Grubhub and US Online Food Delivery | In Practise

Grubhub and US Online Food Delivery

Former Director, Product at Grubhub

Learning outcomes

  • The impact of DoorDash and UberEats entering the US food delivery market
  • How Grubhub responded strategically to new entrants
  • The importance of selection and price for food delivery marketplaces
  • Impact on customer loyalty and customer acquisition costs
  • Potential long run shakeout of the US food delivery industry
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Executive Bio

Aaron Smith

Former Director, Product at Grubhub

Aaron joined Grubhub in 2015, one year after Grubhub merged with Seamless, and the business was growing at over 100%. He was responsible for leading the consumer product experience as the business trebled it’s active diners from over 6m to 18m in 2018. Aaron previously spent 4 years at Amazon managing Scheduled Delivery and Dropship teams. He left Grubhub in late-2018 and is now SVP and Head of Product for TruCar. Read more

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Can you provide some context on the industry structure when you first joined Grubhub in 2015?

Earlier in 2014, Grubhub had been growing at a rate above 100% a year, closer to 120%. They went public and merged with Seamless, which owned the New York City market; by far the biggest in the country. I joined a few months after they’d completed putting those two companies together, as well as the software and products behind them. They were at a crossroads. At the first quarterly earnings after I got there, European growth had gone down to 27%. So, you go public, growing at over 100% a year, and now suddenly, your growth has slowed to 27%, your stock is gone from above 40 to below 20. At that time, they really didn’t have strong competition. They still had over 70% market share, a lock on the NYC market, and strong percentages in most other markets. There were a lot of competitors, but they were all small companies that never went very far.

A big reason behind some of their success and early loyalty was based with Seamless and the NY market. The way Seamless started was to focus on businesses, particularly the financial services market. I think some of the early VC money came from people in NYC who had strong relationships with the financial services companies, so they were able to get Seamless into those companies. The selling point was, you are paying your workers to buy lunch and sometimes breakfast and dinner because they’re working here around the clock, and you expense these meals. With Seamless, you give them a bunch of restaurant options, they can order wherever they want, and we can automatically bill you. Your employees don’t have to expense anything, and you can set up rules about how much money they have, use it or lose it, every day, for each person. It’s pretty slick.

But what happened was, a lot of people were getting three meals a day through Seamless. They had to find selection and variety or else they’d go crazy. People would build up all these go-to restaurants. That industry churns and burns people, most of them are out in two or three years. But in NYC, they’re so used to Seamless, every day, and all their favorite restaurants, and they’ve still got the app, so it carried over into their next life, wherever they went to work. That’s a big reason why they got this lock on the NY market.

Why did growth fall off a cliff in that first quarter, post-IPO?

I don’t know all the reasons. Part of it was, they were a lot smaller, no-one had heard of them, then they went public and were in the public eye. They weren’t spending a ton of money on marketing, but they got a bunch of free marketing at that time, through going public and all the news about the merger.

One of the biggest struggles during 2015 was that merger, when they were trying to move quickly to bring the companies together. Seamless and Grubhub had different feature sets with their products, and there were certain features that couldn’t be supported in a combined back-end experience. There were some features and, in particular, affirmating data that were lost; the personalization, people building up their list of favorite restaurants and meals. There was a lot of frustration with customers, and even though there weren’t a lot of strong competitors at the time, there were still competitors that were giving away free money.

You’d get on the subway and it wouldn’t just be Seamless that would be mentioned. There would be delivery.com and Eat24. There were a lot of companies vying for business, trying to give $10, $15 off your first meal. It wasn’t the crazy Uber Eats and DoorDash money that would come soon thereafter, but there was still a lot of money being thrown out there. So, when Grubhub and Seamless hit that rocky patch, people opened their eyes and said, “People are throwing money at me, let me try these products.” I think that caused that temporary bump in the road.

What was the impact of DoorDash and Uber entering the market?

In 2017, Uber Eats really started to gain ground. At the time, Uber had over $7 billion in VC money waiting to be spent, and the only company Uber was running besides Uber itself, was Uber Eats. They were able to invest a lot of money, and they did a really good job putting a big team together that would go from city to city curating restaurants. They would do research to find the most attractive restaurants and go hard to bring those restaurants on. And they had a nice advantage in that they already had their delivery network in place. They, essentially, required that drivers would take Uber Eats orders mixed in with their rides.

When Grubhub started trying to build that up, they had to build it from scratch. They didn’t already have people giving rides that could take on meal orders as well. They had to build up supply and demand at the same time, and it’s difficult to get that balance. Uber Eats had a nice advantage, and they moved into some markets in a much bigger way. Grubhub had been in Miami for some time but hadn’t focused hard there because it wasn’t doing super-well. Uber Eats went in and created a great experience in several Florida cities, but Miami is a good example, where they became ubiquitous. Everybody knew Uber Eats. They were able to go in and win some markets where Grubhub hadn’t focused.

We had maps, at Grubhub, color-coded, where you could see who was number-one in each state. Early on, in 2014-2015, Grubhub and Seamless owned most of the map. Then, as these other competitors came up, you’d see it start to shift. The first to market was often the winner, or the one to go seriously into the market, so it was interesting to see that evolution.

Then DoorDash took it up a notch. They did a great job of building up their delivery network of Dashers. Their twist was not necessarily having to have a contract with a restaurant to put them on the network. Grubhub’s CEO really cared about restaurants. He wanted them to be successful. He felt it was disrespectful not to create a contract with a restaurant. He wanted something that would work for the restaurant, Grubhub, and the consumer.

DoorDash didn’t care about that. They were just adding the very best restaurants that consumers wanted. If they didn’t have a contract with them, they would just stand in line and buy an order like a normal person and then deliver it, without any kind of relationship with that restaurant. That opened a lot of doors and let DoorDash scale much more quickly. They could then focus on getting that delivery network right, getting enough Dashers in place, but they didn’t have to spend as much in selling restaurants. They could just add whatever restaurants they wanted and move ahead quickly. So, a hardcore Seamless or Grubhub fan moves to the suburbs, there wouldn’t be nearly as much selection. Then they see adverts for Uber Eats or DoorDash with free money to try it out, they go on there, and there’s serious restaurant selection. You’d see these companies start to grow in those areas especially.

Were Uber Eats and DoorDash scaling in more rural areas where Grubhub didn’t have the density of orders?

I would say Grubhub was especially effective in the biggest markets. It had focused marketing efforts in the biggest markets. Uber Eats moved out into some of the smaller markets, like Miami. It was what we would consider a tier-two market. They really started to target the tier-two and tier-three markets. But DoorDash took it to another level; they just wanted to go everywhere. Anywhere they could add a great restaurant, they would add it to the platform and try to get Dashers in place to support it. They went an extra level deeper, for sure.

I would say, what really got Uber Eats on the map was their co-branded partnership with McDonalds. It’s everywhere. Any town of significance has a McDonalds; sometimes dozens or even a hundred of them. Any person can find a McDonalds near them, so that put the reach of Uber Eats to most people in the country. And the co-branding was fantastic. They were losing a lot of money. McDonalds didn’t pay them any money, but they were getting incredibly strong brand recognition. They created relationships with several national companies, TGI Fridays and Olive Garden, things like that. But McDonalds was the one that put them on every corner. There would be signage in the window, on the counter. Everything said, “Order McDonalds through Uber Eats.”

Initially, people at Grubhub questioned if that was really the right co-branding to have; to associate yourself with McDonalds. Grubhub had just rebranded and tried to move beyond the college student approach of, “Hey, I just order to my couch,” to, “We’ve got food of all quality and variety for students and families, anybody.” Did you really want to be so closely associated with a fast-food brand as the main way people get to know you? Well, it proved to be a huge growth engine for them. Everybody knew who Uber Eats was in the course of six months because of that relationship.

In Grubhub’s annual report in 2014, the annual frequency per customer was 13 times and that’s treaded down towards 9 times per year in 2018. In Q3 of this year, due to the huge choice available on Uber Eats and DoorDash, Grubhub has seen lower frequency of ordering from customers. How do you look at consumer behavior in this type of landscape?

I think you have to look at the data. The data was skewed by heavy metro areas, especially NYC. You might say, “Well, that’s only one city,” but it was a major impact on all our metrics. We would separate out NYC metrics from everything else, because they skewed things so heavily.

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Grubhub and US Online Food Delivery

December 5, 2019

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