The food delivery business is highly competitive, so much in fact that one of the industry pioneers has hit on a few struggles. As a matter of fact, share price of GrubHub fell more than 40 percent this week, to hit their lowest level since March of 2017. The dramatic drop came after the company announced it missed its earning and sales forecasts. Of course, this contributed to GrubHub, who also owns food delivery service Seamless, lowering their outlook.
In a letter to shareholders, GrubHub Ceo Matthew Maloney and president CFO Adam DeWitt said, “With billions being poured into awareness campaigns, diner incentives, driver incentives, and restaurant incentives, it makes sense that easy-to-access ‘analog’ diners would quickly become aware of the substantial benefits of online ordering. As a result, the easy wins in the market are disappearing a little more quickly than we thought.”
Indeed, GrubHub is having a difficult time retaining the same customer base since more and more companies have jumped into the business. From Uber expanding its services to Uber Eats and intense competition from privately held DoorDash and Postmates the field is certainly more crowded than it was when GrubHub launched.
But GrubHub’s biggest struggle might actually have more to do with the fickleness of the customer-base than industry saturation. Customers, these days, typically belong to and use several delivery services at any given time. Effectively, there really is no brand loyalty right now; customers are more focused on getting the best deal. This is has led GrubHub to rely more and more on discounts and promotions like free delivery in order to entice customers to stick around. And while that certainly helps in terms of revenue, it is entirely the opposite for profitability.
The letter goes on to say, “For years, we saw in our data that a Grubhub diner was extremely loyal to our platform. However, our newer diners are increasingly coming to us already having ordered on a competing online platform, and our existing diners are increasingly ordering from multiple platforms. We find this ‘sharing’ to be greatest among our newest diners, in our newest markets, but believe it is happening to some degree throughout our diner base.”