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GruhHub’s On-Demand Warning

Morning Markets: Continuing our coverage of the impact of startups on incumbents, let’s dig into what GrubHub had to say yesterday about its market, and competition.

Yesterday as part of its third-quarter earnings report, GrubHub’s shareholder letter described how the online food delivery giant views its market.

And so, when GrubHub warns that growth in its market could be set to slow dramatically, it’s worth paying attention to.

GrubHub is being challenged by private companies who can lose lots of money in the short-term as they have raised ample capital from investors more interested in growth than profits.

Regarding its own new user growth, GrubHub said that “retention of these newer diners was good” but that their “ordering frequency” wasn’t developing over time to be as strong as seen in “earlier cohorts.” The company then got into the weeds, explaining how it saw the market changing in the wake of the new competition and a changed competitive landscape (Bolding: Crunchbase News):

What we concluded is that the supply innovations in online takeout have been played out and annual growth is slowing and returning to a more normal longer-term state which we believe will settle in the low double digits, except that there are multiple players all competing for the same new diners and order growth.

The company wrote that ” online diners are becoming more promiscuous,” using a number of platforms for delivery instead of just one, for example.

GrubHub also took shots at companies looking to find efficiency in delivery scale, writing that (Bolding: Crunchbase News):

Bottom line is that you need to pay someone enough money to drive to the restaurant, pick up food and drive it to a diner.

Now, GrubHub has a biased view of the market, its place in it, and the dynamics of the space in which it competes.

GrubHub noted in its letter that “the average diner in the United States will not consistently pay over $25 in total cost for a quick service restaurant cheeseburger meal.” So, rising CAC could cut into margins if order size can’t scale further.

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