The restaurant delivery business has blossomed to the point of commoditization for companies like DoorDash, Grubhub and Uber Eats. Gaining diner loyalty has become more important than ever as people migrate from one platform to another.
Grubhub has decided not to chase new business at any cost, but to invest more heavily in loyalty programs and participate in co-marketing with the likes of KFC, McDonald's, Panera Bread and Taco Bell. The company delivered that news this week along with its third quarter financial report, which showed a slowdown in August and a forecast for a weak fourth quarter.
One drag on Grubhub’s performance has been the nature of new users. They tend to be less loyal than ever, which helps to explain the company’s third quarter net income of $1.0 million, a big drop down from $22.7 million in the third quarter of 2018.
“For years, we saw in our data that a Grubhub diner was extremely loyal to our platform,” the company said in a letter to investors. “However, our newer diners are increasingly coming to us already having ordered on a competing online platform, and our existing diners are increasingly ordering from multiple platforms.”
Moreover, Grubhub believes that “the supply innovations in online takeout have been played out. Annual growth is slowing and returning to a more normal longer-term state, which we believe will settle in the low double digits.” And “there are multiple players all competing for the same new diners and order growth.”
Hence Grubhub’s focus on customer loyalty. “The only thing that matters now is diner side differentiation,” founder and CEO Matt Maloney said yesterday on an investor conference call.
In September, the company added an in-app feature called Perks that offers users of its Grubhub and Seamless mobile apps exclusive offers and loyalty rewards from participating eateries. A year earlier, the company spent $390 million to acquire LevelUp, which specializes in mobile diner engagement and payment solutions for restaurants.
“Over 20% of our diners are redeeming loyalty rewards right now,” said Maloney. “So we'll be spending a lot of money in the next twelve months priming the pump for restaurant loyalty programs to show them the immediate ROI to generate that long-term investment from restaurant groups on our platform.”
Christian Selchau-Hansen, co-founder and CEO of Formation, a software provider that works with brands on personalized marketing and consumer loyalty, notes that while Grubhub has spent heavily on promotions to gain market share, that strategy doesn’t necessarily generate loyalty.
“As Grubhub looks to make their delivery experience stickier, they need to develop a loyalty program that deepens its relationship with each customer,” Selchau-Hansen tells Marketing Daily. “Once they understand what drives each customer to order, they can create promotions tailored to address those motivations instead of sinking money into mass promotions that don’t build loyalty."
Grubhub has built its business largely on recruiting independent restaurants as opposed to the big national chains. These so-called partner restaurants, which will number more than 100,000 entering 2020, represent more than 80% of order volume. More importantly, partner restaurants generate the bulk of profits via lead generation fees in return for visibility on Grubhub’s platforms.
One big differentiator between publicly held Grubhub versus DoorDash and Uber Eats is that the former can’t afford to endlessly burn through capital to buy market share. As competition shows no signs of subsiding and given market saturation, 2020 could be a pivotal year. By some estimates, meal-ordering and delivery companies received $6.7 billion in capital between 2015 and 2018.
“In order to emulate our loyalty advantage, the competition will have to give away a tremendous amount of money, which is a very challenging problem when they're each losing over $1 billion a year,” Maloney said.