The rise and fall of Grubhub

Back 10 years ago in 2016, Grubhub absolutely dominated American food delivery. Just Eat Takeaway would go on to buy Grubhub for $7.3 billion in 2020. But just 4 years later, they would sell the business, losing 91% of their investment. This video explains how they took this dominating market position and threw it all away. This is the rise and fall of Grubhub.

Oh, and by the way, thanks to Morph for sponsoring this video. More on them later.

By the way, I turn each and every one of these videos into a one-page document you can download to learn more about it. girdley.com/youtube. The story starts back in 2004 in Chicago. Two engineers that are working for Apartments.com are sitting in their apartments flipping through paper menus, trying to talk on the phone to get somebody to bring them food. And they think the situation's ridiculous. The first startup to solve this is actually them going and getting paper menus from a bunch of restaurants in Chicago. Then they put them online into a directory. And tried to charge those restaurants advertising fees. It didn't work very well. 2007, they pivoted the entire model. Pay per performance. Basically, they would only get paid if somebody ordered food from their website. This idea was good enough to help them raise a Series A in November 2007, $1.1 million from investors. This is a beautiful model. Notice they don't own restaurants, they don't own any kitchens, they don't have to put up money for storefronts or leases. They're just taking a cut. On every sale they can generate for these restaurants. May 2013, they would merge with a company called Seamless, who originally was an expense reduction tool for big banks and big corporations in America. Basically, when they wanted to save money on their people going out on expense accounts, buying dinners and fancy stuff like that, Seamless was the way they managed it. Those early customers for Seamless were folks like Goldman Sachs and Lehman Brothers, who basically didn't understand anything about the way suburban families would buy food. Remember this fact because it'll come back later in the story and be important. Those two companies together after the merger would have 25,000 restaurants on the platform and do nearly $800 million a year in gross marketplace value. That's the number you use in terms of the total amount of dollars flipping through the platform, of which of course they would take a percentage. April 4th, 2014, they go public. And here's a crazy thing, they went like ballistic in terms of their share price that day, going up nearly 50% because they had something crazy in consumer internet. They were making money. On $137 million in revenue, they were actually making millions of dollars on that, uh, 6% actually. Pretty cool. Grubhub apparently done the impossible, which was figure out how to make money profitably from some of the worst customers in the world of B2B— restaurants. The reason restaurants are pretty much horrible customers, especially independent ones, is they act like consumers. They don't want to spend money, and they're perpetually broke because they have so much capital invested just trying to open up each and every night. This idea of profitability, which is what seemingly you want from any sort of business, uh, would become important later in the story because across the country there was a competitor who was losing nearly two-thirds of a billion dollars per year trying to dominate the same market. They'll come up shortly. In the meantime, one of the co-founders named Mike Evans, he quits in 2014 saying that Grubhub had suddenly become a Frankenstein's monster that he didn't want to be part of anymore. And like any good millennial, he decided to go bike across country on a bicycle. But back to what was going on with the money-burning operation across the country. Well, back in 2013, 4 Stanford students had walked into a Palo Alto shop. Shop sold desserts called macaroons, and the owner showed them a problem, which was all of these iPads suddenly had appeared from all these delivery folks who were causing them a nightmare. She had to manage basically every part of that. A typical person would see a menu problem, but founder of this company, Tony Hsu, saw something different. He saw a logistics problem, and he started up a dot-com for it. Called PaloAltoDelivery.com. They got $120,000 from one of the most famous incubators in the world called Y Combinator, located in Silicon Valley, and they renamed the company DoorDash. And they did something a little nuts with DoorDash. Whereas folks like Grubhub had gone after mom-and-pop restaurants trying to bring them online, DoorDash said, "Forget that. We're gonna go after the chains. We want scale." And it seemingly was kind of crazy because nobody wanted those chains. Burger King, McDonald's, Chipotle, they would have leverage over folks like DoorDash, right? Nope. The second thing that DoorDash did, which was completely crazy, was go after the Sun Belt. Places like Dallas, Atlanta, Phoenix. Places that Grubhub just didn't even try. Why would you want to have all those drivers and suburbs and miles? Just didn't make any sense. But DoorDash had a bigger vision. They were going to be a logistics system for food across the entire United States. Whereas Grubhub was just going to be delivery for restaurants, DoorDash was thinking even bigger. Decisions would prove fateful in the way this whole story eventually ended. But hold that thought for now, we'll come back to it.

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By 2018, Grubhub has 43% market share. Their stock at $140. The company is valued at billions. October 28th, 2019, it was at that moment that things started to go wrong for Grubhub. The CEO wrote a letter in his update for everybody saying they saw something from consumers. That the consumers were quote-unquote becoming increasingly promiscuous across apps. Promiscuous is a word that means that people are willing to basically move their relationships around, but it showed something problematic with Grubhub, uh, that they didn't really understand the most important thing in this whole deal, which was they were going to need to be building relationships with customers so they didn't leave and they only wanted to buy from Grubhub. The CEO, Matt Maloney, his instinct was to blame them for switching around when in reality DoorDash had not understood deeply enough and not rolled out enough features to keep them from switching. This announcement coincided with something DoorDash had just done, which was to demonstrate a deeper understanding of how the whole game was going to be played. And that year in 2018, they rolled out a $9.99 a month, basically their own version of Amazon Prime. You get free delivery just for being a subscriber. Zero! A toast to zero! Zero! DashPass, your door to zero dollar delivery fees. DoorDash. Whereas DoorDash understood that they had to pay for customer loyalty and give them a deal to keep them around, without shopping around. Grubhub just thought they deserved it. But there was something else that Grubhub was doing that was basically hurting them terribly, which is they had originally started at 10% commissions, and quietly over the years they'd gone from 10% to 15% to 20%, and sometimes even higher. Typical restaurant is going to run at 5 to 10% profit margins, and here was Grubhub deciding they were going to make more than that— 10, 15, or 20% just on their own for taking an order online. Grubhub also went and did some black hat stuff, which is code for like bad stuff done on the internet. They would create these microsites with their own phone number for individual restaurants. When people called, they would act like they were calling the restaurant. An unbelievable move, Grubhub registered 45,000 lookalike domains, basically trying to capture traffic that were normally going to individual restaurant websites. This morning, food delivery service Grubhub is the one getting served. A lawsuit accusing the company of lying to its customers. They started to get Sued by different folks. Restaurateurs are a vocal group. The attorney generals of different states sued them in March 2022, claiming basically that Grubhub was scamming these poor local restaurants. And they were right. By 2020, this type of behavior, this predatory stuff, would get so bad that when restaurants were surveyed as to which delivery service they disliked the most, yep, they hated Grubhub above all of them. Cities like New York City would roll out 15% max fees on vendors like Grubhub. Which in the end actually ended up helping folks like DoorDash. As COVID came around in March 2020, this should have been the moment that Grubhub shined. People couldn't go outside in a lot of cases, kids couldn't go to school, people with immune deficiencies, heck, many of them couldn't even leave their house. This should have been their moment, but it wasn't. DoorDash in that era, in that year, did $2.89 billion going up 220%. Grubhub did between $1.8 and $2 billion, up maybe about 50%. Why the difference? Well, it turned out that decision to ignore the Sunbelt belt had really hurt them at this moment. And remember how part of their business had been built on basically cost cutting for these big corporations who operate out of office buildings? Well, nobody was taking people out on fancy expense accounts during COVID So while DoorDash was able to take advantage of growth of ordering in the suburbs, Grubhub was stuck with cities that were suddenly filled with vacant office buildings. DoorDash had chain restaurant deals and Grubhub had small mom and pops in urban centers. And interestingly enough, DoorDash, who had built this recurring engine with their own version of Amazon Prime basically, uh, was a still a private company and they were still able to take advantage of the massive amounts of venture capital that was available during this period of time. And that was only accelerating. More money was being dumped in the system all the way into 2022. DoorDash was doing the right move at the time, understanding the market hadn't been won yet. Grubhub was stuck reporting to public shareholders. Because it had gone public back in 2014. DoorDash was trying to win market share in a winner-take-all market. And Grubhub, well, they were basically not— Between January 2018 and March 2019, Grubhub would go from first place to fourth while DoorDash accelerated up to first place in the delivery market. The CEO of DoorDash, Tony Xu, fundamentally understood that delivery is a logistics problem. and Grubhub had seen it as a software problem, that they were building a marketplace. Two different worldviews, and they were playing out in real time. But at that moment of huge financial euphoria, when so much money was pumped into the system post-COVID to keep things going, a Dutch company would enter the picture and make an enormous bet. It turned out that these type of delivery services had not only been in the US, they'd also started to pop up in the EU and other places, and a big one was located in the Dutch capital. And it would be called Just Eat Takeaway. Did somebody say Just Eat? June 10th, 2020, the founder and CEO of that company, a guy with a Dutch name, Jouts Groen, I'll try to pronounce it, had had a vision and he wanted to build the biggest delivery company for food outside of China. He had built in Just Eat the Grubhub equivalent in the EU. It was profitable, disciplined, and it focused entirely on squeezing margin out of local restaurants. He wanted to run the same playbook that was all set in the EU, but in the United States, using somebody that looked just like his company. The problem was the war hadn't been decided in the US yet. So the deal got announced that he was buying it for over $7 billion in an all-stock transaction. And ironically, at the same time, Uber had been trying to buy, uh, Grubhub at the same time. But the DOJ, who is a star in many of these videos, had stepped in and blocked it. And that's how Jet ended up in first place. Finally closes in June 2021. It takes time when they're both public companies and Jet turns around and basically starts to run the European thinking for Grubhub, which is cost cutting and run for cash. The problem was DoorDash. They kept spending. Their goal was market domination. They saw that they were building a marketplace and would try to win a winner-take-all battle and they would continue to lose market share. And by August 2022, Jet would announce that they had overpaid by €3 billion for the business of Grubhub. March 2023, with scale and market share decline in the United States, Jet would show an over €5 billion loss that year, most of it because of Grubhub. In 2021 and 2023, the number of users on Grubhub would go from 33 million down to 21 million. They were just bleeding to death. November 2024, Those attorneys generals that I told you about before that had sued Grubhub for all the predatory practices, they settled for a $25 million fine and the company paid it. And that's where Jet had to step out. They were losing too much money on Grubhub and it sold in 2024 to a guy named Marc Lore. Marc bought the company for $650 million. Remember, Jet would lose 91% of their investment. And here was Marc stepping in to pick up the pieces. But Mark's just not some random dude. He's an inventor and investor who created some of the biggest exits in e-commerce over the past couple of decades. Sold diapers.com to Amazon for $500 million, and he had sold Jet.com to Walmart for over $3 billion. If you're doing the math at home, Jet.com destroyed over $6 billion of investor money in less than 4 years. Lore has turned around and done a mealtime thesis basically laying off 20% of the staff with the idea of focusing everything on how do we get prepared meals logistically out to customers and, uh, people who are too busy to cook dinner. In business, a lot of times the winner goes to the person who understands their market more deeply than the other guy does. In the case of Tony Hsieh and DoorDash, they truly understood what was going on and what they were building much better than the Grubhub guys did. The same thing applies to small businesses too. A lot of times you might think you're in the restaurant business, but you're really in the "how do I make somebody have a great anniversary dinner" business. Trouble comes up when people don't understand what they're really in. And, uh, in this case, it caused Grubhub to flame out from what it could have been. All right, if you enjoyed this video, let me know you did in the comments below. A kind word encourages me to make more. Catch you next time.