After years atop the US food delivery market, Grubhub has been unseated by a Silicon Valley challenger.
DoorDash overtook Grubhub in US monthly sales in May, according to research firm Second Measure. DoorDash also surpassed Grubhub in market share as measured among the online food delivery companies that Second Measure tracks using anonymized credit transaction data, though the absolute value of those sales has grown for both companies.
Grubhub, based in Chicago, has long been the established leader in US online food delivery, a market it helped invent in the mid-2000s with technology that transmitted orders from customers to restaurants. Grubhub merged with Seamless in 2013 and has continued to consolidate its market share by buying up other food delivery brands, such as Eat24, Tapingo, and LevelUp. Second Measure noted that its data doesn’t currently capture sales from Tapingo and LevelUp.
Grubhub, which operates only in the US, is very much still growing. For the first quarter of 2019, Grubhub reported $1.5 billion in gross food sales (the total value of food, tips, taxes, and delivery fees on orders placed through its platform), up 21% from the same period a year earlier. The company reported 19.3 million active diners, defined as the number of unique accounts from which a Grubhub order had been placed in the last 12 months, up 28% from the first quarter of 2018.
But that growth hasn’t been enough to stave off DoorDash, a San Francisco-based startup backed by $2 billion in funding and recently valued at $12.6 billion—nearly double the $6.5 billion market cap of publicly traded Grubhub. DoorDash, founded in 2013, last raised $600 million in May from backers including Japanese tech giant Softbank. CEO Tony Xu told Forbes that money would help the company “pull forward the future sooner.”
Grubhub investors have long feared the company could be surpassed by a well-funded Silicon Valley competitor. While Grubhub executives have tried to shrug off those concerns, they’ve been rankled by third-party data like Second Measure’s that show their market share in decline, and DoorDash’s on the ascent.
DoorDash’s narrative has “been aided by some grossly incorrect third-party credit-card panels,” Grubhub president and chief financial officer Adam DeWitt said at a dinner in New York City on April 3, adding “I haven’t seen one [third-party report] that’s correct.” Grubhub declined to comment on the latest Second Measure data.
Venture capitalists have poured money into the food delivery space, believing it could still yield a mega-startup along the lines of Uber. From 2015 to 2018, meal-ordering and -delivery companies received $6.7 billion in capital, according to data from PitchBook, a venture-capital research firm. The market for those services is expected to reach $40 billion by 2021.
None of these private food delivery startups are yet thought to be profitable, and it’s unclear how they would fare were that pipeline of venture funding to dry up. In a dig at its money-burning competitors, Grubhub CEO Matt Maloney has referred to Softbank’s CEO Masayoshi Son as “Uncle Masa” and said his company could also post huge growth numbers if it were willing to lose $1 billion a year.
DoorDash’s model differs from Grubhub’s. DoorDash hires independent contractors to deliver on-demand orders from restaurants, whereas the bulk of Grubhub’s orders are completed by delivery people employed by restaurants, and not Grubhub itself. DoorDash customers typically pay a delivery fee and a separate service fee, plus whatever tip they choose to leave for their delivery worker (DoorDash’s handling of these tips is controversial).
Such fees add up quickly, resulting in orders that often cost much more than their actual items. DoorDash also offers a $9.99-a-month subscription that includes free delivery and reduced service fees on orders over $15 from restaurants with which it has a relationship.