Max Brun discusses food delivery competition with someone who sold Eat24 to Grubhub. They cover how DoorDash, Uber Eats, and Postmates raced to $1 billion in GMV, the 30% EBITDA economics of restaurant delivery, and why companies chose unprofitable growth over profitability.
I also want to bring up the point, I guess it's for some context, you know, this is during the time of the, I guess we could call it the infamous food delivery wars, right?
Yes.
So what was it like being in such a competitive market?
Oh, the food delivery wars was such a fascinating time. You know, it was really interesting. When we came on the scene, and when we made this acquisition, Grubhub was kind of the undisputed leader, only because they acquired Seamless or merged with Seamless in New York. Grubhub was based out of Chicago, so they kind of had a lock on the Midwest and New York. E24 was actually the biggest on the West Coast. If those 2 hadn't merged, the 3 would be like roughly around the same size. And Postmates was still relatively small. They were, you know, they had a good hold on LA, but E24 I think was maybe doing more volume. And DoorDash was just rounding error. Uber Eats actually hadn't even launched yet around the time we were making the acquisition. They were just starting. They were pitching to work with Yelp as a partner, actually. And so we're trying to figure out that, are they going to be a partner or competitor? During those couple of years where we grew substantially, we grew around 5x. That's quite a bit of growth, growing to $700 million GMV. And it was this race to $1 billion GMV. But DoorDash and Uber Eats, oh man, those companies just hit the ground running and grew rapidly. And that's because they They had last-mile delivery and they opened up this whole new paradigm that you could just get any restaurant you want. Prior to that, you could only get restaurants that had a delivery driver. That was the Eat24 model. The way we had 30% EBITDA margins was the restaurant had their own delivery driver. That meant the average ticket, the average order was actually cheaper. A lot of times the delivery driver, by the way, was like the restaurant owner's son or daughter or nephew or niece, somebody who worked in the restaurant who was like idling. And not answering the phones or doing something, and they could— they were free to go out and do delivery. So it's actually lower cost to the consumer, higher margin for the restaurant, and more margin for— it was in some ways a win-win because you had some of this labor that, that was being underused, or the family that owned the business. But for consumers, it was lacking one key thing, which even though it was at a lower price, it was lacking consumer choice. And consumers love variety and choice, you know, in a category like restaurants. They want to be able to access everything. And that was the golden goose for these, um, you know, DoorDash, Uber Eats, and Postmates to a degree. They were able to really capitalize on that. And so those delivery wars, we kind of had one hand tied around our back, and we saw that to really compete, you know, I said, look, I've delivered incredible growth up to here, but it's actually— and I kind of told the Yelp board this, like, it's not going to continue with the current strategy. We're either going to have to get into last-mile delivery, which will sink the profitability of all of Yelp. So here's this other challenge is you've got Yelp, this company that was kind of around breakeven profitable, a young public company, intense pressure from the public and shareholders to show at least breakeven profitability as a young public company. But meanwhile, DoorDash and the others were burning cash like nobody's business. They were all about investing in growth. That's the benefit of being private. It could have been a very different story, let's say, if Yelp was private and we could have just raised bigger rounds. in that heyday. Now, in today's environment, with, you know, interest rates going up, inflation higher, and capital maybe drying up a little bit, I don't know if the food delivery wars would have played out the same way. But in that high availability of capital, super low interest rate environment, it was a tough game to not be able to invest in growth and unprofitable last mile delivery. So around that time, Yelp also struck into a big partnership with Grubhub. And they said, well, Grubhub is going all in on last-mile delivery. And we ended up as part of that strategic partnership selling E24, I think very wisely. And that's right around the time I was leaving. It all kind of worked out well where we said, we've had a good run, but if we're not gonna do last-mile delivery, we probably don't wanna own an asset in this business anyway. So I think that was the right move for Yelp, short of maybe doing a take private and going all in on last-mile delivery, which would've been a very high risk, potentially high reward, but also a high-risk move.
