroit, and Las Vegas. Earl, whose Earl Enterprises owns chains like Buca di Beppo and Earl of Sandwich, said in a statement that Wing Squad is part of his Virtual Dining Concepts network. Other online-only restaurants are coming soon.

Grubhub Added 150,000 Non-Partnered Restaurants

Grubhub beat Wall Street estimates for Q4 2019 in what was a drastic change from the company’s dismal third-quarter results. Part of the third-party delivery service’s efforts in Q4 included doubling its restaurant inventory by adding 150,000 non-partnered restaurants — that is, restaurants that do not have contracts with the service and have not given permission to Grubhub to use their menus online. The controversial tactic is also used by Postmates and DoorDash. While Grubhub defends the strategy, saying it is meant to reverse the slowdown in daily orders, more and more restaurant owners are speaking out against the practice, turning the issue into the latest battle between restaurants and delivery services. Mark Gjonaj, over to you.  


Will the Restaurants Themselves Be Third-Party Delivery’s Biggest Opponent?

A while back, I wrote that third-party delivery services like DoorDash and Grubhub are engulfed in a massive fight now against all manner of opponents, from government regulators to investors worried about profitability to the force that is social media. But in the wake of fresh controversy, these delivery companies’ strongest opponents might actually be the restaurants themselves. 

Restaurants’ need to push back against delivery services was (once again) brought to light recently when San Francisco restaurant owner Pim Techamuanvivit, who owns Michelin-star restaurant Kin Khao, left the following tweet:

Techamuanvivit went on to explain how she discovered that Kin Khao was listed on Grubhub and its subsidiary brand, Seamless, despite the fact that the restaurant has never offered delivery or even takeout. After all, it is a Michelin-star joint.

An excellent article from Wired goes into the full details on how Kin Khao got mixed up with a virtual brand that operates out of one of Reef Technology’s ghost kitchens. (It was a technical error.) But the bigger point, as Wired underscores, is that Grubhub had listed Techamuanvivit’s restaurant in the first place, without her knowledge or consent, and that doing so is actually a common practice Grubhub started some months ago.

Essentially, Grubhub identifies non-partnered restaurants — that is, restaurants with which it doesn’t have a contract — that are popular in a city, creates a page using the establishment’s menu and basic information (pulled from public sources), and has orders sent directly to Grubhub. Grubhub then figures out how to actually get the order, which usually involves sending a driver to retrieve a pickup order. However, in the case of a high-end restaurant like Kin Khao, which only offers dine-in service, that tactic clearly doesn’t work.

Many restaurants have voiced concerns over this practice. Steven Sorensen, general manager and partner at The Farmhouse at Jessup Farm in Colorado, had a similar experience to Techamuanvivit’s, even though his restaurant had “routinely” declined to partner with Grubhub. “Our food is not designed for that app,” he told the Coloradoan. “It’s designed to be enjoyed immediately in the restaurant.” 

Another restaurant owner, this one from Ohio and going by the handle @ThaibyTY, tweeted that Grubhub had listed incorrect information about their business and incorrect menu items and prices:

Other services like Postmates and DoorDash follow a similar practice. The argument is that listing non-partnered restaurants widens third-party services base of restaurants and and is a way to drive more delivery orders to local restaurants.

But this practice of listing restaurants without their consent is just one of many griefs with delivery businesses are getting louder about.

Grubhub has for some time now also been dealing with a controversy around charging restaurants “bogus” phone order fees. The service announced a new phone-order system in January (which NYC regulators immediately labeled “insufficient”), but according to the NY Post, the service has yet to refund the majority of its restaurant partners on those erroneous fees.

That service, along with Uber Eats, was the center of an oversight hearing in Manhattan last year that called into question the commission fees delivery services extract from restaurants, usually 20 to 30 percent of each transaction. Caps have also been proposed for these commission fees.

DoorDash isn’t off the hook, either, given the controversy last year around how the service tips its workers, a point that’s the center of a lawsuit filed by DC Attorney General Karl Racine.

I wrote back in December that, for at least the first half of 2020, we should expect the already messy food delivery space to get even messier “get messier, raise more questions, and incite more regulatory battles as it progresses towards normalization.”

But maybe it shouldn’t normalize, at least not in its current form. Maybe this latest controversy should instead encourage more restaurants to vocalize their concerns around the unregulated, unsustainable beast third-party delivery is becoming, and in some cases, take further action in order to become a legitimate threat. Techamuanvivit, for her part, is promising legal action against Grubhub and has encouraged other restaurants to do the same.

Litigation is tricky, though. In-N-Out Burger famously tried to sue DoorDash in 2015 but the case was dismissed two months later in a confidential settlement. What the industry needs to see are examples of such lawsuits going to trial and their outcomes forcing changes in how business gets done between restaurants and third-party services. There are no guarantees that will happen.

There are arguments out there that if restaurants don’t like the way these third-party services operate, they shouldn’t use them. That angle might have held water two years ago. Now, off-premises orders are expected to drive most restaurant sales over the next decade, which means delivery is practically mandatory for many restaurant types. Unless you’re a restaurant like Kin Khao, where delivery doesn’t make sense for your brand, most restaurants have to contend with marketing costs, paying drivers, and managing the technical logistics of on-demand ordering. Often the cheapest way to do that is to use third-party services, which may handle the heavy lifting of delivery operations for the restaurants but which are also largely unregulated and as of now face little accountability for their business practices.

Whether Techamuanvivit’s Twitter takedown of Grubhub and possible forthcoming lawsuit can inspire others in more precarious positions (those restaurants who feel they need the partnerships with third-party services), remains a question.

Meanwhile, talk of consolidation among third parties continues, and worry from investors over profitably continues to threaten the model. Coupled with growing concern and louder voices from the restaurants themselves, it seems more likely that something big is going to give very soon. And it should. Otherwise, everyone loses in the long term.

Grubhub Launches Its Own Tech Platform for Restaurant Pickup Orders

Grubhub today announced the launch of its own proprietary tech platform for pickup orders. According to a press release, the system connects the front and back of house to give diners and restaurant staff real-time views on their order status. It also integrates all ordering channels into a single ticket stream.

Dubbed Ultimate, the platform is a hardware-software combination is made up of four main components: A POS system that integrates directly into the Grubhub website and app; a customer-facing display system that shows an order status throughout its different stages; a kitchen display system; and in-store self-service kiosks.

For now, Ultimate is focused specifically on pickup orders. Once a users places an order — whether with a cashier, online, or via one of the kiosks — they can see their order status in a digital queue displayed in the app and on the digital boards in the front of house. Delivery drivers pickup up orders can also utilize the queue to better time when they pick up their customers’ orders. According to the press release, the back-of-house displays show the exact same queue.

“Most people do not want to order in person or by calling if they have an alternative, and by integrating pickup with delivery orders our restaurant partners have a complete picture to more efficiently manage their operations,” Grubhub’s CEO Matt Maloney said in a statement.

Integrating the front and back of house and streamlining the order process for customers are huge priorities right now for restaurants right now. Tech platforms like Brightloom, who recently inked a massive deal with Starbucks, have already been pushing solutions to restaurants that address faster, more accurate digital ordering. Grubhub, however, is the first delivery company to bring its own system to market instead of licensing tech from a third party.

Importantly, the press release mentions the role this technology could play in non-restaurant settings like food halls and stadiums: “Instead of standing in never-ending lines, sports fans and concert-goers can order ahead directly from their seat via Grubhub, watching their place from the in-app queue for the exact moment the order is ready.” That’s something Grubhub rival Postmates is already trying, as is a company called WaitTime, which uses cameras and AI to basically function like the Waze for concession stands. 

While there are no baseball or football stadiums on its roster yet, Ultimate is already on the market. The system is currently in pilot stage at over 100 locations across NYC and Grubhub’s hometown Chicago. 

Newsletter: Consolidation Is Imminent for Food Delivery, Plus Customize is Coming to NYC

This is the web version of our weekly newsletter. Sign up for it and get all the best food tech news delivered directly to your inbox each week!

If 2019 was the year restaurant food delivery companies went mainstream, 2020 is shaping up to be the year mergers and acquisitions whittle the competition among these third-party services down until just a couple companies emerge victorious.

Case in point: this week, Uber announced it is selling its Eats business in India to Zomato, a local rival that processes at least half a million more orders per day in that country than Eats does. Uber’s exit from the Indian market leaves just two major players: Zomato (which Uber will have a small stake in) and Swiggy, who also has access to deep pockets thanks to backing from investment firm Naspers.

And that news is just the latest in a series of announcements that all suggest acquisitions and mergers are the fuel pushing further consolidation worldwide in the crowded food delivery space. The ongoing bidding war over UK-based service Just Eat looks to finally be at an end, with Takeaway.com, who originally planned to acquire the company, coming out as the winner. The combined entity of Just Eat and Takeaway.com would form one of the largest food delivery companies in the world. In the States, Postmates has reportedly been exploring a sale instead of its planned IPO (which still hasn’t happened). A Wall Street Journal report from earlier this month said Grubhub had hired financial advisors to consider “strategic options including a possible sale” — though Grubhub denies the claim.

Uber’s motivation in the Zomato deal is in part all about cutting back on loss-making operations as the cash-burning business comes under increasing pressure to prove profitability over the next year. On that score, the company isn’t alone. Postmates shuttered its Mexico City operations in December. Deliveroo closed up shop in Germany last year. In 2018, Delivery Hero sold its German operations to Takeaway.com. And Uber itself ended its Eats business in South Korea last year.

Consider all that activity the tip of the proverbial iceberg. Most delivery companies are currently in the same boat as Uber, where investors are applying pressure to show the food delivery model can in fact be profitable and not just burn through money. So it’s safe to say that many services will continue shutting down or selling loss-heavy operations around the globe over the next several months and opening the door to further consolidation.  

At-home Indoor Farming Is Suddenly the New Black

There’s a new trend afoot in the connected kitchen: vertical farms built specifically for the home and meant to be used by your average consumer. 

Ever since CES, when major appliance-makers like LG and GE showed off flashy vertical farming concepts for the consumer kitchen of the future, here at The Spoon we’ve gotten a seemingly endless series of pitches and news announcements about this indoor-farm-to-table concept. The idea is simple: make an indoor farm that ranges anywhere between a flowerpot and a bookshelf in size, outfit it with accompanying technology that automates much of the actual work around growing the plants, and sell the product to consumers for, in most cases, under $1,000.

In the last several weeks alone, Rise Gardens, the Planty Cube, Miele, and many others have shown off products that hit these marks. But while there’s a lot of excitement (bordering on hype) around growing salad greens in your own kitchen, the still-nascent market hasn’t yet hit the point where the questions start to sprout up. Are these farms really as easy to use and automated as companies say? Can they actually save people money? Can individuals with a terrible track record when it comes to gardening (me) grow something that actually tastes good?

The next several months should provide some answers to these questions. 

Customize Is Almost Here!

That’s a wrap for this week. But before I go, here’s a quick reminder that we’re gearing up for Customize, our first NYC event. Personalization is changing everything from restaurants to grocery stores to our own kitchens, so join the Spoon team and our amazing group of speakers on February 27th! Just use the special Spoon subscriber discount code THESPOON15 for a 15% discount off of tickets. 

Keep growing,

Jenn


Week in Restaurants: More Virtual Eateries, 7-Year-Old Predictions That Came True

Another week another virtual restaurant, not to mention more free food via third-party delivery services running promo campaigns in the hopes of enticing more customers. And while said third-party services were busy debating the ethics of the on-demand delivery  model, here’s what else happened this week in the restaurant industry. 

Grubhub and Lettuce Entertain You Launch a Third Virtual Concept

Grubhub has been capitalizing on the virtual restaurant concept of late, rolling out delivery-only establishments in partnership with restaurant group Lettuce Entertain You. The two have already launched concepts around the Whole30 diet and lifestyle brand Bon Appétit. This week, the third-party delivery service announced a third virtual restaurant concept, this one inspired by Bharathi “Bonnie” Rao, a retired school teacher, curry leaf farmer and owner of Perryville Farms. Dubbed Padma’s Curry Leaf, the new “restaurant” will serve Indian-inspired lunch and dinner dishes exclusively through Grubhub.

2020 Predictions From 2013

Restaurant tech — both the adoption of it and the actual tools — has changed a lot in the last seven years, something highlighted this week in an article from Nation’s Restaurant News that looks back at a handful of 2013 predictions. How do they hold up in 2020? “Damn well, actually,” writes NRN contributor Ron Ruggles, who helped come up with the original outlook. AI in the drive-thru, digital ordering and payments, and ubiquitous outlets and USB ports for customers’ gadgets in restaurants all make appearances on the original 2013 list, and are all things we see in restaurants today. Read the full list here.

Red Lobster Joins an E-Catering Platform 

Red Lobster is the latest restaurant chain to capitalize on the growing market for catering. This week, the chain announced it has joined ezCater’s platform, an online marketplace through which restaurants can launch and manage corporate catering businesses. Chili’s, Panda Express, McAllister’s Deli, and many other major restaurant chains are already clients of the service. 

Postmates Is Giving Away $1M in Chicken

Postmates has run the numbers and, at least according to company data and a press release, determined that chicken is one of the top items ordered from the service during football games. With that in mind, the third-party delivery service is giving away $1 million worth of chicken this Sunday, January 19. Users can add a promo code (FREECHICKEN) to any chicken order to get in on the deal.

Grubhub’s New Phone Order System Is ‘Insufficient’ in Addressing the Service’s “Bogus” Fee Controversy

In a letter this week to New York City Council members, Grubhub announced a new phone ordering system meant to address accusations of the service charging restaurants erroneous fees for phone orders. But NYC is not impressed, with Mark Gjonaj, who chairs the small business committee, calling the moves “insufficient.”

With the new system, which Grubhub has dubbed a “common sense step,” customers who call a restaurant through the Grubhub or Seamless platforms will be asked to press #1 to place an order and #2 for any other matter. The change is effective immediately, not just in NYC but nationwide for Grubhub/Seamless users. 

The change comes after Grubhub came under fire in 2019 for its controversial billing practice for phone orders. With the old system, the service would bill restaurants for any call made to them via the Grubhub/Seamless platform that was longer than 45 seconds, regardless of whether that call resulted in an order or was simply a customer checking the status of an order. Restaurants were charged anywhere between $4 and $9 per call. On top of that, when the NYC Council held an oversight hearing last June to address issues surrounding third-party food delivery, it was made known that restaurants couldn’t view phone-order charges made 60 days prior. 

While that look-back period, as it was called, was eventually extended to include charges made 120 days prior, the NYC Council wasn’t satisfied and in October threatened to pursue legislative action if Grubhub didn’t fix its phone order issues. Grubhub launched a task force in response meant to address the problems.

The new phone order system is part of the findings Grubhub released from that task force. The company also said it is doubling the number of account advisors who can “assist restaurants with phone order inquiries,” though no more specifics were provided.

The Council and others are not impressed, it seems. 

“There is nothing in the proposed changes that would make whole the thousands of restaurants that have already paid for what in many cases were erroneous phone order fees,” Gjonaj said in a statement on Thursday. “These are hard earned dollars that could mean the difference between a restaurant staying open or having to close their doors. This is money that Grubhub was never entitled to in the first place.”

Andrew Rigie, the executive director of the New York City Hospitality Alliance, said that “the burden should not remain on the restaurants to listen to messages to determine which fees are bogus.” He added that the major question remaining is whether Grubhub will pay back the money they owe on past erroneous charges.

With the new system, restaurants will now be allowed to listen to every phone order they are billed for, but the look-back period for phone calls remains fixed at 120 days. Grubhub said it would handle issues surrounding older calls on a case-by-case basis.

Week In Restaurants: Grubhub Says It Is Not for Sale, McDonald’s Creates a New Tech Department

Taco Bell bucked industry trends this week by announcing it will test paying select managers at some company-owned locations $100,000, which is roughly double the average salary for restaurant managers. Between that, new vegan drinks from Starbucks, and a slew of other announcements, much happened in the world of restaurants this week. Here’s a wrap of a few other stories from ‘round the web:

Grubhub Says It Is Not for Sale

Reports surfaced earlier this week that Grubhub had hired financial advisors to explore a sale or acquisition — news that sent the troubled delivery company’s stock surging. However, a spokesperson for the company told the folks at Restaurant Dive today that “there is unequivocally no process in place to sell the company.” The spokesperson added that Grubhub believes there will be acquisition opportunities this year and that the company’s profitability “remains secure.”

McDonald’s Is Creating a New Tech Department

Meanwhile, if there were any doubts former CEO Steve Easterbrook’s sudden departure would stall the mega-chain’s tech ambitions, those should be sufficiently quelled by this week’s news. On Wednesday, McDonald’s announced it is creating a digital customer engagement team and the role of Chief Digital Engagement Officer. Lucy Brady, who has spent the last three years as SVP of corporate strategy and business development at McDonald’s, will step into the new role. Brady’s group formerly led the development of McDonald’s delivery program as well as the $300 million Dynamic Yield acquisition that happened last year. The new team will oversee digital ordering, personalization, payments, loyalty programs, and delivery, and report directly to newly appointed CEO Chris Kempczinski.

Olo Supposedly Planning a 2020 IPO

Olo is said to be planning a U.S. initial public offering for this year, according to a Bloomberg article that cited “people with knowledge of the matter.” The company’s software streamlines the process of adding delivery partners for restaurants, among other things, and has been steadily gaining popularity in the restaurant tech world over the past few years. Sources say Olo had interviewed potential advisors at the end of 2019 and could seek a valuation of $1 billion for an IPO. Olo itself declined to comment on the story.

Wow Bao Expands to the East Coast

Fast-casual Asian-food chain Wow Bao will expand to the East Coast, with three new locations set to open in the first quarter of 2020, according to an email sent to The Spoon. Wow Bao is known for its tech-centric approach to fast-casual that leverages Brightloom’s end-to-end tech stack for restaurants. Given that focus, which includes self-order kiosks, pickup cubbies, and digital ordering, it makes sense the chain’s new planned locations will be in airports, where super-speedy service for high volumes of people is the norm — or at least the norm restaurants aim for. Planned locations are for Dulles International Airport, Boston Logan International Airport, and Raleigh-Durham International Airport, according to the press release. 


New Proposed NYC Legislation Takes Aim at Third-party Delivery Tipping Practices

A new NYC bill proposed this week is once again putting third-party delivery services’ tipping policies under scrutiny, according to an article from the New York Daily News. Specifically, the proposed law is aimed at transparency around how much of the tip on any given delivery order actually goes to the delivery worker as, well, a tip.

New York City Council member Richie Torres introduced the legislation on Wednesday that would, according to the NY Daily News, require third-party delivery services to “notify customers if gratuity is paid to delivery workers in addition to their regular wage – or if tips are put toward their base pay.”

Speaking strictly of third-party restaurant-food delivery companies, the proposed legislation seems aimed specifically at one. In July of last year, DoorDash received a storm of bad press over its then-tipping policy, which used money from workers’ tips to meet the minimum guaranteed base pay.

Though the company eventually changed that much-maligned tipping policy, D.C. Attorney General Karl Racine later brought charges against DoorDash, claiming the old tipping model mislead consumers about where their money was going.

Torres’ proposed legislation seems as much aimed at protecting workers as it is about transparency towards customers about where their money goes. In a tweet Wednesday, he wrote:

#NYC can no longer afford to turn a blind eye to app-based delivery companies stripping workers of their hard-earned tips. It’s wage theft, plain & simple, and the public has a right to hold businesses accountable for exploiting their workers and stealing their wages.

He also told NY Daily news that there’s “a special place in hell for companies that confiscate the tips of low-wage workers,” adding that tips are “profits for the companies – dollars the companies should be paying workers out of their own profits.”

If the legislation is approved, all third-party delivery companies, including DoorDash competitors Grubhub and Uber Eats, would have to comply by disclosing their tipping policies in their terms of service or via some other method before a transaction is processed. Failure to do so would result in services being charged penalties.

DoorDash competitors Uber Eats and Grubhub would be on the hook to comply, as presumably would a service like Instacart, which has also come under fire recently for questionable tipping policies for workers.

A spokesperson for DoorDash said in a statement that “100% of [a] tip goes directly to the Dasher who earned it — in addition to the base pay our company offers for each delivery.” He also added that DoorDash shares “in Council member Torres’ commitment to transparency and we look forward to working with him to ensure the highest quality experience for our customers and workers.” 

Reports of a Grubhub Sale Fuel Talk of Consolidation for Third-party Food Delivery

Grubhub has hired financial advisors and is “considering strategic options including a possible sale” according to a report published by the Wall Street Journal yesterday. 

The news comes on the heels of a rough few months for Grubhub that started when the third party delivery service reported lackluster Q3 results in October of 2019 and posted a fourth-quarter forecast well below Wall Street expectations. The company cited competition from other players like Uber Eats and DoorDash as one of the main reasons for its slowed growth. Shares nosedived more than 40 percent after the earnings call.

Grubhub went public about six years ago and was a pioneer in on-demand restaurant food delivery. But with the seemingly unstoppable demand for off-premises orders and the rise of competing companies trying to see this demand, Grubhub has seen its worth erode over time by billions of dollars.

Yesterday’s news sent the beleaguered company’s value up 12.5 percent, to about $54 per share according to CNBC. CNBC also noted that Uber shares “also spiked on the news, as investors bet consolidation in the crowded food-delivery industry would help the company.” Uber is no stranger to lackluster earnings calls: the company posted billions in losses on its most recent earnings call, and its Uber Eats delivery business is said to be hemorrhaging money. 

Grubhub merging with Uber Eats, Postmates, or DoorDash is an obvious possibility, and today’s news won’t be the last time we hear the word “consolidation” when it comes to discussing the third-party food delivery market. Consumer loyalty with any one service isn’t high, with users preferring to hop from one app to the next in search of the best deals and perks. Investors, however, aren’t as excited about the free delivery, rides to restaurants, and other perks third-party services are doling out like after-dinner mints. Of late, investors have instead been urging these companies to focus less on attracting customers and more on actual profitability — something no third-party delivery service has yet achieved.

A consolidation of the market could help. Across the Atlantic, it’s already happening with the Just Eat-Takeaway.com deal (which is still moving ahead despite recent counter offers). Amazon, too, could be a potential player when it comes to mergers and acquisitions, though much of its future involvement could depend on how its controversial investment in Deliveroo shakes out, at least in Europe.

In the U.S., Some experts in the field say there isn’t room for more than two companies in the third-party delivery space.

DoorDash will probably be one of those companies. The service has built a food delivery empire by adopting the “out-raise and out-subsidize” approach when it comes to the competition. It is one of the fastest-growing brands in the U.S., and despite controversies around its tipping policies, the service is currently valued at over $12 billion. It grabbed the top spot among major food delivery services away from Grubhub in 2019.

Grubhub joining forces with any one of its main competitors could boost margins for these companies — though they still have yet to prove to investors that the third-party delivery model can even become profitable.

Food Delivery Got Really, Really Messy in 2019. That’s a Good Thing

Roughly this time last year, talk around the future of restaurant food delivery screamed promise and progress. Funding and acquisitions abounded. Valuations skyrocketed, and by mid-year, third-party food delivery apps were projected to have 44 million U.S. users by 2020. 

That number hasn’t changed, but a heck of a lot else did, and somewhere along the line, the rose-tinted glasses through which the industry viewed food delivery came off and reality set in. In case you hadn’t heard, reality is a messy business. At the close of 2019, food delivery is even messier, mired in regulatory battles, bad press, and questions around profitability that grow louder each week.

None of this means third-party food delivery is dying. All of it plays a crucial role in moving the discussion forward about food delivery — what it is now and what it should become going into 2020.

Before we go forward, here’s a quick look back:

Third-party Delivery Opponents Got Stronger and Fought Harder

Largely speaking, there weren’t many detractors — at least not vocal ones — of third-party delivery services like DoorDash, Grubhub, etc. at the start of 2019. While some chains, notably Jimmy John’s, opted out of third-party delivery, we saw more deals struck in the first half the year than questions raised. 

DoorDash serves as a good example of the sentiment around third-party delivery in the first half the year. DoorDash became the first delivery company to offer service in all 50 U.S. states. It also struck lucrative deals with high-profile restaurant chains left and right. And there was its valuation, which kept ballooning with each new funding round, eventually eclipsing $12 billion. 

The other major services also had their fair share of lucrative deals and high valuations. Uber Eats nabbed a “preferred” delivery partnership with Starbucks. Postmates raised millions ahead of its IPO (more on that in a minute). Grubhub, too, made a slew of deals with high-profile restaurant chains, including Taco Bell and Dunkin’.

Then things started to get tense. In June, an oversight hearing held in NYC called into question the high fees Grubhub and other companies charge restaurants for use of their services.

From there followed one controversy after another: antitrust investigations, ethically questionable tipping policies, plummeting stock. More recently, California passed Assembly Bill 5, which reclassifies gig workers as employees and undercuts the entire model on which third-party delivery is built. DoorDash and Uber, among others, have vowed to fight back in 2020.

We can certainly expect that battle to take place. But if events in 2019 taught us anything, it’s that no matter the front it chooses to fight, third-party delivery companies will find more than one opponent lying in wait. 

IPO Fever Cooled Down

Of the big four third-party food delivery companies, Uber, Postmates, and DoorDash were all said to be moving towards IPOs in 2019. (Grubhub IPO’d back in 2014.) However, Uber was the only one of them to actually follow through and go public — then subsequently racked up billions in financial losses. The company’s most recent earnings call saw some improvement: roughly $1 billion in losses in Q3 versus $5.2 billion in Q2. But it’s still $1 billion in losses.

Postmates, meanwhile, confidentially filed for an IPO in February but was at last check in talks to find a potential buyer after laying off staff and shuttering its Mexico City operations. DoorDash may be pursuing an IPO for 2020. Or it may be pursuing a direct listing, largely to avoid some of the scrutiny that comes with debuting on the public market. After all, profitability remains very much a question mark for third-party delivery companies, and IPOs in general fizzled this year, leaving even more questions about them for next year.

Hybrid Delivery Heated Up

Earlier this year, I wrote that “there are now more ways for restaurants to do delivery than the two extremes of pay for your own fleet or sign up with a third-party service.”

That middle ground gained, eh, ground in 2019 thanks to the rise of hybrid delivery strategies, where delivery orders originate through the restaurant’s own app and third-party services are used only for last-mile fulfillment. Some chains, notably Panera, are using an inverse version of this strategy, sending orders through third-party apps but handling the last mile themselves. 

There are even variations on those variations, but they all hint at the same thing for the future: the delivery stack — tech, operations, the all-important customer data — won’t rest in the hands of one but many for some time yet.

Progress, as George Orwell once wrote, is “slow and invariably disappointing.” The market for third-party delivery may be mired in confusion and controversy (of its own making in some cases), but, as I said before, that doesn’t spell the end for the model. In fact, third-party delivery is still expected to account for 70 percent of delivery orders in 2022.

In the near future, though, expect this area of the food industry to get messier, raise more questions, and incite more regulatory battles as it progresses towards normalization.

Snackpass Raises $21M Series A Round for Its Order-Ahead Food App for Students

Order-ahead food app Snackpass has raised $21 million in Series A funding in a round led by Andreessen Horowitz with participation from First Round, General Catalyst, YCombinator and Inspired Capital. The round brings total funding for Snackpass to $23.7 million.

Snackpass was founded in 2017 at Yale University. Though the company has since relocated headquarters to San Francisco, its focus, for now, remains on college campuses. The app is currently available at 11 schools around the U.S., and Snackpass said in a press release it will use the new funding to expand to 100 campuses over the next two years.

With the app, Snackpass users can order and pay for food then pick it up at the restaurant. (There is no delivery functionality at present.) Where the company sets itself somewhat apart from the food app pack is with its social features and loyalty program. Users earn loyalty points that can be redeemed for free food, either for themselves or friends. The latter highlights the social aspect that’s a major centerpiece of Snackpass’s strategy. Built into the app is a Venmo-like feed where each purchase a user makes shows up and where people can communicate with one another, get restaurant recommendations, and send gifts (i.e., free food).  

This emphasis on creating a community within the app is one of the reasons Snackpass has been able to maintain something other food delivery apps struggle with: a loyal user base. Third-party delivery may be on track to have 44 million U.S. users in 2020, but most of those people hop between apps, more interested in finding the best deals on food than claiming allegiance to, say, DoorDash versus Uber Eats. 

A loyalty program, which is different from subscription models many of the big-name food delivery apps offer, is also key to keeping Snackpass users coming back. The company claims a 75 percent penetration rate among students within six months of being on a college campus. The service can also sync with students’ campus meal plans.

Right now, college campuses are fertile grounds for testing new approaches to food delivery. Though unique, Snackpass is hardly the only app out there catering to students. Earlier this year, food delivery app Good Uncle was acquired by Aramark, a longtime food services provider for colleges and universities. In 2018, Grubhub acquired Tapingo, an order-ahead app for college students that’s at 150-plus schools.

Those are only a couple names in the pack. DoorDash, Allset, and others are also making their way to schools in the U.S., and the competition for college students will intensify as we head into 2020. The new funds, as well as having a name like Andreessen Horowitz in their court, will hopefully give Snackpass enough financial and operational muscle to stay in the center of that competition.