Third-Party Delivery on the Public Market
By: Kristen Hawley
Tags: Technology, Delivery, Restaurant, Food Delivery

This originally appeared in the February 7, 2020 edition of Expedite. Subscribe here.

Both Grubhub and Uber reported earnings for the last months of 2019 this week, offering a look into the current economics of the delivery business. The theme still seems to be “throw money at the growth curve at all costs.”

Grubhub once again included a letter to shareholders in its earnings report, outlining strategic initiatives and explaining challenges in the current market. For example, it breaks down, in great detail, the different amounts of money it takes from different types of orders — a partnered restaurant, a quick service (that’s fast food) partner, and a non-partnered restaurant (those are the restaurants that don’t have a contract with a delivery company but are still listed on the site). Grubhub continues to assert itself as the incumbent in a field full of upstarts, but is still seen to be playing catchup to newer-to-market companies who emerged with different — and aggressive — growth strategies. Now, offerings for all the major companies are starting to align — think: subscriptions, loyalty programs, ambitious growth targets — but Grubhub’s CEO remains firm that market consolidation is not inevitable.

Uber CEO Dara Khosrowshahi has been vocal about challenges of the Uber Eats business. He’s vowed the company will pull out of markets which it can’t win; most recently Uber sold its India food delivery business to competitor Zomato. According to Khosrowshahi, we’re currently in “peak investment” season for Eats as the company spends money to attract business and drivers. Last quarter, Uber Eats lost $461 million on revenue of $734 million.

Uber knows its best asset is its current customers, and makes efforts to convert them from ride-sharers to food-orderers. Khosrowshahi says a new subscription program, still in its early days, accounts for over 10 percent of volume in some markets.

Clearly, the win for these companies is to keep engaged diners coming back, so they’re also increasing restaurant supply at all costs. Grubhub explained it added tens of thousands of “non-partner” restaurants to its roster — a move that played out in the press as several noted restaurateurs discovered their restaurants were listed on the platform without explicit permission. In fact, they say, this practice could do more harm than good to their businesses — listing outdated menus or items that don’t (or can’t, hello, wine pairings) travel well. Uber Eats does this too, as Khosrowshahi noted, in an effort to, he said, “improve our addressable footprint.”

Nelson Chai, Uber’s chief financial officer, said that sales from non-partner restaurants make up a “very, very small percentage” of overall volume. “We’re being careful in rolling out the feature because we want to make sure that the delivery times, the delivery qualities continue to be at the levels of excellence that we insist on,” he said.

What’s best for Wall Street isn’t always what’s best for an individual restaurant business, though. This growth-at-all-costs mentality at larger companies makes imperative for a restaurant business — large or small — to weigh its options for growth in delivery.

A handful of smaller competitors are betting on the unsustainability of the current state of the business, marketing to restaurants with messaging that explicitly calls out the opportunity to own customer relationships. Los Angeles-based Chow Now, a digital ordering platform for independent restaurants, managed to irk Grubhub by touting the company’s “sky high fees.” According to the New York Post, Grubhub recently sent ChowNow a cease and desist order, but ChowNow CEO Chris Webb doesn’t appear to be backing down from his company’s messaging.

BentoBox, a company that provides restaurant website design and other tech services just added direct ordering to its menu, charging the restaurant a flat $.99 per order placed. According to the company’s CEO, it’s the first step in what will likely be more offerings, including supported delivery. This won’t be a new service — I wouldn’t be surprised if a company like DoorDash handled deliveries. Instead, it’s a difference in the way orders are placed: directly with the restaurant. Right now, this is a huge distinction, but not necessarily something that’s top of mind to consumers — at least, not yet.

What else is happening?

Tock + Chase: In the latest round of reservations services partnering with credit card companies, Tock hooked up with Chase, offering some Chase cardholders access to Tock’s network of restaurants and the ability to redeem points toward dining experiences. There are a lot of reasons why Tock is particularly well-suited to a partnership like this. Mostly: its high-end network of in-demand restaurants and the fact that many require ticketing or prepayment could make the partnership feel especially rewarding to those who can access it.

Empty spaces: The Wall Street journal reports that all of those unused retail spaces — namely, old malls — could be put to good use as ghost kitchens, the next property development frontier. Ok, sure?