Grubhub is repositioning itself as the affordable delivery app.
The company is now waiving all delivery and service fees on orders of $50 or more, a change it says will save customers $13 per order on average, and about $675 per year for families who order once a week.
Grubhub hopes the move will help it win customers from competitors DoorDash and Uber Eats, which own the lion’s share of the U.S. delivery market.
“We really want to disrupt the industry,” said Grubhub CEO Howard Migdal in an interview. “And when we talk to customers, high fees is the number one dissatisfaction, by far and away, with our industry.”
Migdal said 81% of customers have abandoned an order due to sticker shock from fees. The issue is especially pertinent to customers who place large orders, because unlike in most ecommerce businesses, bigger delivery subtotals mean higher fees.
The company also found in tests that waiving fees tended to get customers to order more, either to get over the $50 hump, or because they felt as if they were saving money. That should equate to bigger tickets for restaurants, Migdal said.
Dropping fees is the company’s boldest change since being acquired last year by Wonder, the food hall/delivery company founded by ecommerce entrepreneur Marc Lore. Since then, Migdal said, Grubhub has become more “customer-centric.” It overhauled its app, expanded its restaurant selection by a third and added grocery delivery via a partnership with Instacart. It also increased its presence in the suburbs.
That all led up to the plan to waive fees on large orders, which will give the company an opportunity to reintroduce itself to customers after spending years in the shadows of its two larger two rivals.
Grubhub will do that in a very big way this weekend, when it will air its first Super Bowl commercial. The ad stars George Clooney and was directed by Yorgos Lanthimos, who made Best Picture nominee “Bugonia.” In the ad, a motley crew of diners argues over who will “eat the fees” at the end of a meal, before Clooney calmly states that Grubhub will eat them.
Clooney stars in Grubhub's new ad. | Photo courtesy of Grubhub
The question is how Grubhub can afford to forego fees amounting to hundreds of millions if not billions of dollars in annual revenue. Migdal said the company has improved its scale, efficiency and speed to the point where it is comfortable “operating with a much reduced margin” in exchange for higher order volumes.
“We think we’re gonna significantly expand the [total addressable market], and we’re also placing a bet that we’re gonna get a lot of new customers as a result of this savings and value proposition,” he said.
To help kick off the new policy, some large chains are offering limited-time discounts for customers who spend more than $50. Chipotle and Burger King will give customers $20 off, while Popeyes and Taco Bell are offering $15 off. Pizza Hut, KFC, Papa Johns, Wingstop and more will offer similar deals later in the winter.
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