Even the biggest food delivery boom in American history has not helped Grubhub catch up with its competitors.
In fact, the pandemic widened the gap between the country's onetime food delivery king and its younger rivals DoorDash and Uber Eats. Now, new owner Just Eat Takeaway.com is under pressure from an activist investor to jettison the company because of its sinking value.
To be sure, Grubhub still grew during the pandemic, by a lot. Uber Eats and DoorDash just grew much faster.
Consider this: In the fourth quarter of 2020, before COVID-19 vaccinations began to take hold, Grubhub generated $2.4 billion in gross food sales, a 52% year-over-year increase.
Meanwhile, Uber Eats generated $10 billion in gross bookings that quarter—an increase of 128%. DoorDash grew gross order volumes an eye-popping 227%, to $8.2 billion.
Gross sales growth
Source: SEC filings
There are several reasons for this. For one thing, DoorDash and Uber Eats have spent much of the pandemic expanding their services to include delivery of groceries, medicine, pet supplies and more, which has helped drive their top lines. Grubhub has continued to focus mostly on restaurants. But that is not the only reason the company is eating their dust.
On a call last week with analysts, Grubhub CEO Adam DeWitt acknowledged that the company has two unique challenges working against it right now. Both relate to its outsized presence in big cities.
During the pandemic, DeWitt said, much of the growth in delivery came in the suburbs and from quick-service restaurants—two areas in which Grubhub has historically underindexed.
"As a result, we lost market share and are fighting from behind our U.S. competitors in many markets," DeWitt said, according to a transcript from financial services site Sentieo.
The other obstacle is delivery fee caps, particularly in New York. Grubhub's biggest market has also been the most proactive in cracking down on third-party delivery services, and in August, it approved a permanent 20% cap on delivery and other fees charged by delivery providers to restaurants.
"Because of our leadership position and significant volume in New York, the city with the most aggressive fee caps, we are affected disproportionately," DeWitt said.
Grubhub believes losses related to fee caps peaked in the first half of this year as many of them expired. If it weren't for those limits in approximately 100 cities, DeWitt said, the company would have been EBITDA positive in H1, with earnings of about $75 million.
And the company is working to address most of the above. It has added many of the big QSR chains to its platform and has more than doubled its restaurant selection in general. It is suing New York City and San Francisco over their permanent fee caps and believes the costs will eventually go away. And it's planning to invest in other delivery verticals such as convenience, DeWitt said, revealing that it now has 6,000 convenience stores on its platform and is also testing its own stores.
But it doesn't plan on abandoning cities for suburbs. On the contrary, it believes that suburban demand will slow as people return to work in downtown offices. Its key markets of New York, Chicago, Philadelphia and Boston are the centerpiece of the company's new strategy under Just Eat Takeaway, which in the third quarter finally fired up plans to refocus investments in those places.
"We're going to invest behind the strongholds," JET CEO Jitse Groen said on the call. "We're going to invest more aggressively than we have before to drive back market share."