Grubhub’s 2020 start has been a bit bumpy thus far — it was passed by DoorDash in late January in terms of food delivery market share, according to some estimates, and has been dogged by rumors that it is looking to put itself up for sale.
The firm publicly denied these rumors — a few times — and as of its last earnings report the firm was showing some distinct signs of renewed strength with a 19 percent revenue increase to $341 million from $288 million at the same time last year. The platform also saw greater-than-expected growth of its user base to 23 million, up from 18 million enrolled at the end of 2018, and jump in platform usage with average “grubs” up 8 percent year on year from last year to 502,600.
But growth and keeping customers came at a cost — the firm reported an adjusted earnings loss of $4.2 million, or $.05 per share in 2019, a stark reversal from the end of 2018, when the company reported a profit of $17.6 million. Recruiting customers is hard to do — and comes with a big price tag.
Which perhaps explains Grubhub’s newest addition to its lineup of offerings for customers — a paid subscription service rolling out today (Feb. 26) called Grubhub+.
“Whether they’re trying us out for the first time or order many times a week, diners already love our exclusive Perks,” Grubhub Chief Product Officer Sam Hall said in the release announcing the subscription play’s rollout. “We’ve pulled out all the stops for this program.”
So what are all the stops — and will this help the restaurant delivery aggregator hold on to all those new customers they just spent all that money recruiting?
How It Works
For regular users, after the 14-day free trial is over, the new Grubhub+ subscription will cost $9.99 a month. Students will have the option of signing on for a 30-day free trial, and those enrolled at the 150 or so colleges and universities that have a delivery partnership with Grubhub will get a free rewards membership. So, you know, something for America’s high school seniors to wait with this spring as the acceptance letters start coming in.
In return for that $9.99 a month, subscribers will get unlimited free delivery, 10 percent cash back on dollars spent on orders, VIP access to Elite Care teams for priority assistance and exclusive access to local events, experiences and other rewards which generally come in the form of free food. Right now, for example, Grubhub+ members can claim a free Free Cheesy Gordita Crunch from Taco Bell, Original or Cinnamon Sugar Pretzel from Auntie Anne's, a dozen Cheddar Bay Biscuits from Red Lobster or a 20-ounce smoothie from Smoothie King. According to Grubhub, more offers on on the way in 2020 from restaurant partners like Shake Shack, Just Salad, honeygrow, Pokeworks, and Argo Tea.
“Generous diner rewards are at the core of Grubhub’s competitive strategy. As the only profitable company in our space, we are leveraging our profits to stay laser-focused on having the most restaurants in the network and giving away as much free food as possible,” Grubhub Founder and CEO Matt Maloney said of the new program.
“With the most restaurants and the best loyalty programs, we believe that we have the right formula and are ideally positioned for success,” he added.
The program also has a generous perk built in alongside the more direct goodies for consumers. Grubhub has announced it will match member donations made with orders placed at Grubhub+ restaurants through its Donate the Change feature. The program expands on a year-long effort that allowed consumers to donate their spare change (by rounding their order price up to the nearest dollar) to No Kid Hungry — a project that has thus far raised over $10 million.
“Grubhub diners have shown significant interest in supporting their local communities. With their help, we made dramatic progress toward ending childhood hunger in the United States,” said Billy Shore, founder and Executive chair of Share Our Strength, the parent organization of the No Kid Hungry campaign. “By matching subscribers’ donations, Grubhub is doubling down on their commitment to help us provide children with more meals.”
Will It Work?
As stated above, Grubhub has had a bumpy ride into 2020 — and though the CEO describes the firm as profitable, that is true in a holistic sense, but is not quite true at present. But it has had more trouble holding to market share, and more often than not finds itself splitting its customer base between itself, Uber Eats, DoorDash and Postmates as aggregator customers tend to flip between services depending on what meets their needs at the moment.
The subscription model gives customers a reason to stop flipping between aggregators and to consistently choose Grubhub — since they’ve paid for the membership and free delivery already, and will get 10 percent cash back along with various other rewards added on. It’s not a model without precedent — Amazon leveraged this basic concept to great effect with Amazon Prime. Prime members spend more than non-Prime members — $1,300 a year vs. $700 a year — and shop with Amazon more often than they shop with anyone else. Today Amazon has ridden that success to control 2.1 percent of consumer spending, and 6.4 percent of all retail sales.
But, of course, the trick is in in the execution — and offering the right basket of rewards such that the paid subscription seems worth the additional expense. Amazon Prime works, but needs a lot of scale to work. With roughly 50 percent of American households enrolled and counting it got to that scale, but it is a difficult model to perfectly imitate.
Many more subscription businesses have failed than have successfully overcome churn and managed mass adoption at scale.
What is clear, however, is that Grubhub needs to do something differently if it wants to stay in the market — and that something must make its service sticky so it will not have to constantly unprofitably spend to bring in new customers. Subscribers have a tendency to stick around and favor the service they’ve already chosen with a $10 monthly payment — if the subscription delivers on the value promised. Grubhub+ has set out its initial offering with an interesting basket of treats. The interesting thing to watch next is how much the contents of that basket influences the digital delivery customer.