Grubhub Business Analysis and Prognosis
This is the final presentation of FSM course.
Speaker: Xiaojun, Arthur, Hector, and me.
You can have a look at this more detailed report: Grubhub - Market Analysis & Business Strategy
Grubhub is an online food-ordering company that connects diners with restaurants.
GrubHub has not only made it easy for people to order food online from a variety of food joints in their city but has also helped restaurants serve a larger audience.
So how does Grubhub make money? In fact, Grubhub has 2 revenue streams.
First, for every order a diner made, Grubhub takes 15% commission fee. Apart from the basic commission, restaurant can pay extra commission, from 0~17.5% to get higher rank in Grubhub’s recommendation list.
Grubhub’s strength is its stable profit and growing revenue. From the left side, we can see Grubhub’s profitability is very stable during the past 3 years. On the right side, the Revenue, which is the blue line, keeps growing over the past 5 years.
Grubhub is growing its revenues in a very fast pace (growth rate even accelerated to 85% in 2014) year-over-year. Net income is quite good and keeps positive year by year, even though the growth rate dropped a little bit during 2012 and 2013.
Its gross profit margin is very high, although it decrease a little bit in 2016, its gross profit margin keeps still more than 60%.
Although grubhub’s revenue is growing year over year, you can see the orange line, the growth rate is in fact falling year over year.
- Long-term growth depends on the Company’s ability to continue to expand its network of restaurants and diners in a cost effective manner
- There are already 1,105 full-time equivalent employees in 2016, which is enough to hold their business. Growth rate of company size might decrease slightly unless they will expand their market to other regions or introduce some new products and services.
Fortunately, there are still lots of opportunities the company can use.
Based on some industry report, There are 67 billion dollars spent by consumers on takeout annually, but Only 5% takeout orders are from Online, which means that there are more demands this company can create for online ordering in the future.
Moreover, 350 thousand restaurants in the US are waiting for the interception of online ordering.
However, some powerful competitors have dived into this market:
- Yelp - Eat24 acquisition.
- UBER Eats
- Amazon Restaurants
- Doordash As we can see, two of them are from big companies, and Yelp Eat24 is the nearest competitor to Grubhub compared with others. which means that this food delivery markets is not only attractive but also competitive.
GrubHub has maintained a top 10 ranking in Food and Drink category on the Apple ( AAPL ) App Store for the past four years.
This company also has 46% more restaurant partners than nearest competitor, [Yelp’s ( YELP )] Eat24.
Our analysis indicates it has successfully maintained this advantage despite increased competition from start-ups and larger tech players.
This company has their Own delivery service and personnel.
Their services has been expanded in different channels.
You can use their services in mobile, pc, and other platforms.
(This connects directly to their growth strategy)
Another grubhub’s portfolio is their brands. They have Grubhub, Seamless, MenuPages and Allmenus, which has helped them gain more diners and more orders. Actually, they are trying to achieve the common mission : Move food forward.
Of course, customer satisfaction is the top priority, and in customer service business, they want to minimize complains from users, which means that no news is good news.
From the chart, we can see over 90% of Orders are from returning Diners. Which means that grubhub is really good at customer support.
Next, Arthur will talk about how Grubhub performs in next two years.
GrubHub’s strategy of buying companies helps in increasing market share and revenue.
Think about this.
Do customers want to remember several names of brands?
No. We believe that customers need efficiency in terms of relating a brand to a service. Like: I need to order food -> GrubHub!
Or even would you like to have to change and install different apps to perform food delivery when you travel to a different city?
But failing to merge the product portfolio efficiently might generate TWO IMPORTANT OUTCOMES:
- Brand Name that does not take advantage of their Portfolio.
- Impression of a company that cannot manage efficiently their merged operations.
CUSTOMERS LIKE PLATFORMS. Remember a single place where they can get things done faster!
The proof that this strategy will not be succesfull can be seen in the jump in terms of brand awareness that Uber EATS has shown this past year and almost reached the same mark that took GrubHub several years to build.
How did they do that? A single button on top of their main stream product and a lot of investment in Marketing!
If the Online Market is supposed to grow why can’t GrubHub grow as well?
As opposed to The prediction shown in the previous slide. McKinsey has recently published a study regarding the online food delivery market we think this is a
The third point of attention in terms of GrubHub’s short term future is that we predict that Revenue will cease to grow (Due to what hector said that Growth Rates have been decreasing year-over-year.
GrubHub though has a good factor that might help them fight this trend which is a fairly decent amount of Returning Customers.
So we predict the following: Stable Revenue (because of returning customers) + Increasing Cost of Operations (Especially to Fight Competitors) = Decrease in Net Income!
Investment in Marketing decreased to 25% in 2016
Management is too worried about generating stable profit as opposed to generating growth
We have introduced that GrubHub has a leadership position now but may not have ability to keep it in two years. So the first desired state is to maintain this leadership position. Do you remember the current state and the prediction we make?
In order to keep this position, GrubHub needs to keep growing in 2 years.
The most important part for GrubHub is to expand market. Because all desired state like leadership position keep growing are related to market.
But GrubHub did bad in marketing investment, their brand awareness is very weak , is not enough.
So we suggest GrubHub to invest more on marketing 25 percent of revenue to invest in marketing maybe 50% make their brand everywhere in bus trains restaurants have promotions to students, professionals, youths olders.
Do you remember GrubHub really did well in customer satisfaction, there are 90% diners are return diners. Keep perfect customer satisfaction to maintain the current market.
Keep expanding to new market, maintain the current market then more and more market belongs to GrubHub
Recommendation: Merge brand into one -- Grubhub!