Rumors of an Uber/Grubhub merger swirled for nearly a month and no doubt such a tie up would have had major implications on the domestic market. The very idea of this combined company’s market share advantage spawned concerns over even higher commission fees, a significant pain point for restaurant operators increasingly reliant on delivery services.
But it never happened. Instead, Netherlands-based Just Eat Takeaway.com swooped in and acquired Grubhub in an all-stock deal.
Though it wasn’t the union many of us were expecting, the merger fulfilled plenty of consolidation prophecies nonetheless. The question now is whether or not it will affect the U.S. foodservice delivery market.
The short answer is nowhere near as much as an Uber/Grubhub combo would have. The long answer is a bit more complicated.
Matt Friedman, CEO and cofounder of Wing Zone–which uses both in-house and third-party delivery aggregates, including Grubhub–thinks the Just Eat merger could bring Grubhub’s fees down to a more competitive level.
“Grubhub has some improvements to make from a service perspective. It is also at the high end of the fee structure out of the big three [which also includes DoorDash and UberEats]. They charge 25% but then there is a 3% credit card fee and 50-cent-per-order fee and it adds up to about 30%. We hope this Just Eat opportunity forces [Grubhub] to be a little more aggressive and competitive and closer to 20%,” Friedman said.
Part of the reason those commission fees are notoriously high is because profits have been elusive for delivery players, a particular challenge as investors subsidize customer acquisitions through marketing deals. However, Scott Gittrich, president and founder of Toppers Pizza, believes this consolidation proves the business is maturing and that the evolution will “ultimately arrive at a place where delivery providers are able to provide a service that’s profitable for both them and the restaurants that use them.”
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He also believes the commission piece will work itself out in the market as part of that process. This is despite a few jurisdictions, likeSeattle, Chicago and San Francisco, capping commission fees during the lockdown.
“Something has to give and I expect there will be areas where government action will continue and expand and then there will be places you never see such a thing. I would love to see lower rates, but I don’t want it to come because the legislature got involved. The market is going to work itself out. Investors are not going to fund these companies for another 20 years. The way it’s going now is not sustainable,” Gittrich said.
Friedman believes it will be the restaurants themselves that drive fees down. Delivery companies may have an upper hand now as many dining rooms remain closed, but that is not going to be the case in the long term.
“Since some cities are lowering those fees, restaurants will expect that to continue. They’ll also expect more rhyme and reason from delivery companies on those fees. People generally don’t want to talk about the fees, but when we do talk to others, they’re all over the place. I get a different answer every time I ask,” Friedman said. “I was able to negotiate lower fees, while McDonald’s has more power than me. If you’re an independent, you have no bargaining power. It does not put people on a level playing field.”
Because of this, that earlier point about maturation becomes an entirely different conversation. While Friedman doesn’t believe delivery will ever replace dine-in, he does think it’s here to stay and smaller concepts will have to figure out how to make it work. The pandemic strengthened that position.
He also believes there will be more consolidation dictated by both the consumers and the drivers.
“I think there will only be two big players when it comes to third-party delivery, just like in the ride share space. It all comes down to the labor. The driver wants to work for companies that send them the most orders. My son is delivering for DoorDash. He gets 20 DoorDash requests for every one Postmates orders, so he no longer delivers for Postmates,” Friedman said. “The separation will get wider and wider and the fourth through 10thdelivery players will either go out of business or be acquired.”
Gittrich believes the pandemic will expedite this scenario.
“Delivery has grown in a straight line for the last three decades and in the last 12 weeks, we’ve jolted forward. I think we just cut four years off. There is so much money now in the delivery of food. It’s big prizes,” he said.
That is, big prizes for big companies that have both the negotiating power and the cash to quickly add delivery at the drop of a hat. There are plenty of concepts that don’t have those capabilities, which explains whypredictions for the independent sector are grim.
For most, in-house delivery is simply not a feasible option.
“It is a challenging operational and financial piece to implement. The average restaurant pays between $5,000 and $10,000 a year just to insure drivers, you’ve got to have the tech to support it, you can’t buy some off-the-shelf point-of-sale system,” Friedman said. “The barriers of entry into your own delivery system are challenging. More people would have been doing it a long time ago if it was easy.”
Both Wing Zone and Toppers are delivery-heavy concepts and have been since their beginnings, and their founderssay they have distinct advantages because of it. Among those advantages is the ownership of their customers’ data.
“We know more about our consumer. The reality is that restaurants understand this, but I don’t think they’re putting a value on that customer data,” Friedman said. “Just Eat paid more than $7 billion for Grubhub. I don’t think people realize how large of a number that is. They don’t make anything. They’re just a service company, but that’s how powerful and valuable the data is.”
If both Wing Zone and Toppers have the infrastructure in place to facilitate their own delivery, why would they give some of that data up by adding third-party partners? Simple marketing and exposure. More than 60% of young adults use third-party delivery apps,according to Zion & Zion. That number likely jumped during the nationwide lockdown, as delivery remained one of the only channels that provided access to restaurants.According to The NPD Group, third-party delivery orders were up 204% in April 2020 versus April 2019.
“We added third-party aggregators because it was one of those incremental orders,” Gittrich said. “There are people who just go to Grubhub and decide that’s what they’re going to eat and if you’re not there, you’re not in consideration.”
Indeed, the customer is ultimately in control here, which can be a blessing or a curse, depending on your perspective.
“I do think third party delivery is a way for survival for so many restaurants right now. But as this market changes, there is still this big unknown because it comes down to who their customer is. The customer is the one placing their order on their phone,” Friedman said. “So, then the question becomes, do the third-party companies care about the actual restaurants?”
