- Grubhub, founded in 2004, led food delivery for years before DoorDash surged ahead.
- Employees say Grubhub was slow to embrace technology and adapt to the changing industry.
- It has plunged to last place in the meal-delivery space and was recently sold to Just Eat Takeaway.
- See more stories on Insider’s business page.
At the start of 2018, Grubhub was still the king of food delivery. The well-established company started the year owning half the market, while its upstart rival DoorDash controlled only 17%.
But just 12 months later, it was suddenly neck and neck with DoorDash, with each controlling about 30% of the market, according to transaction data from Second Measure. By 2021, it was in a distant third place behind DoorDash and Uber Eats, controlling just 16% of the market.
Insiders say Grubhub’s sudden plunge was caused by a failure to adapt to the changing delivery space.
The global pandemic that spurred a surge in food delivery somehow left the once-prominent player behind. Grubhub’s recent merger with the European delivery giant Just Eat Takeaway has only added to its problems, with investors losing confidence in the company’s strategy and leadership.
Insider spoke with seven former Grubhub employees at various levels of the company who were employed during pivotal moments in the delivery race. Their identities are known to Insider, but they spoke on condition of anonymity for fear of professional repercussions.
“Grubhub has built a strong, consistently profitable business by serving restaurants and focusing on sustainable verticals, generating $14 billion in sales for restaurants and growing more than 60 percent since the start of 2020,” a Grubhub spokesperson wrote in response to Insider’s questions for this story.
‘We just couldn’t compete with that venture-capital money.’
Matt Maloney cofounded Grubhub in 2004 as a company that digitized paper menus, a revolutionary idea at the time. From there, he built an online food-ordering empire that gave consumers a massive marketplace for doorstep delivery mostly to city dwellers.
Grubhub went public in 2014, years before its competitors would. As startups began staking their claim in the restaurant-delivery market, Grubhub’s Maloney pointed to profitability as a point of distinction between his company and venture-backed delivery players like DoorDash and Uber Eats.
But to some employees, the company’s focus on profitability was part of Grubhub’s downfall. DoorDash and Uber Eats didn’t have shareholders to worry about. What they had was venture capital.
“They were burning money,” a former Grubhub manager who worked at the company until 2020 told Insider, describing Grubhub’s rivals. “They were just spending – all these crazy ads, these crazy billboards everywhere. They were giving restaurants crazy good deals. And we just couldn’t compete with that venture-capital money.”
To keep up with these tech-savvy startups without profitability restraints, the company tried to buy its way to growth and tech upgrades.
Right before going public, Grubhub bought its only real competitor at the time – New York City-based Seamless. Between 2015 and 2018 Grubhub bought LAbite, LevelUp, OrderUp, Tapingo, Yelp’s Eat24, DiningIn, Restaurants on the Run, and Delivered Dish.
But these acquisitions weren’t integrated with Grubhub’s tech, former employees said.
DoorDash’s logistics technology was built from scratch and viewed as superior to Grubhub’s. It was attractive to both consumers and fast-food chains, as well as venture capitalists. The company’s white-label software, which lets restaurants use DoorDash’s technology through their own apps, further ingratiated DoorDash with restaurants.
Restaurants wanted these services from Grubhub, former employees said.
DoorDash and other competitors also began expanding beyond restaurants by delivering groceries, pet supplies, and drugstore goods.
But Maloney refused to explore new options, some former employees told Insider.
“Matt and the team just don’t want to do anything but food. I think it’s a stupid decision. I literally screamed at the top of my lungs and said, ‘Guys, you just don’t get it,'” said a senior-level director who was with the company for four years and throughout most of the pandemic.
Grubhub was always falling behind on innovation despite being a decade older than DoorDash, a former regional manager who recently left the company told Insider.
“They’re not a tech company, and that’s their failure,” he said.
Grubhub had always maintained that its best path to profitability was being a discovery platform, or marketplace, for restaurants – not a logistics company. The company resisted launching its own delivery service with gig drivers until 2015. (On Grubhub’s platform, restaurants used their own delivery fleet, while DoorDash and Uber Eats often supplied drivers for the restaurants)
Grubhub “had a damn near monopoly” of the food-ordering business, but the company “got into delivery defensively,” the restaurant consultant Gary Stibel said. “They were doing it because they had to, not because they wanted to.”
Deteriorating restaurant relations
In 2019, Grubhub came under fire when reports began to surface that it was creating shadow restaurant websites and phone numbers that resulted in surprise charges to its restaurant clients. This negative press put Maloney and Grubhub on the hot seat for months, earning the company a reputation among some restaurants as one of the worst delivery operators.
At the time, Maloney defended the phone and doppelganger website tactics, saying they were legitimate strategies written into restaurant contracts.
“These orders made very little money for us and in many cases we lost money,” Maloney said in a 2019 internal memo.
Grubhub was viewed as strict with its restaurant contracts, forbidding operators from jacking up menu prices on the Grubhub app to offset commission fees, which could be as high as 30% of a transaction. DoorDash, on the other hand, gave restaurants flexibility to recoup commission fees by raising prices on its app.
That flexibility earned DoorDash the reputation of being more friendly with restaurants.
At the same time, DoorDash was fast-tracking restaurant adoption, and market share, by adding hundreds of restaurant menus to its app without permission. This policy, when discovered, often infuriated restaurants.
These orders often led to confusion from customers and restaurants when menus and prices were out of date on the app, and they didn’t make much money for DoorDash. But they gave DoorDash customers more options and encouraged repeat visits.
According to former employees, Grubhub was reluctant to use the same tactics. They were “against our supposed morals, our values,” the former Grubhub manager who worked at the company until 2020 said.
But in a leadership meeting in October 2019, the tone had changed.
“We were losing on the restaurant supply. That forced our hands as a strategy to play catch-up,” the former senior-level director said.
In an October 2019 shareholder letter, Maloney acknowledged that Grubhub was losing the delivery war as “promiscuous” diners were ordering less frequently from their app. Much of the reason: lack of restaurant choices.
Though Maloney said it was “expensive” and operationally inefficient, Grubhub copied DoorDash and began adding restaurants without their permission. It was the only way to close the gap and stop “diners to look anywhere else.”
Grubhub started adding restaurants to its site without their permission in late 2019. By February 2020, Grubhub had doubled its restaurant count by adding 150,000 nonpartner restaurants to its app. But its chunk of meal-delivery sales in the US dropped further to 26% versus DoorDash’s 45%.
When restaurants complained about appearing on apps without permission, it was Grubhub that often got the blowback over the policy.
Suburban surge leads to fire sale
Like the rest of its competitors, Grubhub got a sales bump from the pandemic.
But many residents were fleeing the cities where Grubhub had a stronghold. DoorDash’s bet on the suburbs began to pay off, the senior-level director recalled. “We were definitely in third place in the suburban market. The tables turned, and the suburbs blew up.”
Grubhub generated $1.8 billion in revenue in 2020, which was a 39% increase year over year. But the company also reported a net loss of $155 million in 2020, its largest loss since going public.
The company explored selling itself last year. Uber was a key suitor, but at the last minute, the European giant Just Eat Takeaway bought Grubhub in a deal that valued the company at $7.3 billion. The company was valued at more than $12 billion in 2018.
When the deal closed this summer, Grubhub owned a 16% share of US meal-delivery sales, down from 49% in January 2018, according to Second Measure. DoorDash now controls 56% of the market.
In a July 15 earnings call, the first since the merger, JET leaders outlined their growth plans for Grubhub.
Jitse Groen, CEO of Just Eat Takeaway, said Grubhub will start to “fortress” its US business by investing in cities like New York and Chicago where the app has a stronger presence.
This is a similar strategy to Uber Eats, which has often noted it goes after urban markets where it is the No. 1 or No. 2 player and leaves markets where it can’t compete.
“Heading into this next chapter with Just Eat Takeaway.com, we are well positioned to capture a disproportionate share of growth in the US by focusing our efforts to build on Grubhub’s strongholds while maintaining our presence that connects restaurants, drivers, and diners in more than 4,000 cities and towns across the country,” Grubhub said in a statement to Insider.
-dara khosrowshahi (@dkhos) April 21, 2021
But investors have not been impressed with the merger.
Just Eat stock is down about 22% so far this year. The majority investor Cat Rock Capital told CNBC last week that JET should explore more strategic mergers, as it is “the worst-performing online food delivery stock over the past two years despite strong operational performance.”
Cat Rock also called out Groen for sparring with Uber’s CEO Dara Khosrowshahi on Twitter. In a tweet, Groen said Uber was trying to depress JET’s stock by announcing an expansion of the Uber Eats delivery business in Berlin, a major market for JET.
Khosrowshahi responded to Groen, writing, “Advice: pay a little less attention to your short term stock price and more attention to your Tech and Ops.”
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