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Grubhub Hustles to Catch Up in Business It Once Led
Deal providing access to Amazon’s Prime members gives delivery company new ammunition against DoorDash, Uber
By Heather Haddon Wall Street Journal July 17, 2022 9:03 am ET
Food-delivery apps like Grubhub gained popularity during the pandemic, but expansion has slowed.PHOTO: JUTHARAT PINYODOONYACHET FOR THE WALL STREET JOURNAL ---------------------
Grubhub recently offered New Yorkers a deal that the online food-ordering company hoped many couldn’t refuse: free lunch.
The May promotion, which promised $15 worth of free food to people who ordered through Grubhub’s app, overwhelmed Grubhub’s system, with as many as 6,000 takeout and delivery orders coming in each minute at the peak of the promotion.
This month, Grubhub struck a deal with Amazon.com Inc. to link part of Grubhub’s food-ordering service with the e-commerce giant’s Prime program, which has more than 200 million members.
The company is also signing agreements with big chains to deliver their food, including one with Chili’s parent Brinker International Inc. and a global delivery deal signed between Just Eat and McDonald’s Corp. earlier this year.
During the free-lunch promotion in New York, Adam DeWitt, Grubhub’s chief executive officer, said 200,000 new diners downloaded Grubhub’s app for the first time, and it processed 400,000 orders that day.
Still, challenges for Grubhub and the broader food-delivery business remain. Consumers flocked to food-delivery apps when the pandemic hit. Now, though the food-delivery business continues to grow, expansion has slowed dramatically from the pandemic-driven boom.
Grubhub rival DoorDash has also faced pressure from investors.PHOTO: WM. GLASHEEN/USA TODAY NETWORK-WISCONSIN/REUTERS
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Order sizes tend to be larger but transactions are fewer, analysts and restaurant operators said. Wall Street analysts said it remains unclear whether food-delivery companies can turn consistent profits in the postpandemic period, especially in an economic downturn.
Just Eat said it expects negative margins on its earnings after expenses this year, and told investors last fall that regulatory fee caps on food-delivery businesses like Grubhub in the U.S. had drained tens of millions of dollars in profits.
Just Eat’s shares are down roughly 83% since it closed its $7.3 billion acquisition of Grubhub in June 2021. Just Eat told investors in March that it expects its profit margins to improve later this year, and that it is fighting the local fee caps, which limit how much apps can charge restaurants in commissions to handle their orders.
Grubhub isn’t alone in facing pressure. DoorDash’s shares have fallen 52% this year. Investors recently pressed Uber’s CEO about how the food-delivery business may fare in a potential economic downturn. Both companies increased their delivery revenue in the latest quarter, though the pace of growth fell sharply from a year ago.
Grubhub, founded in 2004, initially focused on advertising restaurant menus online, while restaurant operators largely used their own couriers to deliver food. That model made money for the company for years, and Grubhub launched an IPO in 2014.
When DoorDash and Uber Eats debuted food-delivery businesses beginning in late 2013, charging fees to restaurants for delivering their food to customers, Grubhub was skeptical. Executives of the company believed the rivals would quickly run out of cash, and co-founder and former CEO Matt Maloney said he viewed food delivery as a “crummy business.”
As DoorDash and Uber Eats expanded, Grubhub formed a unit, initially dubbed Project Reindeer, to study launching its own food-delivery operation. Grubhub moved ahead on delivery, but executives were split on the strategy, according to people familiar with the discussions. Some executives cautioned that delivery would eat into the company’s profitability and distract from its online marketing business, the people said.
Meanwhile, DoorDash and Uber Eats were investing heavily in free-delivery promotions aimed at building their user bases, and signing up more restaurants to offer the users on their apps. DoorDash and Uber Eats launched monthly subscription programs as an incentive for users to order through their apps. Grubhub executives hesitated, worried about profitability, but eventually followed the move, the people said.
Grubhub and other apps also found themselves in the crosshairs of local politicians. Dozens of municipalities passed local rules limiting how much the apps could charge restaurants to handle their delivery orders after the pandemic hit, to try to help struggling local businesses survive the health crisis. Many of those have expired, and the apps are fighting to modify those remaining in cities such as New York and San Francisco.
Last year, Chicago filed lawsuits against Grubhub and DoorDash, accusing the companies of engaging in “deceptive practices to prey on its affiliated restaurants.” Both companies have denied the allegations. The city specifically accused Grubhub of misrepresenting a campaign it advertised as helping restaurants to survive the pandemic after it first hit, accusations the company denies.
In June 2020, Grubhub agreed to sell itself to Dutch food-delivery firm Just Eat Takeaway. The CEOs of both companies said at the time that they valued their online marketing business more than food delivery.
Months after the deal closed in 2021, activist investor Cat Rock Capital Management LP, the third-largest investor in Just Eat with ties to other major investors, began pushing the company to sell Grubhub. The firm said that buying Grubhub, which lags behind competitors, strayed from Just Eat’s core strategy of running market-leading delivery companies in European countries.
In April, less than a year after the deal closed, Just Eat CEO Jitse Groen said the company was exploring a strategic partner or the partial or full sale of Grubhub. Both industry players and private-equity firms have had discussions with Just Eat, according to people familiar with the discussions.
Just Eat has said its deal with Amazon includes the option of Amazon taking a 2% stake in Grubhub, and that the stake could increase based on the number of orders and customers the partnership generates.
Around two million new users have signed up for the Grubhub+ subscription delivery service since the Amazon deal, people familiar with the matter said, representing more than double the total number of Grubhub+ members last reported by the company. States that typically aren’t Grubhub’s strongest, including California, Texas and Florida, reported jumps in members during Amazon’s Prime Day event earlier this week, some of the people said.
Grubhub leaders say the company is more focused than it has been in years. The company has shed unprofitable delivery markets in U.S. suburbs to focus on major cities and its executives said they believe the market could still grow by billions of dollars.
Uber Eats, DoorDash Offer New Deals to Court Customers as Growth Cools Delivery apps look to move beyond food as they face high inflation, a potential economic downturn
By Preetika Rana Wall Street Journal July 20, 2022 2:02 pm ET
DoorDash says it expects the total value of orders placed on its app to grow about 20% this year.PHOTO: PATRICK T. FALLON/BLOOMBERG NEWS
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Food-delivery companies have a lot on their plate. After surging growth during the pandemic, they are now facing their slowest growth in years while confronting high inflation and a potential economic downturn.
With their shares tumbling and expansion cooling, DoorDash Inc. DASH -5.36%? and Uber Eats have been offering new ads and deals to attract customers, tweaking their apps to trigger more spending and moving beyond food to give people more reasons to return. They are also trying to keep restaurants from ratcheting up delivery prices while offering them new services.
Investors are asking, “‘Is Delivery a good business and why?’ and ‘What happens if we enter a recession?’” Uber Technologies Inc. UBER -3.84%? Chief Executive Dara Khosrowshahi wrote in a staff memo in May. “We need to answer both of these questions with undeniably strong results.”
Inflation has risen to a four-decade high, and restaurants are raising prices, making food delivery more expensive. There are early signs some consumers aren’t ordering as much as expected.
On Monday, the U.K.’s Deliveroo PLC trimmed its full-year guidance on the value of orders placed on its platform. Order value was below analysts’ expectations in the three months through June because of “increased consumer headwinds,” the company said.
A KFC order for Uber Eats, whose parent company’s shares have fallen more than 50% in the past 12 months.PHOTO: DOUGLAS R. CLIFFORD/TAMPA BAY TIMES/ASSOCIATED PRESS
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“I definitely have been cutting back on delivery and other excess spending,” said Nick Fong, a 29-year-old who lives in Los Angeles and starts business school in the fall. “My girlfriend has said multiple times, ‘Why are we ordering DoorDash? Let’s just go pick it up.’”
DoorDash CEO Tony Xu said on a May call with analysts, “Inflation is definitely a concern we certainly are taking very seriously.” DoorDash and Uber collectively control more than 80% of the U.S. food-delivery market. While both increased their delivery revenue in the first quarter and are expected to expand during the full year, the pace of growth has cooled sharply.
The total number of orders at DoorDash, Uber Eats and the other delivery companies in the U.S. grew 11% in the three months through June compared with the same period last year, marking the slowest quarterly expansion in the two years since the pandemic struck, according to the market research firm YipitData. Orders grew 48% in the same three-month period last year and 88% in the corresponding period in 2020. Delivery spending rose at its slowest quarterly pace in two years in the three months through June, YipitData said.
The third-largest U.S. food-delivery company, Grubhub, weighed on overall industry growth, YipitData said. Grubhub’s parent company reported that the app’s orders fell in the first quarter ended in March compared with a year earlier. Its parent company, Just Eat Takeaway.com NV, is considering selling Grubhub less than a year after acquiring it.
DoorDash and Uber Eats said that the pandemic accustomed people to ordering everything at the touch of a button and that the shift in habits is here to stay. The companies said that they are still growing and that inflation hadn’t significantly crimped demand during the first quarter that ended in March. They are scheduled to announce results for the June quarter next month.
Uber’s and DoorDash’s shares have each fallen more than 50% in the past 12 months, compared with the less than 20% decline in the Nasdaq Composite Index. The apps, among the biggest pandemic winners, must now show investors that they can continue to expand in a tough environment while trimming their losses.
Trevor Noah, after biting into an apparently inedible item, in an Uber Eats ad.PHOTO: UBER EATS/ASSOCIATED PRESS
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While analysts expected growth rates to slow from pandemic peaks, they are watching to see whether consumers treat the food-delivery apps like a necessity or luxury during what could be the industry’s first recession.
“There is more economic pain incoming for consumers,” said Matthew Goodman, a senior analyst at the data analytics firm M Science. “You have to wonder if more price-sensitive consumers are going to be willing to pay for that convenience as often as they have been,” he said.
DoorDash said when it released its first-quarter results that it expected the total value of orders placed on its app to grow about 20% this year, topping last year’s spending record. “Our strategy and operational efficiency has allowed DoorDash to outperform across market environments,” the company said.
Adam DeWitt discussed the company's growth outlook as Covid-19 recedes and customers return to previous habits, in a talk at the WSJ Global Food Forum. Photo: Ralph Alswang for The Wall Street Journal In a big television and online ad campaign launched during the Super Bowl, Uber Eats is pushing the message that it offers more than just food.
“Get anything. Don’t always eat it,” Uber Eats’ campaign slogan says after showing Gwyneth Paltrow and Trevor Noah biting into orders of soap and candles.
Uber and DoorDash are increasing their focus on delivering groceries and alcohol to bump up revenue. These items also help limit labor costs because more orders can be combined together. Earlier this year, DoorDash said it was working with Albertsons Cos. to deliver goods to customers in under 30 minutes, targeting a market led by Instacart Inc. Uber Eats is redesigning the grocery section of its U.S. app, a spokeswoman said.
To rein in labor costs, DoorDash last week said it would raise the minimum order for free delivery on smaller household items. In May, Uber said it would slow its hiring plans.
The apps are sweetening deals to persuade users to become subscribers, who usually pay a monthly fee for discounts on food and free delivery. Subscribers are important for continued growth, according to analysts, because they typically spend more than nonsubscribers and generate recurring revenue.
Earlier this month, Uber said subscribers would receive a 10% discount on each Eats order—twice as much as before. Grubhub struck a deal this month to offer its monthly membership to Amazon.com Inc.’s more than 200 million Prime customers. DoorDash has rolled out a student plan at half the price of its regular subscription.
Last month, DoorDash launched new features—including letting customers write reviews of restaurants and rate dishes—to try to tempt people to use the app more.
Apps are also trying to cap what restaurants charge on delivery so they don’t scare off consumers. DoorDash has negotiated a deal with McDonald’s Corp. under which it reserved the right to stop working with outlets that marked up delivery prices by more than 30% of the in-store price.
To expand their reach, Uber and DoorDash recently introduced nationwide shipping on orders such as gourmet cakes.
DoorDash is diversifying by extending new services to restaurants. In March, it purchased a startup whose order-and-pay software lets customers order food from their mobile phones while seated at restaurants. DoorDash said the service would take the burden off understaffed eateries by helping them better manage staff. In February, it began lending money to restaurants based on their sales on the app.
While delivery held up stronger than expected last year, Lloyd Walmsley, a UBS analyst covering the sector, said that pattern could be broken by the state of the economy.
“There’s definitely growing concern that this is a very tough place,” he said. “There’s a lot of reasons to be worried.”
Gig workers continues to be huge contributor to nation GDP. Sixteen percent of Americans have reportedly earned money by participating in the gig economy, the FTC cites. A survey from Mastercard estimates that the gig economy will spur $455 billion in yearly sales come 2023.
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FTC Issues a Crackdown Warning Over Exploiting Gig Workers
The Federal Trade Commission is about to ramp up enforcement against businesses that exploit gig workers.
The agency announced last Thursday in a 17-page policy statement that it will start targeting companies who take advantage of gig workers, specifically those who participate in “unfair, deceptive, or anticompetitive practices.” That includes things like employee misclassification and unfavorable contracts to wage-fixing and concentrated markets.
That’s not necessarily welcome news for some businesses. Indeed, FTC Chair Lina Khan, has been criticized by business groups about the agency’s purported overreach. The U.S. Chamber of Commerce sued the FTC in July, accusing the agency of a lack of accountability and arguing that the agency “is pursuing an aggressive agenda with far-reaching implications for American businesses and the economy.”
Khan is pressing ahead though. Among the agency’s prime targets are companies that misclassify workers as independent contractors when they are actually employees. Contractors receive fewer benefits compared with full-time staff employees, including with health insurance and paid time off. It’s a cost-saving tactic but a violation of both federal and state law–and it can get expensive for those that get caught. Take the case of Uber, who recently settled for $8.4 million in one case of worker misclassification claims.
The FTC’s position is that gig workers are not second-class employees. “No matter how gig companies choose to classify them, gig workers are consumers entitled to protection under the laws we enforce,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection said in a statement. “We are fully committed to coordinating our consumer protection and competition enforcement efforts within the FTC as well as working with other agencies across the government to ensure gig workers are treated fairly.”
While the exploitation of gig workers is often associated with larger companies such as Uber and DoorDash, any company employing gig workers should be aware of the FTC’s expanding enforcement priorities.
The agency did not single out any company, but in her statement FTC Commissioner Rebecca Slaughter referenced a recent lawsuit against Amazon that resulted in the agency recovering more than $60 million to pay back Amazon Flex drivers who did not receive their tips.
Gig workers continues to be huge contributor to nation GDP. Sixteen percent of Americans have reportedly earned money by participating in the gig economy, the FTC cites. A survey from Mastercard estimates that the gig economy will spur $455 billion in yearly sales come 2023.
-- The Biden Labor Department released a proposal Tuesday that could make it possible for gig workers to be reclassified as employees, rather than contractors.
-- The proposed rule sent stocks of gig companies like DoorDash, Lyft and Uber down.
-- It comes after a court reinstated a Trump-era rule Biden’s Labor Department tried to block that would have made it easier to classify gig workers as contractors.
The Biden Labor Department released a proposal Tuesday that could pave the way for regulators and courts to reclassify gig workers as employees rather than independent contractors.
The proposed rule, if adopted, could raise costs for companies like Lyft, Uber, Instacart and DoorDash that rely on contract workers to pick up shifts on their own schedules. Shares of Lyft fell nearly 10% on Tuesday morning, while Uber dropped 8% and DoorDash shed 6%.
The companies have argued that flexible schedules are attractive to workers, pointing to surveys showing the popularity of the model, which they say is made possible by the use of independent contractor status. Some labor experts and activists have disagreed, however, saying the companies use the contractor model to reduce their own costs while denying workers important protections such as health-care benefits, overtime pay and the ability to organize into unions.
In 2020, a California law went into effect requiring many companies to reclassify contract workers as employees, but later that year, voters approved a proposition that exempted app-based ride-hailing and delivery companies from the law.
Biden’s Labor Department said in its notice in the Federal Register that it had considered waiting longer to see how the Trump-era rule played out. But it decided to move ahead with the proposed regulation instead because it believes keeping the earlier rule in place “would have a confusing and disruptive effect on workers and businesses alike due to its departure from case law describing and applying the multifactor economic reality test as a totality-of-the-circumstances test.”
The proposed rule would allow the determination of whether to classify a worker as a contractor or employee to rely on a more holistic assessment, including whether the work is an “integral” part of the employer’s business. The goal is to protect workers from being classified improperly while providing consistency for businesses that wish to employ independent contractors, the agency wrote.
The new proposed rule will still need to make its way through the formal regulatory process, including allowing time for the public to submit comments, before it is adopted.
Uber’s head of federal affairs, CR Wooters, said in a statement that the proposed rule “takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially. In a time of deep economic uncertainty, it’s crucial that the Biden administration continues to hear from the more than 50 million people who have found an earning opportunity with companies like ours.”
In a blog post Tuesday, Lyft wrote that there “is no immediate or direct impact on the Lyft business at this time,” noting the 45-day public comment period. It added that the rule “Does not reclassify Lyft drivers as employees,” and also doesn’t force it to change its business model. Lyft said the rule simply reverts the standard to that used under the Obama administration, which previously applied to its company “and did not result in reclassification of drivers.”
It looks like they are going to try to accomplish this through regulations rather than the legislative process. They know that the proposed regulations would never make it through Congress.
An updated version of that article notes that there are 50 million workers in the gig economy. Most of those jobs did not exist when this board was started. They exist only because of the innovative entrepreneurs who were willing to risk tens of billions of dollars on the creation of disruptive new business models that have been of enormous benefit to both consumers and the workers who have been able to supplement their primary incomes without the stifling hassles and responsibilities that come with actual "employment." How exploitative can these companies be when most of them are not yet profitable? How smart is it to risk killing them when the economy is on the cusp of a recession? Just two years ago they were considered essential workers. Now they are an endangered species.
Peer-to-Peer, Gig and On-Demand Economies | Stock Discussion ForumsShare
The point I was making is UBER has bottomed. Unfortunately I didn't buy yesterday at 23 and i bought at 25 today. Might retest 23 but represents good value here regardless.
Peer-to-Peer, Gig and On-Demand Economies | Stock Discussion ForumsShare
Grocery delivery app Instacart has decided to push its highly anticipated IPO into 2023, believing the current stock market is too volatile, as first reported by The New York Times and confirmed by Axios.
The big picture: Only 65 companies have gone public on U.S. exchanges this year, which represents an 80.7% decline from last year, per Renaissance Capital.
-- U.S. IPO proceeds are down a whopping 94.1%.
Backstory: Instacart filed confidential IPO registration papers with the SEC earlier this year, and as of a few weeks ago was still hoping to get out in 2022. But the San Francisco-based company recently changed course, in the midst of increased volatility.
What they're saying: Instacart declined to comment on its IPO plans, but did provide Axios with the following statement:
-- “We are incredibly proud of the work our teams are doing to power the future of grocery with our retail partners, and our business has never been stronger.
-- In Q3, our revenue grew more than 40% year-over-year, and our Net Income and Adjusted EBITDA more than doubled from Q2.
-- We remain focused on building for the long-term, and we are excited about the opportunity ahead."
The big question: How employees take the news. Particularly those who'd been with the company for years and were expecting to sell shares into the IPO.
