Tech Check is a regular column on restaurant technology by Senior Editor Joe Guszkowski. It's also a newsletter.
The restaurant delivery world got a shake-up Wednesday morning when food hall-delivery chain Wonder announced plans to buy Grubhub, the third-party delivery provider that has been for sale for a couple of years.
There’s a lot to unpack for both sides. Wonder is a small company growing at a meteoric rate behind more than $1.7 billion in private funding. Grubhub, once the largest restaurant delivery service in the U.S., has been in decline for years. The combination solidifies Wonder as an industry player to watch. But it also carries some significant risks.
As we sort through this big story, here are some initial thoughts.
Grubhub fell very, very far
The first thing that jumps out about this deal is the price tag. Wonder will pay $650 million for Grubhub, which sold in 2020, to European delivery giant Just Eat Takeaway.com, for $7.3 billion. With a B. Its value plummeted more than 90% in just four years. In terms of the sheer value destruction for Just Eat Takeaway, it may be one of the worst deals ever.
What happened? Delivery was enjoying a pandemic boom when Just Eat Takeaway made its move. But Grubhub has not been able to keep up with competitors DoorDash and Uber Eats since. While those two have continued to grow and diversify, Gruhbub got smaller and has been slower to change. As of March, it accounted for just 8% of the U.S. food delivery market, compared to 67% for DoorDash and 23% for Uber Eats, according to data from Bloomberg Second Measure.
It’s a risky bet for Wonder …
That begs the question: Why does Wonder want to buy Grubhub?
After all, Grubhub is small, and getting smaller. Orders in Just Eat Takeaway’s North American division, which includes Grubhub, have fallen 26% over the past three years. Its struggles suggest that the food delivery market may not be big enough to support three healthy providers.
To stop the bleeding, let alone grow, Grubhub will require some attention and investment from Wonder. But Wonder has a lot of other things going on right now, including opening one new location a week for the next year or so. It is also taking on $500 million worth of Grubhub debt in the deal.
… But it makes strategic sense
Grubhub still has value. It is one of only three companies of its kind in the country, with more than 375,000 restaurants and other businesses on its marketplace and more than 200,000 couriers making deliveries from those restaurants in 4,000 cities, plus the sophisticated software that makes it all go.
It is the kind of network that would be extremely difficult for Wonder to build on its own. And it is the kind of network Wonder will need to expand across the U.S. as it has said it intends to do. With Grubhub in the fold, Wonder could open a store in Tulsa tomorrow and have a delivery business ready to go.
Wonder is also essentially buying Grubhub’s customers and their order data. Wonder can market itself to those customers. And it can use their data to help develop new restaurant concepts or decide where to open new locations.
There are also practical considerations. Grubhub will generate revenue for Wonder, which has just 28 locations and is presumably burning through cash as it quickly opens more.
And for as diminished as Grubhub may be, it remains a key player in New York City, where most of Wonder’s stores are located. Just Eat Takeaway has long said that Grubhub’s growth is being stunted by New York’s cap on what delivery apps can charge restaurants. That cap is under review and could be lifted or revised, which would help Grubhub.
The super app question
More broadly, Wonder said that acquiring Grubhub will bring it closer to its goal of becoming a “super app for mealtime”—a one-stop shop for consumers seeking restaurant meals, groceries or meal kits.
Grubhub will certainly expand Wonder’s selection. Wonder currently offers delivery and pickup from about 30 in-house brands as well as meal kits from Blue Apron, which it acquired last year. It said Wednesday that it plans to hand-pick some Grubhub restaurants to include on its app. I assume that it will eventually add groceries too, given that Grubhub offers grocery delivery in many markets. That will naturally give consumers more reasons to use Wonder.
But it will also add complexity to what is today a notably streamlined operation. Wonder owns every piece of its business, from the commissaries where its food is prepared to the restaurants where it is finished and the couriers who deliver it. It has always prided itself on the quality of that food, going so far as to call itself a “fast-fine” concept. It will not have the same control over restaurants on its app that it does not own.
And, ultimately, it’s difficult to argue that buying Grubhub makes Wonder more of a super app than DoorDash or Uber Eats, which already offer delivery from restaurants and grocery stores as well as many other retailers, plus ride-sharing via Uber and now Lyft.
DoorDash and Uber Eats have company
Nonetheless, it does put Wonder into the ring with the two heavy hitters. And it may prove to be a different kind of fighter than Grubhub has been under Just Eat Takeaway.
While DoorDash, Uber Eats and Grubhub all have virtually the same business model, Wonder views itself as a disruptor. Its goal from day one has been to get higher-quality meals to customers’ doorsteps faster. It started with mobile kitchens that allowed it to cook meals in customers’ driveways. It ditched that idea in favor of putting restaurant hubs in densely populated areas and keeping its delivery radius tight. As outlined above, it is vertically integrated, which allows it to smooth out some of the kinks involved in third-party delivery.
Despite all of that, Wonder’s average delivery time is under 35 minutes. A recent study by researcher Intouch Insight found that the average delivery time for DoorDash, Uber Eats and Grubhub combined was 33 minutes. So Wonder has not exactly revolutionized delivery speed yet.
Its commitment to quality is another story. Many of Wonder’s in-house restaurants are collaborations with respected chefs like Bobby Flay and Marcus Samuelsson. They worked with Wonder to reverse-engineer their food for the delivery experience, and their participation is a big endorsement for the company. Its diverse menu can be produced by a few employees using just three pieces of equipment, which helps with consistency. A look at Wonder’s menus shows that very few dishes are rated lower than 9 out of 10 by customers.
And Wonder has another advantage in founder and CEO Marc Lore, who has a history of building large, disruptive businesses. Diapers.com was at the frontier of ecommerce when it was acquired by Amazon for $545 million in 2010; Lore then went on to start an Amazon competitor in Jet.com, which was later acquired by Walmart. He’s trying something similar with Wonder, which he has said could become the Amazon of food. His proven track record has convinced a lot of investors to bet on him: Wonder has raised more than $1.7 billion to date, including a fresh $250 million announced Wednesday.
Whether any of that will be enough to put a dent in DoorDash and Uber Eats is questionable. Both are innovators in their own right, are flirting with profitability and have shown no signs of slowing down.
There’s an Amazon angle
One footnote on the deal is that Amazon currently holds a 7% stake in Grubhub. It has also partnered with Grubhub to offer Prime members free access to Grubhub+, a subscription program that gives customers $0 delivery fees and other perks. Grubhub also has a permanent spot on Amazon's shopping app.
It was not immediately clear what would happen to that relationship when Wonder takes over. But it is another chapter in a long history between Lore and Amazon. After Amazon bought Diapers.com, Lore spent two years working for the company before leaving to start Jet.com. Late last month, Wonder hired the head of Amazon’s grocery business, Tony Hoggett, as its COO. And now it is buying Grubhub, something many observers had speculated Amazon might do, given its existing stake in the company.
While Lore has said there are no hard feelings between him and Amazon, the two continue to cross paths in interesting ways.