The executive told investors 'the swing factor is so dramatic' in trying to pinpoint the company's true value.
Just Eat Takeaway.com told investors Wednesday that it's having issues with selling Grubhub because of delivery fee caps and a pending lawsuit in New York City.
CEO Jitse Groen said the company has talked with interested parties, but they've been "complicated conversations." He added that fees caps are preventing Just Eat from fetching a "decent multiple on Grubhub because the swing factor is so dramatic." Potential buyers are not sure about the company's true value.
In New York City, third-party aggregators cannot charge more than 15 percent fees to deliver an order, more than 5 percent in other fees, and more than 3 percent to process electronic payments. The city first implemented a delivery fee cap in June 2020. It made the move permanent about a year later. New York City also promised to review the fee cap every two years to analyze its effect.
Groen also mentioned pending litigation. Grubhub, DoorDash, and Uber Eats sued New York City shortly after it passed its permanent delivery fee.
Earlier this year, the New York City Council introduced a proposal that would eliminate the 5 percent fee cap. The legislation has yet to move forward, but it has the support of more than two dozen council members.
"There's two processes running there," Groen explained. "There's a legacy authority in the New York City Council. As you probably know, we don't control the New York City Council. That's pretty obvious. The second part is still an ongoing court case that also is there. We're pretty confident that [the fee caps] will roll off. We just don't know when. And this is in the U.S., it could happen overnight, it could also take a long time still. So we are improving the business. And if the fee caps roll off great, then the profitability profile, Grubhub starts to look like the rest of the business. That's fantastic. But it's difficult to control things that we don't control."
Just Eat announced in June 2020 that it would acquire Grubhub for $7.3 billion. The move was finalized about a year later. Then, in April 2022, the company revealed that it was putting Grubhub on the market.
The third-party delivery aggregator has been underperforming in recent years. In North America, which includes the Grubhub business, gross transaction value decreased 12 percent in the first half of 2023 due to lower order volumes.
However, Just Eat has looked to improve the business prior to selling it off. In June, Grubhub unveiled a restructuring program that required 400 layoffs (a 15 percent reduction in headcount). CEO Howard Migdal—who rose to the position after Adam DeWitt stepped down from the role after 11 years with the company—said rightsizing the organization will allow everyone to be “more agile, make bolder bets and take advantage of all the opportunities on our doorstep.” Just Eat also extended Grubhub's partnership with Amazon in which Prime Members get free access to Grubhub+.
"We're making those changes," Groen said. "Sometimes they're painful, like with the reduction of the staff, but they are necessary for that business and is obviously very unfortunate that the fee caps are there. They make no sense and they need to go. But in the meantime, you also need to run a business."
The shifts appear to be having an impact. North America's adjusted EBITDA turned positive in the first half of 2023 with $56 million, versus negative $4.4 million in the year-ago period. Grubhub, with a free cash flow of negative $61.6 million, is on a path toward cash flow breakeven as well.
Grubhub held 10 percent market share in June, according to Bloomberg Second Measure. The company trailed DoorDash (65 percent) and Uber Eats (23 percent).