REPORT Reverdy Johnson, [email protected] Grubhub Is Not Losing Share But Trails in Usage and Popularity Companies: AMZN, BWLD, CMG, GRUB, MCD, WEN, YUM November 29, 2018 Report Type: ☐ Initial Coverage Previously Covered Full Report ☐ Update Rating: 2.5/5 Research Question: Is Grubhub losing share to competitors? Summary of Findings Silo Summaries . Grubhub Inc. (GRUB) may not be losing share to competitors, but it 1) Restaurants Using Grubhub and Competitors has a smaller share of online food delivery orders than its rivals Nine of 10 sources said the online food delivery and a lower satisfaction rating than its competitors, according to business overall is growing and will continue to expand in 2019. This will benefit all delivery platforms, eight of 10 sources who use multiple delivery services, including including Grubhub. UberEATS and DoorDash are the Grubhub. Only two sources said Grubhub has lost share. two biggest competitors, outpacing Grubhub in . This sentiment from franchise and chain executives as well as reliability, customer demand, and market share. For a Southern California chain, UberEATS recently brought in restaurant owners is similar to Blueshift Research’s April 5, 2017, $100,000 in one week while Grubhub accounted for and Nov. 16, 2016, reports, in which sources said Grubhub would $15,000. For another chain, UberEATS gets at least be challenged in fending off Uber Technologies Inc.’s UberEATS. 50% of all orders while Grubhub is left to fight with The company ended up performing extremely well in the face of three other companies for the remaining delivery increased competition. These current trends, however, are a business. In two other restaurants, DoorDash gets 80% change from our Aug. 31, 2017, report in which all seven of the delivery business while Grubhub holds 20%. Two restaurants representing large national chains using Grubhub said sources said Grubhub receives 50% of the delivery they were satisfied to very satisfied with the service, and five business. sources rated it highest among food delivery options. 2) Restaurants Using Only Grubhub . Twelve of 13 total sources in this report said the online food One source at a KFC in the Midwest said Grubhub is delivery business will continue to expand in 2019 and will benefit seamlessly integrated into the order system all delivery platforms, including Grubhub. Online food delivery corporatewide, and a unified standard makes the work orders make up an increasing amount of total orders for these with Grubhub easy and effortless. Grubhub has grown slightly year to year as it accounts for a larger portion of restaurants. Orders through delivery platforms now represent 35% the location’s sales even if still below 10%. Having the of business for two sources, 30% for one source and 25% for relationship with Grubhub managed at the corporate another. A McDonald’s Corp. (MCD) franchise owner who uses only level eliminates a potential distraction and allows the UberEATS said the volume of delivery in 2019 will be like adding an franchise to focus on daily operations. Also, Grubhub’s entire new restaurant. fees are handled at the corporate level. Online delivery platforms are bringing new customers to stores, 3) Restaurants Using Only Competitors according to five sources, and online orders are for higher average These two sources have seen overall sales increase as ticket amounts, including up to three times the size of in-store a result of partnering with food delivery companies. orders for the McDonald’s source. They also have raised their prices for online delivery orders to recoup the associated costs and keep their . Five sources are passing the fees for these services on to their margins the same. One McDonald’s franchise owner customers in the form of higher prices online, allowing the said that although UberEATS has an exclusive deal with restaurants to maintain their margins. McDonald’s, he welcomes the opportunity to work with all delivery companies so he can serve more customers. As in our previous reports, UberEATS and DoorDash are Grubhub’s His daily deliveries have at least doubled to almost primary competitors and outpace the company in driver reliability, tripled from a year ago. His stores have been so busy customer demand, and market share. with orders that he has added a separate window solely for UberEATS pickups. UberEATS has yet to deliver data . Four of the eight sources who commented said Grubhub’s analytics upgrades to McDonald’s, though they are technology was superior to competitors’ in terms of ease of use, supposedly on their way. It does, however, have a way integration and analytics, though most do not use many of the to alert the franchise owner when the app has been features. Others described Grubhub’s tablets as outdated and slow shut off during busy times in the store. McDonald’s is compared to competitors’. working on better delivery packaging to maintain freshness. 1 75 Second Avenue, Suite 605, Needham, MA 02492 | www.blueshiftideas.com Grubhub Inc. Overall Online Satisfaction Satisfaction Business from Business from Food Delivery with with Grubhub Grubhub Competitors Orders Competitors Restaurants Using Grubhub and Competitors Restaurants Using Only Grubhub N/A N/A Restaurants Using Only Competitors N/A N/A Background Grubhub beat third-quarter earnings and revenue expectations, setting records along the way in what typically is the company’s weakest quarter. Revenue climbed 52% as gross food sales increased 40%. Active diners were up 67% to 16.4 million, and Daily Average Grubs grew 37%. Grubhub increased its guidance for fourth-quarter revenue, and added more new restaurants to its platform in the third quarter than any other quarter, including several thousand Taco Bell and KFC (Yum! Brands Inc./YUM) locations. Grubhub noted that its advertising efforts have been particularly effective. Grubhub announced its acquisition of Tapingo in September, adding a leading platform for food ordering on college campuses in a way that allows students to use meal-plan money instead of personal credit cards for their orders. This gives the company access to over 500,000 students at 150 schools. Grubhub also acquired LevelUp, a digital ordering, payments and loyalty company that helps with restaurants’ point-of-sale systems so the company can take on more deliveries. At the same time, Grubhub is sunsetting its Eat24 acquisition from a year ago, gradually shifting those diners over to Grubhub over the next six months and calling into question its ability to integrate and maintain a third brand in addition to Grubhub and Seamless. As the food delivery business has flourished, Grubhub’s competitors have provided an increasing challenge to the market leader. A report shows Grubhub leading the industry in July with 34% market share, followed closely by UberEATS at 28% and DoorDash at 18%. However, Grubhub’s share fell from 42% at the end of 2017, while UberEATS (up from 25%) and DoorDash (up from 13%) saw their share grow. Grubhub is most heavily concentrated east of the Mississippi, while DoorDash and UberEATS have a larger presence out West. UberEATS is taking full advantage of its delivery partnership with McDonald’s, with more than 5,000 restaurants using the delivery service. That number grows every day, including 42 new locations in New Jersey, 27 in Pennsylvania, and now in Ireland. McDonald’s also is promoting the seasonal release of the McRib by telling customers they can get it via delivery through UberEATS. DoorDash raised an additional $250 million on the heels of its $535 million round, boosting its valuation to $4 billion. DoorDash boasts partnerships with Buffalo Wild Wings Inc. (BWLD), Chipotle Mexican Grill Inc. (CMG) and Wendy’s Co. (WEN), among others. Both challengers are making acquisitions of their own, focused on the back-end technology and processes to handle higher volumes and logistics and to provide insight into restaurant operations. Combined with Postmates’ efforts to raise funds through a public offering in 2019, Grubhub faces a tall task in fighting off competitors. Sources for Blueshift Research’s Aug. 31, 2017, report said Grubhub’s purchase of Eat24 would help it keep its competitors at bay, a reversal of sentiment toward the company from our April 5, 2017, and Nov. 16, 2016, reports. Two franchise owner sources said their companies were looking to establish standard agreements with Grubhub for all locations. Sources’ concerns about Grubhub applied to all food delivery services in the industry: uncertainty about the quality and professionalism of drivers and the resulting guest experience, as well as mediocre technology that still required manual order entry as POS systems were not yet synced. UberEATS and DoorDash were sources’ most commonly used competitors. DoorDash was a steady performer and assertive partner. UberEATS drew more disparate opinions, mostly because its higher fee matched its performance for some sources but not for others. 2 75 Second Avenue, Suite 605, Needham, MA 02492 | www.blueshiftideas.com Grubhub Inc. Current Research Blueshift Research assessed whether Grubhub’s was losing share to competitors. We employed our pattern mining approach to establish four independent silos, comprising 13 primary sources (including one repeat source) and five relevant secondary sources focused on growing partnerships between restaurants and food delivery companies, including Subway opening up to delivery at 9,000 of its locations. Interviews were conducted Nov. 12–23. 1) Restaurants using Grubhub and competitors (10) 2) Restaurants using only Grubhub (1) 3) Restaurants using only competitors (2) 4) Secondary sources (5) Next Steps Blueshift Research will continue to monitor events within the food delivery business to learn whether industry growth is enough for all providers to succeed or if increasing competition will result in lost share for some. We also will track the success of delivery for Subway, Chick-fil-A and other fast-food franchises that are beginning to embrace the concept, and whether any one delivery partner excels at these companies.