{"id":4783,"date":"2015-12-09T16:43:09","date_gmt":"2015-12-09T21:43:09","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/grubhub\/"},"modified":"2015-12-09T16:43:09","modified_gmt":"2015-12-09T21:43:09","slug":"grubhub-bringing-order-to-the-takeout-experience","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/grubhub-bringing-order-to-the-takeout-experience\/","title":{"rendered":"GrubHub: Bringing Order to the Takeout Experience"},"content":{"rendered":"

Anyone hungry?<\/p>\n

GrubHub Inc. (\u201cGrubHub\u201d or \u201cthe Company\u201d) is a leading online food delivery platform that connects diners to the takeout restaurants around them. Through GrubHub\u2019s website and mobile application, consumers can view nearby restaurants, browse menus, check prices, read reviews, and ultimately, order their meal of choice. Now providing 5 million hungry diners with a \u201cdirect line\u201d into the kitchens of 35,000 takeout restaurants across the country, GrubHub has firmly cemented itself as the <\/em>option for takeout convenience. The careful convergence of GrubHub\u2019s business model with its asset-lite operating model has positioned the Company for continued explosive growth in a largely novel and untapped market.\u00a0<\/strong><\/p>\n

BUSINESS MODEL<\/u><\/strong><\/p>\n

GrubHub was founded on a simple objective: make takeout better. The Company creates value by addressing key pain points at both <\/em>ends of its digital marketplace.\u00a0<\/em><\/strong><\/p>\n

THE DINER<\/p>\n

Traditional takeout is a dysfunctional experience: searching in the \u201cmenu drawer\u201d for limited, often outdated menus, waiting on hold, being forced to speak to a distracted frontline employee, and ordering with minimal transparency on delivery time is frustrating and stressful. GrubHub comes to the rescue with a few key solutions for the diner:<\/p>\n

Discovery: instead of relying solely on \u201ctop-of-mind\u201d or \u201cmenu drawer\u201d options, consumers now have real transparency into the full suite of restaurants available in close proximity to their homes.<\/p>\n

Convenience: GrubHub provides diners with a simple, usable platform to seek out and order food. The annoyance of holding on the phone, interacting with less-than-amicable staff, and misheard or misunderstood orders is over.<\/p>\n

Transparency: Through the GrubHub platform, consumers benefit from information on restaurant ratings, past reviews, and daily discounts.<\/p>\n

\"Diners<\/p>\n

THE RESTAURANT<\/p>\n

Restaurants need effective customer outreach and broadened brand awareness to drive traffic and increase order volumes (both on-site and takeout). Many, however, struggle to effectively reach their target population. In addition, once the consumer is engaged, providing a quality, error-free takeout experience is oftentimes equally as challenging. GrubHub offers a distinctive value proposition to the restaurant business:<\/p>\n

Targeted Reach: Local restaurants gain an online and mobile presence with immediate access to their most valuable customer set: closeby potential diners. No longer are restaurants forced to rely solely on inefficient advertising like paper menu distribution or local print marketing.<\/p>\n

Automation: GrubHub automates the takeout process, eliminating error-prone manual inputs and freeing up capacity for staff on-site.<\/p>\n

Margin Enhancement: Growth in takeout is margin accretive as restaurants can grow order volumes without the need for additional seating capacity or staffing.<\/p>\n

Fair Economics: GrubHub monetizes its value creation in the takeout ecosystem through a revenue-share model with restaurants\u2014only when an order is placed through the platform does the restaurant send cash out the door to GrubHub (GrubHub has chosen not to monetize the consumer side of the market).<\/p>\n

OPERATING MODEL FIT<\/u><\/strong><\/p>\n

GrubHub\u2019s business strategy requires an operating model that uses assets to create a simple, transparent and efficient food ordering process for diners and restaurants. The Company has done an excellent job aligning its operations with the fundamental value proposition it offers to the takeout ecosystem.<\/p>\n

Reliability of Network Infrastructure<\/em><\/strong><\/p>\n

The software and network infrastructure that enables GrubHub\u2019s digital marketplace is its most crucial operating asset. As such, the Company goes to great lengths to ensure its reliability. On average from 2012-14, the Company spent 11.2% of revenue on technology-related expenses. Management comments, \u201cWe expect to continue to make significant investments to maintain and improve the availability of our platform and to enable rapid releases of new features and products.\u201d Any significant glitch in this core technology platform would detract from GrubHub\u2019s strategy of eliminating hassle in the takeout experience.<\/p>\n

Investment in Intellectual Property<\/em><\/strong><\/p>\n

GrubHub\u2019s business model is one that benefits from huge network effects: the more restaurants that are on the platform, the more diners sign up, and vice versa. As such, the Company seeks to ensure that it has the most comprehensive restaurant data in the industry. GrubHub\u2019s acquisition of both Allmenus.com and MenuPages provided the Company with an aggregate database of approximately 310,000 menus from restaurants across all 50 U.S. states. GrubHub\u2019s focus on proprietary menu and restaurant information feeds into its value proposition for the end-consumer.<\/p>\n

Transparent Information Flow<\/em><\/strong><\/p>\n

Transparency is critical to the Company\u2019s business philosophy\u2014through GrubHub, the diner can expect better than a manual, error-prone, \u201chope for the best\u201d takeout experience. I ordered sushi earlier tonight. See below for the witty progress updates sent by Seamless, a business that GrubHub acquired in 2013:<\/p>\n

\"text<\/a><\/p>\n

GrubHub (and Seamless) provide full transparency not only through restaurant menus, prices, reviews and ratings, but also in tracking an order once it has been placed, eliminating concern on the part of hungry diners.\u00a0<\/em><\/strong><\/p>\n

Pricing Model<\/em><\/strong><\/p>\n

GrubHub wants to be viewed as a strategic partner to restaurants, not an impersonal vendor. By avoiding a subscription fee and upfront cost, restaurants know that only when they are making money is GrubHub making money. Aligning with customer operations, avoiding the perception of a \u201ccost center\u201d and driving higher margin takeout business has contributed to the GrubHub platform\u2019s rapid adoption and revenue growth (49% in 2014).<\/p>\n

WRAP-UP<\/u><\/strong><\/p>\n

GrubHub has enormous first-mover advantage in a market that is likely still in the early innings of growth. The Company continues to grow revenue at a lightning pace and, as its settles into a more mature public business, will begin to generate massive incremental margin on each new user given its scalable fixed cost base and asset-lite operating model.<\/p>\n

As I part ways with this TOM Challenge assignment, my stomach starts to grumble but the refrigerator is predictably empty. What to do, what to do.<\/p>\n

SOURCES<\/strong><\/span><\/p>\n

    \n
  1. S-1:\u00a0http:\/\/www.sec.gov\/Archives\/edgar\/data\/1594109\/000119312514075544\/d647121ds1.htm<\/li>\n
  2. 2014 Annual Report http:\/\/s2.q4cdn.com\/772508021\/files\/doc_financials\/2014%20annual\/2014-GrubHub-Inc-Annual-Report_v001_q5r399.pdf<\/li>\n
  3. http:\/\/qz.com\/182961\/grubhub-and-seamless-take-a-13-5-cut-of-their-average-delivery-order\/<\/li>\n
  4. http:\/\/northwesternbusinessreview.org\/wp-content\/uploads\/2011\/10\/grubhub-home.jpg<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

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