Grubhub – Easy for the customer, hard for the restaurant?
In a platform that relies on featuring many options and attracting many users, which side to focus on?
Founded in 2004, Grubhub has become the leader in online food delivery. In recent years they have built an impressive portfolio of brands through mergers, acquisitions and partnerships. This has allowed for significant scale in the platform, which features 80,000 restaurants in 1,600 cities and serves 392,500 daily orders . But in a market worth “1 percent of the total food market and 4% of food sold through restaurants” according to Mckinsey, competition has increased significantly, with popular brands such as Amazon and Uber hoping to gain a share of the pie.
Food delivery services are gaining increasing importance as they create significant value for the users and the restaurants. From the user perspective, food delivery apps provide a one-stop-shop to access a wide range of options. In addition, the services provide convenience, as the food is delivered to the user’s door without the need to wait in line, or go out in bad weather. The friendly consumer interface allows for discovery and a seamless experience, while centralization decreases frictions in key parts of the customer journey such as the check-out. By creating a profile only once, the customer is able to order from different establishments without the need to input their data, therefore streamlining the process.
From the restaurant perspective, in essence, being part of this services provides access to more customers. In addition, Grubhub provides services to improve the efficiency of restaurants, for example they provide a “simple restaurant platform” which seeks to increase the efficiency of the partner restaurant’s takeout business .
This platform model allows Grubhub to capture value in two main ways; by charging a fee to restaurants for each order and by charging a delivery fee to users . The potential scale of the opportunity and the monetization options has not failed to attract competition to what seems like a winner takes all market. The indirect network effects in food delivery appear to be strong, the more users are present in the market, more restaurants will try and be part of the platform. Similarly, as more options are available in a platform, more users are drawn to it.
Although this seems straightforward from a user and restaurant perspective, several negative implications for restaurants arise. Even when delivery still signifies a small percentage of overall restaurant transactions, currently just 3% , there are significant operational challenges associated with delivery. Serving the customers in a new manner means new logistics for restaurants. Moreover, the overall restaurant experience has to be re-conceived, as, in part, the customer is no longer in the premises. Considering the difficulties, restaurants face increased complexities as the number of platforms they participate in increases. Each platform has its own processes and interface which limits the amount of multi-homing a restaurant is able to manage.
Therefore, it is not surprising that Grubhub sought to create value for the restaurants as well as for the users. In this market, users can easily multi-home unless a there is a significant differentiation among platforms, the number of establishments featured being the most important. Restaurants, on the other hand, are likely to use a limited number of platforms if not only one, and it is therefore in the company’s best interest to create significant value for them.
As stock prices and analysts’ expectations for Grubhub and similar companies continue to increase, more competition is bound to arise. In a market that is still young and growing, it will be interesting to see which platform best leverages the indirect networks effects and creates a “stickier” user base that ensures long-term sustainability. As of now, it appears that an initial advantage and scale are key factors of success.
Student comments on Grubhub – Easy for the customer, hard for the restaurant?
Thanks for a great post! As an avid user of GrubHub and all of its many, many competitors, I too am very curious about how one of these players will manage to capture significant market share over time. Uber East – from my very anecdotal personal experience – often wins my wallet because of their wide array of restaurant options – as you noted – and their price (just a dollar or two cheaper than Grub Hub and others). I wonder if there are any other ways that services can steal market share – assuring hot food? Better delivery infrastructure?
I wonder whether this intensified competition in the food delivery space, might not spurr the rise of more “ghost restaurants”.
Restaurants with no physical location, but a mere kitchen can espouse the logistical needs of platforms such as Grubhubare while also multi-homing on their end (a departure to what your post suggests).
I agree that is possible. But, then what are the legal implications of that? It needs to be more a professional kitchen possibly, and these businesses will be built around the platform business model, and able to deliver a better integration and experience for the end consumer.
You mention that it is a winner takes all market? Could you please elaborate? I don’t know a lot about it but I am curious to know more about the complexity about having a platform operating services delivery for all the restaurants in a certain geography? Also there might be cross-learning around geographies, but other than that how a platform in city X is able to leverage its advantage in City Y? It seems Grubhub and co. are there to face many more challenges. Looking forward to see how it pans out.
Great post. This is useful for those who have their own restaurant or cafe business. Besides this, an online food delivery app is essential to grow the restaurant business and increase its sales.