When GrubHub IPO’ed in April 2014, the shares popped 31% as they freed to trade in the secondary market. Headquartered in Chicago, GrubHub is the leading online and mobile food ordering company in the United States. At its core, the company is a two sided marketplace, connecting 35,000 independent restaurants with 6.5 million hungry consumers. GrubHub’s value proposition is to make takeout ordering more efficient and less frustrating for consumers and to increase revenue and margins for independent restaurants. GrubHub’s convenience and service orientation fulfills consumers’ current demands for delivery of everything though an app. While GrubHub has many competitors, such as Caviar, Foodler, and Eat24, it has remained the leader in the online takeout sector, with its position being further cemented by its merger with Seamless.com in May 2013. Rapidly growing, GrubHub is present in 900 cities in the U.S. and London. On average, consumers place over 200,000 orders per day through the site. Last quarter, restaurants on the platform saw $550 million of gross food and beverage sales through GrubHub. GrubHub’s success can be traced to its clear alignment with both the consumer and the restaurant. Both sides of the company’s marketplace contribute to the others’ growth – more users generate increased profits for restaurants, driving more restaurants to sign up for the platform.
GrubHub is a software company, connecting restaurants to potential diners. While diners derive better takeout experiences by using GrubHub, restaurants earn revenue and profits on each order placed through the platform. Therefore, GrubHub’s revenue model is to charge restaurants a flat percentage fee on each order placed on its website. This model means that GrubHub’s interests are aligned with its customers, as restaurants only pay the company when an additional revenue generating order is placed. In addition to generating growth for GrubHub, this model has translated into success for restaurants as well. Within one year of joining GrubHub, restaurants report a 30% growth in their monthly takeout revenue. On average, restaurants that are part of the GrubHub network generate six times the monthly takeout revenue of restaurants not on the platform. Many of the company’s smaller customers double their overall revenue by signing up for GrubHub. Additionally, the company generates supplementary revenue by offering a tiered percentage fee; a higher percentage allows restaurants to be listed at the top of GrubHub’s search page.
GrubHub’s operating decisions show the company’s commitment to aligning their interests with not only their restaurant customers, but also consumers. GrubHub’s website is easily accessible by both desktop and mobile, ensuring the consumer can order whenever and wherever he/she is hungry. The interface is clearly designed to create a seamless ordering experience where menus are accessible and updated, orders are clearly transmitted, and kitchens receive an order as soon as it’s placed. Additionally, the company has a robust 24/7 customer service platform and a “track your grub” feature, allowing consumers to know where their order is and when to expect it. We see GrubHub’s commitment to customer service in the growth of their Operations and Support expense line. The company grew spending in this category by 85% and staffing by 51% YoY in order to support increased order volumes. GrubHub’s commitment to scalability and increased margins in its own business can also be seen in its restaurant customers’ businesses. Because restaurants can grow revenues through GrubHub, without adding wait staff or seating space, they can increase their profitability. Additionally, restaurants cut order processing time by 50% on average by using GrubHub’s software.
Through its transaction based revenue model and focus on customer service, GrubHub has clearly aligned its business and operating models with both sides of its marketplace. Within the past year, the company has acquired DiningIn and Restaurants on the Run, delivery services businesses. Through these acquisitions, GrubHub will offer delivery services to restaurants to encourage them to join the platform. While delivery services represent a move away from the company’s historically asset-lite business model, they fit well with the company’s efforts to align itself with the restaurant, by providing more services, and with the consumer, by ensuring efficiency throughout the takeout process.
GrubHub, Inc. 10-Q for the quarter ended 9/30/2015
GrubHub, Inc. 10-K for the year ended 12/31/2014