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Grubhub, DoorDash and Uber Eats deliver good takeout, but no profit



Before digging into this column, you may want to order a pizza. Open your favorite food delivery app – DoorDash or Uber Eats,
GrubHub
or postmates – and choose your favorite pizzeria. When I wrote the column, I wanted a margherita cake from Amici's east coast, just a few miles away, in Mountain View, California. Fortunately for me, the pizzeria is on all four delivery apps.

This is exactly how you see the problem of the food delivery business. Takeout has become too easy, with little value accruing to the companies operating the platforms. By some estimates, Americans spend $ 200 billion a year on takeaway meals. There is a lot of chips and guac – and almost no gain.

In June,
Amazon.com
(ticker: AMZN), never shy of loss while building new businesses, shut down with Amazon Restaurant. Investors are still waiting for a first public offer from postmates.

Then it's Grubhub (GRUB). In late October, Grubhub sent a 1

0-page missive to shareholders. Many companies write shareholder letters, but you have never read one.

The letter started encouragingly. Over the past decade, Grubhub exploded as online takeaway sales exploded, driven by easy ordering, freedom of choice and control and openness to the dining room. But over the summer, Grubhub explains, the calculations worsened.

"What we concluded is that online takeout offer innovations have been played out and annual growth is slowing down … there are several players all competing for the same new dining guests and order growth," Grubhub wrote.

The company said that "online diners are becoming more promiscuous." Not the word I would have chosen, but the point is clear. "Our existing eateries are increasingly ordering from multiple platforms," ​​Grubhub added. "The simple gains in the market are disappearing a little faster than we thought."

On the day Grubhub issued the letter, the stock fell 43%.

Grubhub says it will quickly add more restaurants to its platform, a dramatic change for a company that has long focused on building relationships with local eateries. The company now claims that "the biggest provision for diners' use in marketplaces is whether it has the restaurants the cafe wants." The company promised great pressure to add elections – and to keep people on the platform with loyalty programs. [19659004 Grubhub acts out of necessity. Many of the largest restaurant chains are on all four major delivery apps –
McDonalds
(MCD), Taco Bell, KFC, Popeye & # 39; s,
Chipotle
(CMG)
Wendys
(WEN), and
Jack in the Box
(Jack).

Grubhub's hope is that more restaurants will mean more eateries, which will then gravitate to Grubhub partners, who pay Grubhub not only for providing food but also for marketing and logistics.

"We were thinking of retiring, waiting for people to stop using capital as a weapon until rationality returned to the market," Grubhub CFO Adam DeWitt said last week. “We could have stayed the course and slowly driven down growth. Instead, we use our profitable model and put pressure on the other players who do not. ”

Grubhub reported $ 1.4 billion in gross sales for the third quarter, $ 322.1 million in sales and $ 53.8 million in adjusted profit before interest, taxes, depreciation and amortization, or Ebitda, a cash flow target. Uber would love that kind of results; food delivery service Uber Eats reported revenue of $ 645 million in the last quarter, but that was equivalent to an adjusted Ebitda loss of $ 316 million.

Grubhub and everyone else is in a tough position when a rival is willing to lose hundreds of millions of dollars.

There are fears that the food delivery market is suffering from the same challenges as the ride-sharing business: armies of part-time drivers, consumers seeking convenience, and services struggling to stand out. In truth, food delivery is more complex. There is a two-sided market, including eateries, drivers and restaurants. Ride sharing is two-sided. The additional party gives food delivery companies two sources of income, not just one. But the market is uncomfortably crowded.

The situation is alarming for both public market and venture investors. It's hard to imagine an IPO from DoorDash or Postmates at any time. Neither will discuss its financial condition, but there is little doubt that both are losing money.

Despite the problems, the private party for the delivery companies continues. This past week, Bloomberg reported that DoorDash raised a further $ 100 million on top of the $ 2 billion it had already raised from venture investors including Kleiner Perkins, Sequoia Capital and, yes, the SoftBank Vision Fund, which also has big bets on Uber and WeWork. The latest cash infusion at DoorDash comes after a valuation of nearly $ 13 billion. Postmates have raised $ 900 million, with a reported valuation of $ 2.4 billion in the previous round. The huge losses at Eats, meanwhile, are putting pressure on Uber's shares, with the stock hovering close to an IPO, more than 40% since its public market debut in May.

All four companies claim to be differentiated. DoorDash claims it has the most restaurants – more than 300,000. Postmates claim it has more than 500,000 sellers, when you include pharmacies and other retailers. Grubhub claims to be more efficient and generates more cash flow per order than the others. Uber Eats has a wider international footprint, operating in 500 cities in 35 countries, with 220,000 restaurants.

Congratulations to all of them. But that Amici's pizza? All four apps offer mini margherita for $ 10.75. I choose it with a free delivery offer. Because I'm hungry, and competition does wonders – for the consumer.

Write to Eric J. Savitz at eric.savitz@barrons.com


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