What the potential Grubhub acquisition might mean for operators.
With fresh news that Uber Technologies, Inc. is in advanced talks to acquire Grubhub Inc., restaurant owners who outsource delivery should be warned: The risk of a third-party platform effectively owning the relationship with your customers just increased. Dramatically.
Since the onset of the coronavirus pandemic, delivery has become essential for most any retail operation that wants to continue generating revenue. For restaurants and the food & beverage industry, delivery has become the deciding factor between keeping the lights on or closing up shop. In turn, many restaurants—from “mom-and-pop” operations to those with national footprints—have sought quick ways to get food to their customers.
That leaves restaurants with a couple of choices: They can offer curbside pickup or find a way to provide doorstep delivery. For many restaurants, that means turning to a third party, which may be a national player such as Uber Eats, Grubhub, or DoorDash or a regional outfit like Louisiana-based Waitr Holidngs Inc. or Florida-based Delivery Dudes.
Even before COVID, some restaurants found outsourced delivery to be problematic. Now, the issues are impossible to ignore. Even if customer service is seamless and prompt, diners frequently see large markups, which can turn them off from a restaurant. Not only do delivery platforms tack on flat fees of several dollars per order, they sometimes increase menu prices to boot (for instance, a $5 cheeseburger might easily become a $7.50 cheeseburger).
In theory, free-market competition should prevent markups to the end customer. But in many locations, there are only a few players, so competition for "Delivery-as-a-Service" is minimal.
Uber itself has said that its delivery business plans to leave markets where it isn’t either the number one or number two player. The potential is that some markets will get decimated, then if the conditions are not ideal – the winning company may pull out afterwards, making some food deserts even more pronounced.
Sure, there have been reports that behemoths like McDonald’s Corp. and Applebee’s have tried to push back on commissions and asked delivery partners to spend more on marketing and promotional discounts, but for the vast majority of restaurants that lack such scale, a combination of Uber Eats and GrubHub would almost surely lead to less negotiating clout.
Indeed, a likely motivation for Uber’s purchase of GrubHub is to reduce competitive pressure on fees in a fast-growing business area. In its latest quarterly report, it was clear that Eats has become a critical part of Uber’s overall business as gross bookings for the segment surged 54 percent while the same metric slipped 3 percent in its core ridesharing business.
While the coronavirus may have led to a spike in deliveries, restaurants shouldn’t expect diners to stop wanting the service anytime soon. As customers grow accustomed to the convenience of delivery, they may go first to Uber Eats or another app instead of a restaurant’s own website, purely out of habit.
In some cases, third-party platforms may even create their own menus for restaurants and circumvent the establishment’s owner entirely. A third party can easily call in an order, pick it up, and deliver it without the restaurant even knowing it happened.
The solution? Restaurants, even those with a single or small number of locations, can take delivery into their own hands. For the moment, many have excess staff members who haven’t been able to provide normal service for dine-in customers. Those workers can easily be trained to make deliveries where they can even collect gratuities. The truth is, this is a fight for maintaining jobs for staff members willing and able to work, and more importantly, maintaining the relationship and touchpoint with customers.
The process of creating a customer interface, be it a full e-commerce model or simple menu with ordering instructions, is simpler and faster than restaurant owners may realize. Software that includes order management and navigation tools for brand new drivers is also available. These functions, offerings and integrations have become table stakes for any company competing in e-commerce.
The upshot for restaurants is to ensure they maintain the close connection with customers that have taken years or even decades to build. For those who don’t, Uber Eats or another third party will be happy to have the keep your business—and offer you a job as a driver.
Robert Bardunias is the Chief Operating Officer of GetSwift, which provides software-based logistics solutions that allow restaurants to control every step of the e-commerce and delivery process internally. Businesses around the globe depend on its SaaS platform to bring visibility, accountability, efficiency and savings to their supply chain and “Last Mile" operations. GetSwift is headquartered in New York City and is listed on the Australian Securities Exchange (ASX:GSW). For further background, please visit GetSwift.co.