{"id":5355,"date":"2015-12-09T18:16:06","date_gmt":"2015-12-09T23:16:06","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/grubhub-the-alignment-isseamless\/"},"modified":"2015-12-09T19:33:22","modified_gmt":"2015-12-10T00:33:22","slug":"grubhub-the-alignment-isseamless","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/grubhub-the-alignment-isseamless\/","title":{"rendered":"GrubHub: The Alignment is\u2026SEAMLESS!"},"content":{"rendered":"

\"grubhub-logo\"<\/a><\/p>\n

GrubHub provides an online\/mobile platform for restaurant pick-up and delivery orders. With >5MM monthly active diners and >30,000 restaurants, GrubHub has built a vibrant two-sided marketplace within a domestic takeout industry processing $67bn of transactions annually.1<\/p>\n

For context, GrubHub went public in April 2014 and is currently a $2bn market cap company at a revenue run-rate of $340MM\/yr, growing 30%+ per year, with 20% operating margins. (1)<\/p>\n

The Business Model:<\/strong> Grub extract\u2019s a commission rate from both sides of their network when they enable a takeout\/delivery order.<\/p>\n

\u2022 Restaurants:<\/strong> Grub Hub does not charge its network any upfront or subscription fees, but instead only gets paid commission per order generated, providing restaurants with a low-risk, high-return solution. Restaurant subs may choose their level of commission rate; choosing a higher rate affects prioritization of a restaurant in Grub\u2019s algorithm, generating higher page views similar to network businesses like AutoTrader.
\n\u2022 Diners:<\/strong> GrubHub charges a small commission or \u2018take rate\u2019 to the consumer on a per transaction basis.
\nI find this business model compelling because of its ability to simultaneously extract value from both sides of a co-dependent, two-sided market that is growing rapidly, at a highly profitable rate of 20% operating margins. (2) Like many winner-take most internet marketplace models, SCALE is the key.<\/p>\n

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

GRUB\u2019s Operating Model<\/strong>
\nGrub continuously invests labor, capital and IP to create value for BOTH SIDES of their network. Let\u2019s take a deeper look at each.<\/p>\n

The Diner Value prop:<\/strong> GRUB\u2019s technology provides an intuitive and personalized platform that helps them search for and discover local restaurants and then accurately and efficiently place an order. GrubHub also provides diners with information and transparency about their orders and status and solves problems that may arise. The Company makes re-ordering convenient by storing previous orders, preferences and payment information, helping to promote diner frequency and drive strong repeat business.<\/p>\n

Investing in Diner-side:<\/strong> To maintain\/drive scale, Grub\u2019s operating model requires constant investment in diner acquisition. Two vectors matter:<\/p>\n

    \n
  1. \u2018Build\u2019 customers \u2013 this means investing in advertising campaigns to increase brand awareness and ultimately drive app downloads. The company investing $41mm in marketing in 2014 to this end.<\/li>\n
  2. Buy\u2019 Customers \u2013 GRUB has also used its Balance Sheet to buy scale when appropriate. In fact, the company initially scaled through a merger with Seamless, and more recently GrubHub paid $71MM to acquire Dining-In and the delivery service \u2018Restaurants on the Run\u2019<\/li>\n<\/ol>\n

    Investing\/Adding Value to Restaurant Side<\/strong><\/p>\n

    The following stats come from a Vivid Economics survey about exploring Grub\u2019s impact on restaurant partner takeout businesses. (3)<\/p>\n