Never leave home: Grubhub vs. Grocers

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Never leave home: Grubhub vs. Grocers

By Mike Troy - 02/08/2018
Grubhub said it had 14.5 million active users during the fourth quarter as popularity of the delivery service surged.

Grubhub just reported fantastic fourth quarter results and normally food retailers wouldn’t pay much attention to the company, but that is a mistake. Grubhub was founded nearly 15 years ago as an interesting app that allowed users to have food ordered from local restaurants delivered by crowdsourced drivers. Grubhub has come a long way, especially since it went public in 2014, and now it and others of its ilk are an immediate competitive concern for food retailers as well as a potential long term opportunity.

Here’s why: Grubhub is already the nation’s largest takeout marketplace for food delivery and growing rapidly. During the fourth quarter it facilitated food sales of $1.1 billion, a 39% increase from the prior year. The number of active diners who use Grubhub increased 77% to 14.5 million. The company defines the word “active” broadly as someone who used the service within the past 12 months, but nevertheless usage has spiked. The company also saw profits surge with net income of $53.5 million, or 60 cents a share, up 293% from the prior year’s $13.6 million, or 16 cents a share.

"Over the past two years we have taken incredible strides in expanding the breadth and depth of our restaurant network, growing the number of local restaurants we work with from 40,000 to over 80,000 today," said Grubhub CEO, Matt Maloney.

Now the company has taken arguably its largest stride of all by signing a deal with Yum! Brands that involves the parent company of KFC and Taco Bell investing $200 million in Grubhub and making its brands available on the platform. KFC, Taco Bell and Grubhub will work with franchisees to test and roll out online ordering for pickup and delivery to thousands of participating restaurants so consumer will be able to have a chicken or tacos delivered.

"The partnership with Yum! which we announced this morning will accelerate the expansion of our delivery network and amplify our diner acquisition efforts, raising consumer awareness of online ordering and driving more volume for all restaurants across our platform,” Maloney said.

The reason why food retailers should care about Grubhub’s future has everything to do with the larger trend of food away from home versus food at home and related traffic challenges. Segmenting consumers into the two large buckets of food at home and food away from home becomes increasingly challenging as the distinctions blur. For example, food away from home, basically restaurants, becomes food at home because of where it is consumed rather than where it is purchased.

When viewed broadly, Grubhub is a competitor of sorts in much the same way as home delivered meal kits. Grubhub delivers food from restaurants while meal kit purveyors like to tout that home chefs can prepare restaurant quality meals from a box of ingredients. Either way, both siphon customer traffic away from traditional food stores, robbing retailers of the valuable trip and all the incremental purchases that come along with it.

It doesn’t have to be that way. As more and more grocers emphasize their prepared food offerings and begin to resemble restaurants themselves, it makes as much sense for them to be a part of the Grubhub platform as various types of restaurants. That way a mom at home contemplating dinner could order a rotisserie chicken and side items from her local supermarket just as easily as from KFC.