The Good News for GrubHub? People Want More TakeoutBy
GrubHub Seamless is the latest in the parade of tech companies privately filing to go public. The Wall Street Journal reports that the online takeout and delivery company has filed a confidential S-1 and could make an initial public offering sometime in the first half of 2014. The company declined to confirm the report or comment on its plans.
A recent look at the economics of the restaurant industry indicates that all signs are pointing to more online ordering in the near future. The National Restaurant Association published an annual forecast last month suggesting more restaurant meals ahead, but this optimism actually reflects a pattern of weakness in the business. Following the past three recessions, the restaurant industry has grown at a real rate of more than 2 percent over a three-year span of economic recovery. This time around, however, the real rate of growth hasn’t yet topped 2 percent since the 2008 recession.
Sales in the restaurant industry are expected to hit $683.4 billion in 2014, a 1.2 percent increase, adjusted for inflation. The report describes customers as “primed to burn off their accumulated pent-up demand for restaurants when they are more confident in their personal financial situation,” and they should begin fulfilling their desires if the recovery continues. Consumer confidence keeps bouncing around but has been ramping up since the fall.
More than 40 percent of those surveyed by the National Restaurant Association said there wasn’t enough takeout food in their lives. Interestingly, more men said they’d like to do more ordering in, while women were more inclined to say they aren’t going out to eat enough. Both restaurants and customers have become relatively comfortable with the idea of online ordering: Well more than half of people under the age of 44 already use the Internet for takeout or delivery, and three-quarters of people between ages 18 and 34 said they were likely to use a smartphone to order food.
Most restaurants say they expect to see more online ordering. Fine dining was the only category in which fewer than half the establishments surveyed expected to see an increase in online ordering, and even 48 percent of those fancy restaurants anticipate a jump in online takeout.
Where does this leave GrubHub Seamless as it moves toward a potential IPO? As an outsourced ordering business, it’s far ahead of its competitors and enjoys some strong network effects. Having the most options matters: If you’re using an online delivery app, you want as many choices as possible.
A nagging problem has been restaurants themselves complaining about commissions. While some restaurants have set up their own online ordering systems, that approach has problems. When the National Restaurant Association asked about concerns with consumer-facing technology, large majorities of restaurants named the price of implementation as the biggest headache. Per-transaction costs were the next most common concern. That is likely good news for GrubHub Seamless, which doesn’t start collecting its fees until restaurants are processing new orders.