How Does Grubhub Make Money? Grubhub Business Model In A Nutshell

Grubhub is an online and mobile platform for restaurant pick-up and delivery orders. In 2018 the company connected 95,000 takeout restaurants in over 1,700 U.S. cities and London. The Grubhub business model comprises a portfolio of brands like Seamless, LevelUp, Eat24, AllMenus, MenuPages, and Tapingo. The company makes money primarily by charging restaurants a pre-order commission, and it generates revenues when diners place an order on its platform. Also, it charges restaurants that use Grubhub delivery services and when diners pay for those services. 

Grubhub portfolio of brands

Source: Grubhub official website

At the time of this writing, Grubhub comprises a portfolio of brands that includes Grubhub, Seamless, LevelUp, Eat24, AllMenus, MenuPages and Tapingo. The company was founded in 2004, and it merged with Seamless – founded in 1999 – in 2013.

Grubhub has been able to grow substantially following the merger with Seamless and aggressive acquisitions of other brands.

Who are Grubhub key partners? Grubhub two-sided marketplace explained

As a two-sided platform, Grubhub offers value for two key partners:

• restaurants
• and diners

The value and ability to grow its business highly depend on Grubhub ability to keep offering a compelling value proposition for those two key partners.

What is Grubhub value proposition?

The value proposition changes according to the key partner Grubhub is able to reach with its services. Indeed, the Company has a powerful two-sided network that creates value for both restaurants and diners. Therefore, it is critical to distinguish between the value proposition offered to those two partners.

The value proposition for restaurants

Grubhub has been able to deliver a unique value proposition for restaurants, as it generates higher margin takeout orders at full menu prices.

Indeed, for restaurants, the takeout is a way to grow their business without adding seating capacity or staff.

Also, being able to promote takeout is expensive, inefficient and its success can’t be tracked. Thus, Grubhub is offering a risk-free service to restaurants to grow their business.

In contrast, restaurants can track orders on the platform quite efficiently, by connecting restaurants with local diners with the least effort and best match.

This is a compelling value proposition for restaurants. But there is even more to it.

Why is the value proposition so compelling for restaurants?

There are also three key incentives for restaurants to be part of the Grubhub network:

• Grubhub does not charge the restaurants any upfront or subscription fees
• the platform does not require restaurants to apply any discount on their menu (in contrast to other platforms)
• restaurants only pay Grubhun when the orders from the diner are generated

Therefore, Grubhub has packaged a low-risk, high-return solution which is highly efficient, trackable and it carries no upfront cost, neither a subscription fee.

The value proposition for diners

Diners get what Grubhub defines a “direct line” into the kitchen, avoiding inefficiencies, or frustrations associated with paper menus and phone orders.

When Grubhub designed the value proposition for diners, it did so by keeping in mind that the traditional takeout ordering process is often frustrating, while Grubhub has designed its platform to make the user experience as frictionless and rewarding as possible.

Therefore, Grubhub value proposition for diners can be summarized in a few key bullet points:

• an easy-to-use, intuitive and personalized platform that connects diners with local restaurants
• it makes the – usually bad takeout experience – accurate, efficient and frictionless
• Grubhub also provides diners with information and transparency about their orders
• its algorithms make re-ordering convenient by storing previous orders, preferences and payment information,

This, in turn, help diners shop more frequently, and restaurants monetize more from continued and repeated business.

How does Grubhub make money?

Grubhub business model is based on charging restaurants a per-order commission that is primarily percentage-based. In some markets, Grubhub provides delivery services to restaurants on its platform. The Company also generates revenues when diners place an order on its platform.

Restaurants can choose their level of commission rate, at or above the base rate. A higher commission rate allows the restaurants to have a higher exposure to diners on the platform.

Also, restaurants use Grubhub delivery services pay an additional commission. Fees are also charged to the diners for delivery services it provides. Grubhub usually remits net proceeds to the restaurants on at least a monthly basis.

Grubhub key business metrics

Any business measures its financial success via a set of metrics that define it. For Grubhub those financial metrics are:

• Active diners
• Daily average grubs
• Gross food sales

Source: Grubhub annual report for 2017

• active diners are the number of unique diner accounts from which an order has been placed in the past twelve months through the platform
• daily average grubs are the number of revenue generating orders placed on Grubhub platform divided by the number of days for a given period
• gross food sales are the total value of food, beverages, taxes, prepaid gratuities, and any diner-paid delivery fees processed through Grubhub platform

Grubhub has experienced consistent growth of its key metrics primarily due to increased product and brand awareness by diners:

• driven by marketing efforts and word-of-mouth referrals
• better restaurant choices for diners in our markets
• technology and product improvements
• acquisitions of other brands

A glance at Grubhub growth drivers

The company has been able to grow consistently over the years thanks to marketing activities, acquisition, improved platform via its technologies. We’ll look more in detail to its marketing and acquisition activities.

Marketing campaigns

Source: Grubhub annual report for 2017

Grubhub spent over 20% of its revenues in sales and marketing expenses in 2017. Those comprised primarily:

• advertising expenses including search engine marketing, television, online display, media and other programs
• salaries, commissions, benefits, stock-based compensation expense, and bonuses
• payments to contractors and facilities costs

The company has been investing in massive resources in digital marketing campaigns. Indeed, if we look at its primary web metrics:

According to SimilarWeb Grubhub is the fourth most popular site in the US for restaurants and delivery, in the food and drink category with over sixteen million visitors each month.

Also, according to Alexa, the platform has quite good engagement metrics which show a good user experience.

If we look at the marketing mix according to Similar Web:

Direct and search represent the most important channels. Direct traffic shows us a few critical elements:

• Grubhub strong brand
• its ability to reach diners with other channels then search engines

Similar Sites according to Alexa comprise other platforms:

Of those platforms, seamless.com and eat24.com are part of the Grubhub brand portfolio.

Expansion via acquisitions

The company invested massively in acquisition campaigns that gave it a strong portfolio of various brands:

• In 2015, Grubhub acquired assets of DiningIn.com, the membership units of Restaurants on the Run (“Restaurants on the Run”) and membership units of Mealport USA, LLC (“Delivered Dish”)
• On May 2016, the Company acquired KMLEE Investments Inc. and LABite.com, Inc. (collectively, “LABite”)
• On October 2017, Grubhub acquired eat24, llC (“eat24”), a wholly owned subsidiary of yelp inc.
• On August 2017, Grubhub acquired a&D Network Solutions, inc. and Dashed, inc. (collectively, “Foodler”)
• On September 2018, Grubhub acquired SCVNGR, inc. d/b/a levelUp (“levelUp”)
• November 2018, Grubhub acquired Tapingo, a leading platform for campus food ordering

Understand Grubhub valuation via four main variables

Source: Grubhub annual report for 2017

When we look at the valuation of Grubhub it is interesting to notice how the company valuation method takes into account four main variables:

• restaurant relationships
• diner acquisition
• developed technology
• trademark

Grubhub future challenges

Some of the challenges that Grubhub has to take into account which might impact its business comprise its ability to:

• attract and retain restaurants in a cost effective manner
• maintain, protect and enhance its brand
• strengthen the takeout marketplace
• generate positive cash flow and to achieve and sustain profitability
• keep pace with technology changes in the takeout industry;

Who owns Grubhub? 

Source: Grubhub proxy statement for 2018

The main institutional investors that have an equity stake higher than 5% as of 2018 are Caledonia, Baillie Gifford & Co., The Vanguard Group, T. Rowe Price Associates, BlackRock, Carmignac Gestion, and PAR Investment Partners.

Value Proposition:

• Convenience and Choice: Grubhub offers users a convenient way to order food from a variety of local restaurants with just a few clicks. Through its website and mobile app, users can browse menus, place orders, and track deliveries in real-time, eliminating the need for phone calls or visits to multiple restaurant websites. Grubhub’s extensive network of restaurant partners provides users with a wide range of cuisines and dining options to suit their preferences and dietary restrictions.
• Time-Saving Delivery Service: Grubhub’s delivery service saves users time by bringing their favorite meals directly to their doorstep. Whether ordering lunch at the office, dinner at home, or snacks for a gathering, users can rely on Grubhub’s efficient delivery network to ensure prompt and hassle-free delivery, allowing them to focus on other tasks or activities without interrupting their day.
• Transparency and Reliability: Grubhub prioritizes transparency and reliability in its interactions with users, restaurants, and delivery drivers. Users can trust Grubhub to provide accurate order information, estimated delivery times, and transparent pricing, ensuring a seamless and trustworthy ordering experience. Grubhub’s commitment to reliability extends to its delivery network, where drivers are trained to handle orders professionally and deliver meals promptly and safely.
• Personalized Recommendations: Grubhub leverages data and algorithms to provide personalized recommendations and tailored dining experiences for users. By analyzing past orders, preferences, and user behavior, Grubhub can suggest relevant restaurants, menu items, and promotions that match each user’s taste and preferences, enhancing the overall user experience and driving engagement and loyalty.
• Support for Local Restaurants: Grubhub supports local restaurants by providing them with an additional revenue stream and exposure to a broader customer base. Through Grubhub’s platform, restaurants can reach new customers, increase order volume, and compete more effectively in the digital marketplace, helping them grow their business and thrive in an increasingly competitive industry.

Revenue Streams:

• Commission Fees: Grubhub earns revenue primarily through commission fees charged to restaurants for each order processed through its platform. Restaurants typically pay a percentage of the order total as a commission fee to Grubhub in exchange for access to its online ordering and delivery services. The commission percentage may vary based on factors such as order volume, restaurant location, and partnership agreements.
• Delivery Fees: In addition to commission fees, Grubhub may charge delivery fees to users for orders fulfilled through its delivery network. These fees help cover the cost of delivery logistics, driver compensation, and operational expenses associated with the delivery service. Delivery fees may vary based on factors such as distance, order size, and demand levels.
• Advertising and Marketing Services: Grubhub offers advertising and marketing services to restaurants seeking to increase their visibility and attract more customers on the platform. Restaurants can pay for sponsored placements, featured listings, or targeted promotions to enhance their visibility in search results, drive customer engagement, and boost sales. Grubhub earns revenue from these advertising services in the form of advertising fees or placement fees paid by participating restaurants.
• Subscription Programs: Grubhub may offer subscription-based programs or loyalty initiatives to users and restaurants as additional revenue streams. For example, Grubhub Plus is a subscription program that offers users benefits such as unlimited free delivery and exclusive discounts for a monthly or annual fee. Similarly, Grubhub may offer subscription packages or premium features to restaurants to access enhanced marketing tools, analytics, or customer engagement features.
• Partnerships and Partnerships: Grubhub may explore partnerships and collaborations with third-party organizations, food brands, or technology companies to expand its revenue opportunities. For example, Grubhub may partner with grocery stores, convenience stores, or other retailers to offer additional services such as grocery delivery or meal kits through its platform. These partnerships can generate additional revenue through referral fees, revenue-sharing agreements, or licensing arrangements.

Marketing Strategy:

• Brand Awareness Campaigns: Grubhub invests in brand awareness campaigns to promote its platform, services, and value proposition to consumers. Through advertising channels such as television, digital media, social media, and outdoor advertising, Grubhub strives to build brand recognition, capture market share, and attract new users to its platform.
• Digital Marketing and Social Media: Grubhub leverages digital marketing and social media channels to engage with users, drive app downloads, and promote special offers and promotions. By maintaining an active presence on platforms like Facebook, Instagram, Twitter, and YouTube, Grubhub can reach a broad audience of potential customers and foster community engagement through interactive content, user-generated posts, and targeted advertising campaigns.
• Promotional Discounts and Incentives: Grubhub utilizes promotional discounts, incentives, and loyalty programs to encourage user adoption and retention. By offering discounts on first orders, referral bonuses, and loyalty rewards for repeat customers, Grubhub incentivizes users to try its platform, place more orders, and become loyal customers over time. These promotional strategies help drive customer acquisition, increase order frequency, and build customer loyalty.
• Partnership Marketing: Grubhub collaborates with restaurants, food brands, and other partners to co-promote special offers, menu items, or exclusive promotions to users. By partnering with popular restaurants, celebrity chefs, or local influencers, Grubhub can create buzz, generate excitement, and drive customer engagement through joint marketing campaigns, sponsored events, and co-branded initiatives.
• User Engagement and Retention: Grubhub focuses on user engagement and retention strategies to keep users active and satisfied with its platform. Through personalized recommendations, targeted email campaigns, push notifications, and in-app messaging, Grubhub communicates with users, promotes relevant offers, and encourages repeat orders, fostering a positive user experience and driving long-term loyalty and advocacy.

Distribution Channels:

• Website and Mobile App: Grubhub operates a user-friendly website and mobile app that serve as the primary distribution channels for its online food ordering and delivery services. Users can access Grubhub’s platform through web browsers or download the Grubhub mobile app from app stores such as the Apple App Store or Google Play Store, allowing them to browse menus, place orders, and track deliveries from their desktop or mobile devices.
• Restaurant Partnerships: Grubhub partners with thousands of local restaurants, national chains, and independent eateries to offer a diverse selection of cuisines and dining options to users. Through strategic partnerships and integration with restaurant POS systems, Grubhub enables restaurants to seamlessly receive and fulfill orders placed through its platform, expanding its menu offerings and geographic coverage to meet user demand.
• Delivery Network: Grubhub operates a delivery network comprising independent contractors and third-party delivery partners who fulfill orders and deliver meals to users’ locations. By leveraging a network of drivers, cyclists, and delivery vehicles, Grubhub can offer fast and reliable delivery services, ensuring that users receive their orders promptly and in good condition, regardless of their location or time of day.
• Online Marketing and Search Engine Optimization: Grubhub utilizes online marketing tactics and search engine optimization (SEO) strategies to increase its visibility and attract users to its platform. By optimizing its website content, metadata, and keyword targeting, Grubhub improves its organic search rankings on popular search engines like Google, Bing, and Yahoo, driving organic traffic and user acquisition through search engine referrals.
• Customer Support and Referral Programs: Grubhub provides customer support services and referral programs to assist users with order inquiries, technical issues, and feedback. By offering responsive customer support via phone, email, or live chat, Grubhub ensures a positive customer experience and resolves any issues or concerns promptly, enhancing user satisfaction and retention. Additionally, Grubhub incentivizes users to refer friends and family to its platform through referral bonuses, discounts, or rewards, leveraging word-of-mouth marketing and social sharing to drive new user acquisition and growth.

Key highlights

• Value Proposition: Grubhub’s value proposition revolves around convenience, choice, and transparency for both users and restaurants. It offers a wide selection of local restaurants, an easy-to-use platform, time-saving delivery services, and personalized recommendations.
• Revenue Streams: Grubhub generates revenue primarily through commission fees from restaurants, delivery fees from users, advertising and marketing services, subscription programs, and partnerships with third-party organizations.
• Marketing Strategy: Grubhub’s marketing strategy includes brand awareness campaigns, digital marketing and social media engagement, promotional discounts and incentives, partnership marketing with restaurants and influencers, and user engagement and retention tactics.
• Distribution Channels: Grubhub operates through its website and mobile app, partnerships with thousands of local restaurants, a delivery network of independent contractors, and online marketing and search engine optimization strategies.
• Key Partnerships: Grubhub’s key partners include restaurants and diners, as its business model relies on connecting these two groups. It offers a compelling value proposition for restaurants by generating higher-margin takeout orders, while providing diners with a seamless and efficient ordering experience.
• Growth Drivers: Grubhub’s growth is driven by marketing activities, acquisitions, improved platform technologies, and expansion into new markets. It invests heavily in digital marketing campaigns, acquisitions of other brands, and partnerships to enhance its market presence and revenue streams.