Can GrubHub Go the Last Mile?
Only a few years ago, tracking tools weren’t really a part of the food delivery experience. You typed in your order -- or, if you were really old you called the restaurant -- and at some point food showed up. You didn’t always know how long it would take and, depending on your hunger level, you didn’t really care. The most important thing was that eventually you’d have pizza, hot and delicious, without having to put on shoes.
Thanks to services like GrubHub, and emerging players like Postmates, we’ve come to expect more from our food delivery services. When I recently ordered dinner, GrubHub’s app constantly updated me on my meal’s progress. It can track my delivery guy’s movements on a small map, a god-like cartographic view popularized by Uber and Lyft.
Lots of companies are trying to transform food delivery service in the same way that other tech start-ups have changed the taxi and limousine industries. In addition to GrubHub and Postmates, competitors include Eat24, Sprig, Munchery and Spoonrocket, to name few.
All of these ventures are going after a big market: the nation’s 365,000 independent restaurants, which sell about $70 billion in takeout food a year, according to GrubHub’s latest annual report. The company says that this could be a $100 billion market, since many of these businesses aren’t equipped to offer delivery and if more restaurants were able to deliver more people would order it. GrubHub says it serves only about 8 percent of the existing takeout market.
The battle for a not-so-glamorous business reflects tech’s growing obsession with the so-called “last mile” of delivery -- that stretch providers have to cross to actually reach a consumer's doorway. There’s a theory that demand for products will increase if consumers get a uniform, reliable, predictable experience that comes to their doorstep or into their home.
If it’s easier and reasonably affordable to get delivery than to go out for food or groceries, more people will fire up the app and order and more restaurants will do more volume to meet that added demand. More volume means, in most cases, more commissions for delivery companies and service providers. The race to control the last mile for delivery -- of food, of hardware, of content, of Internet access, of everyday household goods -- has drawn companies ranging from Amazon to Eaze into the door-to-door game.
GrubHub has invested a lot of money to become food delivery's Goliath. In 2012 it invested in food ordering tools that made things more efficient on the restaurant side and tracking tools that make delivery more predictable for diners. It acquired Seamless, its closest rival, in 2012. And this year it finalized its acquisition of two delivery services.
To make even the last few blocks a consistent experience, GrubHub plans to to slowly cut out restaurants' own delivery people so it can get the food to our mouths itself.
All of GrubHub's spending seems to be paying off. Its annual revenue jumped 85 percent in 2014 to $254 million and net income more than tripled to $24 million. That’s right, income! That's a word that most startups don't utter for a long time as they spend heavily on marketing and other customer acquisition expenses that erode profits.
When I asked GrubHub’s chief executive officer, Matt Maloney, who his competition would be five years out from now, he conceded that few other restaurant delivery companies have much of a chance against a well-capitalized, profitable competitor that can roll up smaller players. But he wouldn’t say outright who he thinks will be left standing to fight him for control of that last mile for food delivery.
“As people start to rely more on local restaurants and other innovative ways to feed themselves, it’s hard to say who will emerge as a big competitor,” Maloney said. “The sort of pick-up and delivery that we do now is the use-case that people are familiar with. [GrubHub’s big competition] could be a grocery delivery service or a company like Munchery or Sprig that takes the whole idea of a sit-down restaurant out of the restaurant equation by only doing delivery. There are lots of opportunities for other players to be successful.”
He didn’t think that transportation providers like Uber and Lyft would be competitors -- at least not in the near term. “They excel at logistics and executing order fulfillment, but they’re not in the business of being a destination that people go to when they’re hungry,” he said.
To some degree, I see Maloney’s point. It’s much easier to deliver a bottle of detergent than it is to get a hot meal to someone’s door. Temperature, for example, doesn’t really matter when you're delivering books and diapers. It’s also fine if a box falls or is turned upside down if it contains shoes or canned goods. With made-to-order meals, well, not so much. That's why restaurant food isn’t a natural fit for most companies in the consumer deliveries business.
What about a few years down the road, though? The landscape could change. Uber has made forays into the food delivery game with UberFresh in Los Angeles and UberEATS in Barcelona. Amazon and Google are delivering groceries. Clearly these companies do want to be associated with food to some degree.
Food delivery is especially appealing to the Ubers and Amazons of the world, companies that have already seen how sales volume increases when the last mile is as seamless as possible for customers. Cab demand has grown exponentially for Uber because it offers an easy-to-use service. Amazon Prime members, who get free shipping and fork over an annual fee for the privilege, are way more likely to order from Amazon than from other online retailers.
If the existing retail and digital behemoths do decide to wade into the food delivery market, GrubHub is going to face more well-funded and wily competition. That, of course, is nothing new in the tech industry, where start-ups routinely have to defy the odds and bigger competitors if they discover an under-served market.
GrubHub may have enough of a head-start to dominate the last mile it needs to own to continue fueling foodies. Or it may just find that it becomes the beneficiary of a very lucrative acquisition.
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Timothy L. O'Brien at email@example.com