Hungry Consumers Shifting To Online Food Ordering Market Led By Grubhub

U.S. consumers spend more than $ 500 billion on restaurant dining a year, of which about $ 200 billion is spent on takeout and delivery.


Only about 10% of that $ 200 billion in takeout and delivery is managed through online ordering. It’s a market dominated by Grubhub (GRUB) but is getting increasingly competitive and larger, as restaurants see an expanding sales opportunity.

“For chains and independent restaurants across the country, it’s no longer a question of if they should move into the online channel, but how,” said Grubhub Chief Executive Matt Maloney during the company’s third-quarter earnings conference call with analysts on Oct. 25.

Chicago-based Grubhub leads the field with a market share of about 45%. Following Grubhub is Uber Eats, owned by the ride-hailing company Uber, at 30%. Behind Uber Eats is Postmates at 12%, then DoorDash at 7%. Following DoorDash is Caviar at 3%. Caviar was acquired by Square (SQ) in 2014 for a reported $ 90 million.

Venture Capital Pours In

The restaurant delivery market is accelerating as more investment dollars continue flowing into the category, Cowen analyst Andrew Charles said in a September report.

Postmates snapped up a $ 300 million round of funding this fall, led by Tiger Global Management. In a previous funding round, Postmates raised $ 140 million. DoorDash raised $ 250 million in August, co-led by Coatue Management and DST Global. That followed a $ 535 million funding round DoorDash received in March, led by SoftBank.

Grubhub has executed 10 acquisitions in the past five years in excess of $ 1 billion.

“Given current market dynamics and the fragmented competitive landscape, we anticipate continued M&A activity within online food delivery with Grubhub maintaining its aggressive approach,” Jefferies analyst Brent Thill said in a note to clients in late November. He picked up coverage on Grubhub with a hold rating and price target of 85. Grubhub stock ended the regular session Friday at 78.29.

Thill estimates that Uber Eats is currently the fastest-growing company in the online food ordering market. The Uber Eats service reaches about 70% of the U.S. market. Grubhub is at 80%, while Postmates covers about 60%.

Grubhub Partnerships

In February, Grubhub announced a partnership with Yum Brands (YUM) in which Grubhub will be the exclusive national delivery partner for several thousand KFC and Taco Bell restaurants. Grubhub also delivers from the likes of Jack in the Box (JACK) and Denny’s (DENN).

Also in the online food ordering game, but with a market share below 1%, is Amazon (AMZN) Restaurants.

“While details are limited around Amazon’s food delivery service, if they choose to get more aggressive behind this investment (organically or through M&A) it would pose a threat to Grubhub,” Thill said.

Thill estimates the online food ordering and delivery market will double to 20% of total spending on takeout and delivery by 2023.

Grubhub’s third-quarter earnings beat estimates on the top and bottom lines, as did its outlook. But Grubhub stock crashed 12% following the news.

The likely cause of the stock drop is that Grubhub said it would invest an incremental $ 20 million to $ 30 million in marketing and delivery expansion in the fourth quarter. That will take Grubhub’s total 2018 investment in growth to “substantially more than $ 200 million,” President and Chief Financial Officer Adam DeWitt said in the company’s earnings release.

Pressure From Competitors

That raised concerns among analysts that Grubhub was under pressure from the encroachment of competitors.

On the conference call, Maloney denied that was the case. He said Grubhub is looking to create long-term shareholder value with the investments.

“We’ve seen a lot of competitors enter the space, but we still haven’t seen the entry of any competitor impact our growth in any of our markets, and we actually see more opportunity now than ever,” he said. “Every time when somebody asks me about competition, we believe we still have a significant structural advantage.”

During the third quarter, Grubhub processed an average of 416,000 orders per day, up 37% from the year ago period.

The company ended the quarter with 16.4 million active diners, up 67%. Gross food sales grew 40% to $ 1.2 billion. Revenue rose 52% to $ 247 million. It reported adjusted earnings of 45 cents per share, beating views for 41 cents and up 61%.

Grubhub also said it has more than 95,000 restaurant partners in over 1,700 cities.

“Stripping away all of the impact from acquisitions, this is our best quarter of growth in a year and a half,” Maloney said.


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News – Investor’s Business Daily

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