There are a million food delivery startups in the US. OK, a million is an exaggeration, but there definitely are a lot: Postmates, DoorDash, UberEats, Caviar, Sprig, Zesty, Favor, Munchery, Maple, and Ando. Add in grocery and meal-kit services and the list gets longer: Instacart, Blue Apron, Gobble, Purple Carrot, SunBasket, Hello Fresh.
But the company that people love ordering from the most isn’t a startup. It’s Grubhub (and Seamless).
In the first quarter of 2017, 8.75 million people ordered from Grubhub and Seamless, the New York-based brand it acquired in 2013, the company said in results released April 27. That was up from 6.97 million active diners in the first quarter of 2016, a 26% increase. Grubhub averaged 324,000 orders a day—”daily average grubs,” to use the company’s lingo—and sold $898 million worth of food in the first three months of the year. It booked $156 million in revenue and $17.7 million in profit, the second of which jumped nearly 80% year-over-year.
It’s almost hard to believe that two years ago Grubhub’s stock was in free fall, as investors who feared “disruption” from the many well-funded food startups fled. From late April 2015 to late January 2016, Grubhub’s stock lost 61% of its value, falling from $47-and-change to less than $20. During those same nine months, Postmates raised $80 million, Munchery raised $85 million, and Sprig raised $45 million. DoorDash in March 2016 closed a series C round for $127 million.
But raising money is one thing and building a sustainable business another. Postmates has struggled with unhappy customers and misleading pricing. The startup has yet to turn a profit and last year promised investors a small miracle to make one by 2018. Munchery has cut staff, replaced its CEO, and most recently stiffed early backers in a bid for survival. Its monthly losses at times exceeded $5 million. Others have scaled back or shut down entirely. Delivery platform UberRush recently ended service to restaurants. Venture-capital funding to food delivery startups has tumbled.
Wall Street has gone running back to the incumbent. “Grubhub’s private competitors are maturing, while available capital is decreasing,” investment firm Oppenheimer wrote in a research note earlier this month, in which it upgraded Grubhub’s stock to an “outperform” rating. “We believe both factors work in GRUB’s favor: mature, cash-strapped companies don’t burn exorbitant amounts of capital on free food.”
Analysts also think Grubhub has done a better job appealing to mainstream America. Companies like Postmates and UberEats tend to focus on dense metro areas such as New York and Los Angeles. Grubhub operates in those places but also provides service in smaller cities that startup competitors are less inclined to frequent. Grubhub’s earnings provided yet more evidence that the strategy is working. Based on its stock performance, investors agree.