Grubhub shows its cards (kinda)
This originally appeared in the April 14, 2020 edition of Expedite. Subscribe here.
In a Monday morning press release, Grubhub told investors not to expect a profit in the coming months, even though business is relatively good. Instead, Grubhub said that it feels a responsibility to the industry, and will reinvest its profits in an effort to drive more business to restaurant partners. Examples included Grubhub-funded diner promotions and reduced or eliminated diner delivery fees. Examples did not include reduced or eliminated fees paid by restaurant businesses.
Now that we’re firmly in new territory, operational businesses have had time to assess their own situations and those of the market. Grubhub surely knows that its restaurants are asking for fee relief — after all, it did immediately offer to defer fees for a bit.
Grubhub said that its business was severely impacted at the end of the first quarter, thanks to the rapidly changing COVID-19 situation. “Daily average Grubs*” or DAGs, a metric the company uses to describe the number of orders on the platform, are “flattish” compared to the same period last year. (In 2019, first quarter DAG growth was 19 percent.) Grubhub said its New York sales have been hit hard recently (it has a significant chunk of the market there thanks to Seamless, which it merged with in 2013), and orders there still remain below pre-COVID levels. But other markets have grown. Grubhub says DAG growth is at 10 percent year over year this month. “In markets less affected by the outbreak, diner ordering has returned to, and in many cases exceeded, our pre-COVID-19 expectations.”
*Full disclosure: this is my favorite metric to report.
So, we can expect Grubhub to continue on its current path, focused on creating additional value for diners it says will translate into consumer demand for restaurants. Grubhub seems to be sticking to its “we save restaurants” messaging. It recently released a new TV ad, first aired on March 27. “Together, we can help save the restaurants we love,” it announces. To date, it’s been aired close to 5,000 times nationally (I caught it during SNL) and has cost Grubhub an estimated $6.5 million, according to TV advertising attention analytics company iSpot TV.
Grubhub customers in San Francisco [*raises hand*] received an email from Grubhub last Thursday evening warning us that it’ll be harder for restaurants to offer food for delivery because our mayor was considering an emergency order limiting the fees that restaurants pay to delivery services. On Friday, San Francisco mayor London Breed announced the order, capping fees charged by delivery companies at 15 percent for the duration of our state of emergency. It’s likely to continue after that; on San Francisco supervisor had already proposed a fee cap in better days, as have other legislators in different parts of the country.
Frankly, the tone of the email was pretty aggressive and persuasive. I’ve followed these companies closely for years and I had to pause and figure out exactly what Grubhub was asking us to do. (The email, documented in full here, suggested we email or call the mayor’s office to tell her “it’s not the time to make getting food from San Francisco restaurants more costly.”)
In its press release, the company joined most in the hospitality space in withdrawing its guidance for the year, which means that Grubhub is saying the information it gave investors predicting the year ahead no longer applies.
Last year at this time, Grubhub was reporting its Q1 2019 earnings, and net revenue was $324 million. In Q2 2019, that figure was $325 million.
Grubhub’s most recent diner promotion, offering $10 off some orders, sparked ire from restaurants who would presumably take a hit from the promotion. Grubhub then announced $30 million in support, offering participating restaurants $250 toward covering costs. According to the company, participating restaurants in Grubhub promotions during the COVID crisis have seen up to 30 percent sales increases.
In what I would consider a step in the right direction toward offering small businesses relief, DoorDash announced it would cut fees for independent restaurants in half beginning this week. It defines these as restaurants with five or fewer locations.
What else is happening?
Square Capital is approved as a SBA lender. According to a tweet from Jackie Reses, Square Capital lead, the company will begin rolling out loan applications for the Payment Protection Plan (PPP) this week. That’s the program established by the CARES act offering small business loans that turn to grants under certain circumstances. This program could soon run out of money, though, as much the allotted $349 billion is already spoken for. As of Monday, Fortune reported, 62 percent of the allocated dollars were spoken for (by applications), up from 48 percent of the total the previous Friday. Government leaders are working on securing additional funding, but it’s been… complicated.
The New York Post reported a new lawsuit against third party delivery companies that’s seeking class action status. It alleges that delivery economics force restaurants to raise their prices, but contracts with delivery companies stipulate that they can’t offer different prices for food on and off the apps. That is, a restaurant needs to charge the same amount for a dish it sells via, say, Grubhub than it does if a person came into the restaurant to order. This means all diners are paying higher prices. (I suspect there are many forces at play re: restaurant menu prices, and generally believe they’re lower than they should be in most cases, but that’s a problem for a different day.)
