GrubHub’s stock took a hit this month after the results of a mediocre earnings report was released. CEO Matt Maloney condoned GrubHub’s competitors Postmates and DoorDash for high service charges, additional hidden costs in menu markups and subscription applications calling out the strategy as “bogus”.
In an example of markups, a recent $30 order on UberEats tagged on an additional $10 in service and delivery fees. Including taxes and tip, a $30 order can easily cost a consumer more than $45. In contrast, GrubHub does not charge a service fee.
As competition in the food delivery services grows, so do the operating expenses. The end of GrubHub’s quarter saw it’s year over year net income drop to $1.3 million. Revenue fo the second quarter did see a 36% increase year over year to $325.1 million.
The increase of marketing costs and the expansion of new delivery markets continually rises for GrubHub. The company saw an increase in Q1 costs scale from $48,756 in 2018 to $78,454 in 2019 ending on March 31st. Drives to increase its consumer base in current and new markets include promotions offering free delivery for first time consumers.
As it stands, consumers continue to swallow service fees for the convenience and novelty of a delivery service. However, if competitors continue black-hat techniques including high service and delivery and hidden menu costs, consumers will catch on. The ease of use may not be worth the fees when mom and pop shops continue to offer traditional in-house delivery services.
Despite the growing competition, GrubHub did manage to grow it’s market share, setting a bar at $1.5 billion in gross food sales. The increase also saw gains of 30% in active diners. Investors set higher expectations however, despite the expectations set by FactSet. Stock dropped 14%, quickly reversing the gains they say on Monday when the news Takeaway.com – an Amsterdam based food delivery company that has reach in multiple countries – announced its plans to acquire UK based competitor JustEats for a lofty $10 billion.
On an conference call Maloney did with analysts and journalists, he stated, “There are a lot of players right now making a lot of poor business decisions, and I think there’s a lot of money and likely a lot of investors who are concerned about their own liquidity,” referencing the increased services fees and menu markups competitors are using to cushion their profits. Diners can expect to pay 30% more on top of their original food bill.
However, this does not mean grubHub is out of the water. In May of this year, Maloney came under fire for creating thousands of websites for restaurants, often listing different prices than the real menu. Maloney denied these claims as erroneous.
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