Last week Grubhub had what can only be described as a bummer of a week. Their shares dropped a stomach-churning 43 percent — its worst single-day drop ever— and lows that have not been seen in more than three years. So, what happened?
The food-delivery giant drastically slashed its financial outlook in its latest earnings report leading analysts to downgrade (understatement) Grubhub stock. In a letter to investors Grubhub Chief Executive Matt Maloney cited that fierce competition is eating into sales and profits and even went so far as to blame its disappointing third-quarter results and overall business plan on what he called “promiscuous” diners, “It’s very hard to trick a consumer to pay more than they want to pay,” – which is sure to make consumers feel great about the honesty and transparency around their food orders.
However, if they are looking for someone to blame, they should look closer to home. Over the last several quarters, Grubhub has seen a significant slowdown in key metrics: revenue, average diners, gross food sales, and daily average grubs (meals). For example, the daily average grubs growth rate was 10% in this latest quarter, down from 37% in the year-ago period. The number of competitors in the online food delivery space has increased with consumers able to pick and choose among Postmates, Uber Eats, goPuff, Munchery, and more. Yes, customers may be fickle due to than range of choice and are more than happy to try multiple delivery services but that is the industry Grubhub finds itself in. There is no brand loyalty — only price matters — and leading GrubHub to increasingly rely on discounts and free delivery promotions to keep customers coming back. That may help revenue, but it destroys profitability.
With increased competition and a slowdown in growth Grubhub has even lost its market share leader position to Doordash, with the former claiming 30% to the latter’s 34% – ouch. Furthermore, the company is facing continued scrutiny from regulators in one of its biggest markets regarding its business practices. Some of these practices are potentially leading to distrust between restaurant owners and the company.
So, what are they going to do to regain some ground? Well, apparently, Grubhub has said that it wants to “expand its restaurant network without officially partnering with eateries,” which is to say without the restaurants’ permission. They justify this new business strategy by adding that this is an opportunity for those restaurants to get more business “but will without hesitation remove any restaurant who reaches out to us and doesn’t want to be listed on our marketplace,” putting the onus on restaurants to either proactively remove themselves from a service they didn’t sign up to in the first place. Ultimately, it’s a lazy (dirty) strategy to increase business for themselves without any care for the restaurants, so long as it helps themselves. They even have admitted “the non-partnered model is no doubt a bad experience for diners, drivers and restaurants. But our peers have shown growth – although not profits – using the tactic”. Basically, they lack ingenuity to create new growth strategies and just follow the pack, even if it’s bad.
And, it’s true, this practice of adding restaurants that haven’t signed to be a partner of a third-party delivery service has become more common in the delivery industry over the past few years. DoorDash and Postmates have both added restaurants without permission in a hope create new business and lure or effectively bully a restaurant it into a partnership. However, not surprisingly, both have also faced backlash as it causes lots of problems for restaurants.
Some restaurants may not want to offer delivery, and who are then forced to deal with third-party deliverers showing up for “take out” and then delivering their food elsewhere. Customers are led to believe they can get delivery from restaurants that don’t offer it and if things go wrong, the restaurant has to deal with complaints about cold food or slow orders, when it may have explicitly not offered delivery for those same reasons, with customers sometimes leave negative reviews over something a restaurant never promised. At the end of the day restaurants are forced to deal with chaotic food pickups and bad customer experience while customers face fat delivery fees – and the third parties seems to get away with what they want to do.
The good news is some restaurants are fighting back. Karen Heisler of Mission Pie in San Francisco has refused to use any delivery apps. Others offer special deals if you order directly through them. And some are opting to list themselves on smaller apps which have the express mission of helping small businesses. Slice, a pizza-delivery only app, charges $1.95 per order to the restaurant regardless of size, and advertises itself as a company focused on keeping independent pizzaiola in business. Not only that but in NYC a class-action lawsuit has been filed over how the third-party delivery service treats its restaurant partners and politicians are persistently looking to regulate the business.
While there are some silver linings trying to break through the harsh business tactics set out by third parties it seems as though the showdown – and headaches – between third party deliver companies and restaurants is set to continue for some time.