Analysts: Grubhub Can’t Keep Up With The Competition

Grubhub shares took a beating in the stock market yesterday, falling by 8 percent as a report from KeyBanc Capital Markets said the food delivery service is struggling in its high competition environment and failing to keep pace with players like UberEats and DoorDash.

“Diner retention, initial diner spend and peak diner spend all appear to be deteriorating,” wrote the analysts.

The change in position among delivery players has been precipitated by a variety of changes. Uber, as it preps a run-up to an IPO, has been been highly focused on its UberEats food delivery service and investing heavily. More critically, however, DoorDash is currently valued at $7.1 billion and is rapidly eating up Grubhub’s market share.

“DoorDash’s share gains began accelerating in 2Q18 and show little sign of slowing,” the report said.

Grubhub on the other hand, started losing steam last year — reporting that in Q3 it only managed to retain some 36 percent of diners the following period, down from 42 percent retention in the fourth quarter of 2017 and 59 percent in the first quarter. On the upside, the firm still brings in new diners at a good pace — the analysts noted that new diner growth averaged 28 percent over the previous four quarters, “which reflects strong market adoption of online food ordering and Grub’s increased marketing efforts.”

This is all well and good, but not alone a solution for Grubhub. Because DoorDash also leads among new diners, it snapped up more than 40 percent of them in the market.  It also owns 50 percent of new diner spending.  That doesn’t mean those customers are necessarily lost to Grubhub — consumers often use more than one delivery platform — but it means the competition is truly on every imaginable front.

“While the current battle appears to be mostly for share of new customers, growing overlap could intensify the battle for existing customers through 2019 and 2020,” the analysts wrote.

Also, it seems Grubhub is having some difficulty getting newer eaters to deepen their relationship with the mobile ordering platform.  According to the report, they are more reluctant to spend more money over time on the platform, which analysts note is not a good sign. It indicates customers are finding “declining perceived value.” Moving forward, they wrote, Grubhub will have to add three times as many new diners just to make up for its high levels of churn.

It’s been a rough few months for Grubhub, whose stock price hit an all-time in high in September only to begin a tumble down that has robbed it of around half its stock value.  Prior to that, it had been on a tear, growing by more than seven-fold since early 2016.


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