YapStone Blog

“GrubHub is Destroying the Phrase “Hello, Make I Take Your Order”” written by Drew Edell.

The last time that I picked up the phone to order food and heard “Hello, may I take your order?”… well, to be honest I can’t remember the last time I heard those words muttered over the phone.

It’s not because I don’t eat, because believe me, I do – I am a self-proclaimed foodie. It’s not because I don’t use my cell phone, because believe me I do – I am a millennial, after all. It’s because the world of food has changed as the on-demand marketplace has grown.

The concept of ordering food to be delivered without actually speaking to anyone used to be a foreign concept. I, like so many others, had become accustomed to picking up the phone to order pizza or Chinese food every Sunday night for family dinners. This all changed the moment that I used GrubHub for the first time. It was right after I graduated from college and I hadn’t quite gotten a handle on the whole meal prep thing. I was starving, I was tired and all I wanted to do was go home, eat my dinner and sleep. But there was one problem, I didn’t have any food at my apartment, I was in no mood to speak to anyone over the phone, and I had no desire to run out and grab something. What was I going to do? Luckily, my dilemma was solved when my co-worker told me, “You have to try this new food delivery service called GrubHub! It’s amazing. I use it all the time.”

So, I went ahead and downloaded the app, found my favorite restaurant, entered my payment information and address, and voilà! My dinner was ordered and my life was changed forever. I happily went home, put on my comfortable pajamas and my food was there just 5 minutes later. Talk about timing!

Slowly over a couple of years, I began to see an increase in the number of food delivery services to choose from – DoorDash, Postmates, UberEATS, and even Amazon. It seemed like all these innovative companies wanted a piece of the large, up-and-coming industry. The challenge became not what to cook for dinner, but which app and which restaurant to choose from. This was one problem that I welcomed with open arms.

Food for Thought

The always on, always connected “smartphone revolution” has made convenience, efficiency, and speed must-haves for commerce. As consumers’ have been conditioned to expect and accept nothing less, the on-demand economy has grown, and it’s just the beginning.

Jeff Bezos, CEO of Amazon stated that “it’s still Day 1 for ecommerce – and the on-demand economy represents the most sophisticated application of ecommerce seen to date.” The food delivery industry is no exception. The new age of food and grocery delivery is one of the hottest VC sectors. In 2014, more than $1 billion was invested and in 2015, and with online penetration at roughly 1 percent, food and grocery delivery remains one of the largest unpenetrated markets.

While I, and other consumers, praise this new way of food delivery for its ease, convenience and speed, it offers so much more. Investors and entrepreneurs see the marketplace as a huge moneymaker. According to Morgan Stanley Research, there is a “core addressable restaurant spend of $210 billion, of which online food delivery comprises only $10 billion – less than 5 percent. This amounts to only ½ the penetration of ecommerce and 1/8th of online travel.” Meaning that there is enormous room for growth, innovation and revenue.

No Need to Loaf Around

The rise of digital technology is reshaping the market. According to McKinsey & Company, consumers that are accustomed to shopping online through apps or websites, increasingly expect the same experience when it comes to ordering dinner. Veruca Salt’s demanding “I want it now,” has never been truer.

According to Toast, 74 percent of millennials report a preference for delivery. The appeal of clicking a few buttons on your mobile device and having food from all over the world – Indian, Sushi, Mediterranean – at your fingertips in minutes is one reason so many are taking advantage of the food delivery marketplace. You don’t want to go eat at a restaurant or spend hours cooking after a long day?  34 percent of consumers think that you don’t have to; instead opt for delivery or takeout instead of dine-in.

There is enormous value placed on the ability to save and buy back time. Any time that I am not doing chores – cleaning my room or going to the grocery store –  is time I can spend coming up with my next big idea, pursuing my passions, or traveling. A good chunk of the population feels the same way and “any service which offers to free us up from the time-consuming, unwanted chores will receive a large demand.” It is predicted that 70 percent of customers will be ordering food from restaurant premises in 2020.

Satisfying Everyone’s Taste

To customers that use on-demand food delivery services, choice is key. They want what they want and like to decide what that is for themselves. While I opt for delivery from a restaurant, my friend chooses meal kit delivery, and her friend chooses grocery delivery. The great thing is that the options are endless and there is an option for each person’s unique taste.

Grubhub started as a software that aggregated independent restaurants who managed their own couriers (this has recently changed and GrubHub now employs their own couriers). Deliveroo offers both ordering and delivering. This brings extra traffic and orders to restaurants without the hassle of managing the delivery and sending staff out to complete the order. On-demand food delivery offers a variety of restaurants at a variety of price points.

Big players such as Amazon and Uber have even entered the game as they strive to gain a piece of the profitable marketplace. Amazon launched Amazon Restaurants in 2015 as part of Prime Now and connects Amazon Prime members with restaurants near them. The service has the advantage of the Amazon name and reputation and will likely disrupt the marketplace as it has disrupted so many others. Likewise, “Uber has a unique edge as it can take advantage of the already existing ride-hailing business” (the spoon).

As these big names enter the marketplace, validity of the massive potential of the on-demand food delivery space grows. Whether you are an Amazon user, a GrubHub veteran, or an Uber fanatic there is a service for everyone and food available to satisfy everyone’s taste buds.

The Ingredient to Success

2004 saw the Mars Rover land on Mars, the Red Sox win the World Series, and the creation of GrubHub (one of the industry’s largest players). With the playbook of GrubHub in hand, more and more on-demand food delivery companies began sprouting up all over the world. From Deliveroo, to Munchery, to DoorDash, UberEATs and more, the marketplace saw substantial growth.

Matt Maloney, CEO of GrubHub said “This is the most exciting time in the industry, maybe the biggest since the invention of delivery food.”

One of GrubHub’s first moves towards staying on-top was its 2013 acquisition of Seamless. The merger allowed GrubHub to lead FORBES Fast Tech 25 list with 66 percent average sales growth over three years and 36 percent annual growth forecast for the next three to five years. The profitable growth stems from Maloney’s avoidance of a margin-destroying, labor-intensive delivery network of his own. Instead, GrubHub took a 15 percent cut of orders on its platform and let restaurants handle their own deliveries. As of 2014, GrubHub was on pace to generate more than $1.6 billion in revenue from over 3.8 million monthly active users in 700 cities.

Today, times have changed and GrubHub has been forced to shift its model. It now owns its own delivery fleet and is prone to slim margins. To remain profitable, Maloney focuses on restaurants that don’t offer delivery of their own. Adding this selection will hopefully drive customers to the app and encourage them to order frequently (90 percent of orders are repeat diners).

GrubHub continues to lead the pack and add value through continued innovation and partnership. The most recent of which is its integration with industry-leading point of sale systems Breadcrumb POS by Upserve and Toast. The new integration allows restaurants to manage all their orders, both in-house and GrubHub from one device. “We’re completely focused on creating technology that enhances the experience of our restaurant partners” said Stan Chia, Chief Operating Office of GrubHub.

GrubHub’s partnership with about 30,000 restaurants makes it an industry expert. Even with the creation of Amazon Restaurants Food Delivery, Goldman Sachs “believes that GrubHub is well positioned to take a share of the market as it derives penetration in new and existing markets. VC backed competitive pressures ease, and consumers increasingly move to ordering online.”

According to GrubHub, “The number of active diners using GrubHub grew to 6.97 million, a 24 percent year-over-year increase from the first quarter of 2015. Daily average ‘Grubs’ (i.e. revenue-generating orders) grew 14 percent from the first quarter of 2015 and gross food sales increased 21 percent.”

For key players like GrubHub and those wanting to join the industry, the challenge lies not in the supply, but in the demand. The on-demand marketplace is an easy choice for restaurants with high fixed costs and low variable costs. “The increased orders go straight to the bottom line and improves the return on initial capital.” The challenge instead lies in the demand. “Restaurants are not likely to integrate with multiple services, but instead will congregate towards one or two.”

What’s Cooking?

Currently the on-demand food delivery space is valued at $30 billion, but analysts at Morgan Stanley believe that this marketplace has a $210 billion potential. Two of the industry’s leaders, GrubHub / Seamless and Eat24, generated a combined $2.6 billion in food sales in 2015. While this is a large sum of money, it is less than 70 percent of the market’s value. The massive unfilled market provides opportunity and room for competition and variation.

With all this opportunity what’s next? The on-demand generation is changing so rapidly that analysts believe “delivery could end up expanding restaurant demand as a whole” (EATER). The creation of new food delivery services, or the merger of existing companies will continue to expand consumers’ choices. Whether that is selecting the service that charges the lowest delivery fee, or the one that has that one meal you are craving, there will certainly be more variations as companies find new niches within the industry.

How do restaurants feel about this new marketplace? It is predicted that in-house and third-party delivery services will begin to compete. While 2015 saw a 118 percent growth in home delivery sales for full-service restaurants, supported by companies like UberEATS, “it is expected that restaurants will begin to develop their own in-house delivery businesses to reduce reliance on third party usage for boosting sales.” This means that the marketplace will once again shift as on-demand food delivery companies innovate to meet and beat the competition.

This shift could even lead to delivery drones and other AI solutions and automation strategies to streamline processes, predicts VE Interactive. With 30 minute and 1 hour delivery already in place, the future is not far off. Technology continues to shift and shape the marketplace to meet the demands of the ever changing and demanding consumer.

Since the first time I used GrubHub in 2014, I have noticed first-hand the shifts and growth of the on-demand food delivery industry. Today, I have used GrubHub, PostMates, UberEATs, Amazon, DoorDash and more. Each service has one thing in common: they allow me to order food to almost any location with the click of a few buttons. No longer is cooking after a long day necessary. Want your favorite meal but the restaurant is far away, no problem! Just go ahead and order on your mobile device. The age of “Hello, may I take your order?” is gone and it is no secret that on-demand food delivery is a lucrative space to be in.