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Grubhub Idea Proposal (GRUB)

Grubhub Idea Proposal (GRUB)
 

Will Grubhub wilt in 2019 under pressure from competitors?

Report Available: March 14, 2019

 

Blueshift’s ongoing research found GRUB with divisive earnings results raising concerns about its rising costs but also feeding optimism that its spending will pay off with a strong 2019 in new markets. Competition is as fierce as ever which is believed to be the cause behind GRUB’s increased spending, but GRUB’s launch of delivery for YUM’s Taco Bell and DNKN give it thousands of new locations to serve, and the potential to keep the industry leader ahead of the pack.

 

Observations

  1. GRUB’s Q4 earnings and revenue fell short of expectations, despite a 40% year-to-year revenue increase. Active diners grew 22%, daily average grubs (orders) increased 19%, and gross food sales climbed 21% year to year. But this growth was costly for GRUB as expenses for operations, sales, and technology exceeded revenue growth, causing operating income to fall to a loss of nearly $3 million in the quarter after a $26 million profit a year ago. GRUB said it made significant investments in opening and promoting new markets which led to substantial growth in these areas that will be meaningful to 2019 results. The company also offered underwhelming guidance for 2019, forecasting 36% revenue growth that was below expectations, with EBITDA estimates also below consensus, a sign that rising costs will continue to cut into earnings.
  2. Despite these red flags and a subsequent slide that saw the stock drop as much as 21% after its earnings announcement, GRUB rallied when a Stephens analyst authored a note expressing optimism regarding GRUB’s sequential revenue and profitability improvement in 2019 as investment markets mature. This was followed by upgrades from Merrill Lynch and Roth Capital who also see expansion to new markets accelerating sales in 2019 and 2020.
  3. In early Feb., GRUB started delivering YUM’s Taco Bell at 65% of the chain’s 7,000 domestic restaurants supported by a national advertising campaign. Delivery includes limited time menu items (a rarity among competitor chains) and comes with a thank you note and as many sauce packets as desired for free. Delivery is free with orders of $12 or more. Taco Bell said test delivery orders averaged $15 whereas in-store orders normally reach $8 despite prices being the same. GRUB is piloting a delivery program with DNKN. GRUB is also expected to benefit from its 2018 acquisition of LevelUp, a payment processing technology company for restaurants geared toward online ordering.
  4. Competition among food delivery companies is fierce. DoorDash is seeking $500 million in new funding after raising $250 million in August, Postmates filed for an initial public offering earlier in Feb., DoorDash will continue its controversial policy of including tips in drivers’ base pay despite public outcry against this practice that caused Instacart to change its methods, and MCD is dealing with unrest from its franchise owners who are upset with the economics of MCD’s great success with UberEats, saying they are not currently generating positive cash flow from the partnership and want more favorable commission rates in order to maintain their margins.
  5. Among the countless side-by-side comparison pieces, one recent article noted DoorDash having the most restaurant options with fewer repeats and more unique offerings followed by GRUB with UberEats fourth, while Postmates ranked first in Usability, followed by UberEats and DoorDash with GRUB bringing up the rear as it was criticized for its app that makes finding food difficult.
  6. Blueshift’s Nov. 29, 2018, report said GRUB may not be losing share to competitors, but it has a smaller share of online food delivery orders than its rivals and a lower satisfaction rating than its competitors, according to eight of 10 restaurant sources who use multiple delivery services including GRUB. Only two sources said GRUB has lost share. UberEats and DoorDash are GRUB’s primary competitors and outpace the company in driver reliability, customer demand, and market share.

 

Which food delivery service is the market leader? What is the market share breakdown for restaurants using multiple providers? What are restaurants’ levels of satisfaction with the different food delivery companies? How is order size trending for each competitor? How is GRUB performing now compared to a year ago? What improvements in GRUB have restaurants noticed? How are GRUB’s competitors performing now compared to a year ago? What improvements have restaurants noticed from these competitors? How do the back-end technology and operational insight features compare? Who is winning the POS competition? How much growth remains in the market? Which company is most likely to benefit from this growth? Is there room for everyone? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Restaurants using GRUB and competitors, Restaurants using only GRUB, Restaurants using only competitors.

 

Companies: Grubhub Inc. (GRUB)

 

Research Begins: February 25, 2019

 

To see other ideas Blueshift Research is currently working on, please click here.

 

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