Grubhub Business Model | How Does Grubhub Make Money?

When ordering meals using internet applications, one name stands out above the rest: GrubHub. The online meal delivery behemoth is performing admirably in terms of customer service and revenue generation. 

GrubHub has roughly 33 million users in 2021, with over 115,000 eateries located in over 2,200 cities worldwide. Additionally, the company has worked with over 140,000 takeout and dine-in establishments.

Grubhub’s business model is systematic, efficient, and extremely profitable. However, before we delve into what it is and how it is collecting all the profits, let us first have a basic understanding of GrubHub, the app’s functionality, and its operation.

Grubhub business model is built around a portfolio of brands that includes Seamless, LevelUp, Eat24, AllMenus, MenuPages, and Tapingo.

The company generates revenue primarily by charging restaurants a pre-order commission and charging diners when they place an order through its platform. 

What is Grubhub?

Grubhub is an online and mobile meal ordering company that connects clients with eateries in their neighborhood. Grubhub partners with over 300,000 restaurants in over 4,000 cities across the United States.

Grubhub makes money by charging commissions to restaurants based on the final order amount. Grubhub+, its premium subscription service, is another revenue source.

Grubhub, known for its extensive food delivery network, was founded in 2002 and is based in Chicago. Grubhub went public in 2014. Grubhub was purchased by Just Eat Takeaway.com for $7.3 billion in 2020.

How Does Grubhub Work?

Grubhub is an online marketplace for food ordering and delivery. You can place an order via a network of 300,000 restaurants in 4,000 cities across the country on Grubhub.

The restaurant partners of Grubhub include tiny neighborhood businesses and major franchises like McDonald’s and Taco Bell.

The restaurant is responsible for meal preparation, but Grubhub handles the rest of the process. 

Grubhub Business Model

The company collaborates with independent freelancers to provide food on-demand. When restaurants have their own driver fleet, Grubhub handles delivery.

The Grubhub website also processes payments and provides restaurant categorization. If there are any problems, the customer service representatives are available 24 hours a day.

Grubhub will provide a membership program (dubbed Grubhub+) to its most devoted consumers that will allow them to save money on menu prices as well as delivery.

In addition, you can view your order status in real-time, pre-or re-order meals, order takeout and pick it up yourself, and many other features.

A customer can place an order via the website or through the Android or iOS mobile apps.

Grubhub Business Model

GrubHub’s business model is quite interesting. It explains how GrubHub makes money. The object was for Mike and Matt to design something that would save people time and effort by eliminating the need to visit restaurants, choose from menus, and wait passively in their seats for their meal.

GrubHub, which generates most of its revenue through its app, has successfully connected users to restaurants, providing an easier way to market through digital food ordering. 

It uses more than 60 different technologies to accomplish its job. The program itself features a consistent UI and UX design that ensures users can solve their pain points and achieve their goals effortlessly. 

The company has become the industry’s primary changemaker in fifteen years as an online meal delivery service.

How Does Grubhub Make Money?

Grubhub makes money through commission fees that they charge restaurants and by offering a subscription service called Grubhub+.

Additionally, Grubhub owns various other brands that were acquired through the years, such as Seamless, Eat24, and LABite. Grubhub continues to operate some of these companies as separate entities, contributing to its overall revenue.

We will focus only on the income generated by Grubhub’s core offerings to simplify our analysis. Here’s a closer look at what’s below.

Commission Fees

Grubhub makes money primarily by charging restaurants for orders processed through its platform.

GrubHub charges some percentage of the order value as a fee. There are six segments in which the company distributes its charges:

Delivery Fee

Grubhub charges delivery fees when it delivers orders on behalf of the restaurant. The delivery price is around 10% of the total purchase price. Grubhub does not permit restaurants to charge additional delivery fees for their customers if they use the platform for delivery.

Prepaid Order Fee

A consumer must pay the prepaid order fee if they place an order through Grubhub (instead of the restaurant’s website or phone number). Food and beverage fees are applied to the total bill. A delivery fee may be charged if the restaurant provides its service.

Phone Ordering Fee

The customer pays a fee if they order a meal over the phone through Grubhub. Prepaid order fees apply to orders placed through the website or app. The pricing structure for Grobhub’s phone ordering system is not made public, but it should be comparable to its prepaid ordering system.

Marketing Fee

GrubHub operates the marketplace and is responsible for the sorting and exposure of its restaurant partners. Considering the restaurant industry has over 27 million customers, this translates into thousands of eyes at any given time.

Pay Me Now Fee

Whenever a restaurant wants its payments to be transferred the moment they arrive, it must pay a fee of $1. All other payments will be made within a few days and are completely free.

Restaurants are subject to several fees based on the volume of orders they predict they will generate. The larger companies, like McDonald’s and Pizza Hut, will often negotiate lower prices.

Order Processing Fee

Payment facilitation fees support the cost of processing orders. When a consumer pays with Venmo, Grubhub pays a percentage fee to the payment processor. The company then charges each of its restaurants with that money.

Order processing fees are approximately 3.05 percent. Every order is charged 30 cents.

Grubhub+

Grubhub+ is a premium subscription service only available to the company’s most loyal customers. Customers pay $9.99 a month for unlimited free shipping and a 10% bonus.

The premium memberships come with additional benefits such as access to Elite Care for assistance, matching contributions to No Kid Hungry, and other perks.

Grubhub Business Model

Grubhub+, like any other subscription service these days, is free to try for 14 days and may be canceled at any time. The program is free to college students.

The subscription service was announced in February 2020 in reaction to similar services launched previously by competitors. Several well-known food delivery platforms offer premium subscriptions, including UberEats, DoorDoash, and Deliveroo.

Customers are more likely to purchase more when such services are available. Grubhub users who place more than $100 worth of orders will save money.

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What is the Funding & Valuation of Grubhub?

Crunchbase reports that Grubhub raised $284.1 million in eight rounds of fundraising. DAG Ventures, Benchmark, Lightspeed Venture Partners, and T. Rowe Price are among the company’s notable investors.

Grubhub was valued at $2.7 billion when it went public in April 2014, raising an additional $192.5 million. Grubhub has a market capitalization of $6.73 billion, an almost threefold rise over the previous 6.5 years.

What is the Revenue of Grubhub?

Grubhub revenue for 2020 was 1.8 billion US dollars in 2020increasingof more than 507 million over the previous year. Grubhub reported $1.3 billion in revenue for 2019, up 30% year over year. The corporation lost $18.6 million during that period.

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Success Story of Grubhub

Grubhub was founded in 2002 in Chicago by Matthew Maloney (CEO), Mike Evans, and Roman Gaskill.

Maloney and Evans were lead developers for Apartments.com before founding Grubhub. There were few options for ordering food, and calling the restaurant to read credit card information enraged the two.

They were working on developing a geographical search tool for property rentals (similar to Google Maps). The highly analog food delivery industry realized quickly that such a capability would be vital.

They debuted the Grubhub website in the summer of 2004 after two years of development effort. 

The team collected hundreds of menus from Chicago restaurants to add to the platform.

Grubhub initially advertised using display advertising techniques influenced by the real estate industry. The websites of Zillow and Trulia both offered advertising space for sale. 

Grubhub charged eateries $140 for six months of placement on its website.

Each of these restaurant owners had already spent thousands of dollars on substandard websites. 

This made them trepidatious of any other payment-based website service.

Restaurants were only charged a percentage commission when they made a transaction on Grubhub (more on that later). 

Grubhub added thousands of restaurants in the months that followed after restaurants embraced the concept.

Grubhub was developing at such a rapid clip in October 2007 that it launched a second facility in San Francisco. 

They attracted investors from Silicon Valley due to their expansion. 

Grubhub secured its first round of venture capital funding (worth $1.1 million) shortly after that.

Along with changing its business strategy, the launch of iPhone and Android applications was another development engine. 

Grubhub was one of the first online food delivery services to offer a mobile application. 

Grubhub has frequently been the first food-related app users load when they walk into an ever-growing app marketplace.

GrubHub’s business continued to grow, gaining additional consumers and cash. 

The company placed orders with restaurants using its platform, amounting to $85 by 2010. A total of 15,000 establishments and 100 staff were on their platform.

The company also established itself as a leader in the online meal delivery industry through innovation. 

It was one of the first companies to design an app for restaurants (while also offering them iPads), allowing them to accept and decline orders.

Point-of-sale (POS) systems provided significant time benefits, as orders could still be processed by telephone and fax. 

The app also included features such as driver tracking and advance food ordering and pickup.

An important source of expansion was the acquisition of competitors. Grubhub frequently acquired other meal delivery firms to obtain access to the markets they served. 

The company has acquired 13 companies during its existence, including industry heavyweights like Dashed, LABite, LevelUp, and Eat24.

The company’s most significant expansion occurred with the announcement of its merger with Seamless in May 2013. 

Grubhub Seamless was established as the united business, which produced over $100 million in revenue in 2012. Matt Maloney was appointed CEO of the company.

Seamless, started in 1999 by two lawyers, has a long history in the New York City area. 

The Grubhub application has also established a strong presence across the Midwest of the United States (mainly because of its Chicago-based headquarters). It turned out to be a perfect match.

The combined business continued to grow rapidly, culminating in the company’s first public offering in April 2014. It enabled them to raise an additional $192.5 million at a valuation of $2.7 billion for the enterprise. 

Grubhub was that point a distinct brand that minimized confusion and aimed to establish.

Grubhub Business Model

Grubhub faced increasing competition in the food delivery wars soon after the company’s initial public offering. 

Amazon Restaurants is the first significant company to challenge Grubhub’s dominance in the food delivery industry.

New competitors soon came into existence, capturing market share very quickly. DoorDash and Postmates are examples of startups with significant funding. Uber promptly followed with the launch of UberEATS.

These competitors would execute orders through their fleet of drivers or independent contractors. This technique gained popularity among smaller restaurants that could not afford to hire delivery drivers.

When Grubhub went public, it had no delivery drivers. As an alternative, the corporation would rely on the restaurant to complete the delivery and be responsible for restaurant promotion.

This is an incredibly smart business strategy since it removes the operational complexity of employing and managing a fleet of drivers. 

The industry adopted that model due to consumers’ desire for choice, convenience, and speed (along with investors’ willingness to invest billions in delivery businesses that were losing hundreds of millions each year).

Driver-based paradigms introduce additional legal scrutiny, which is regrettable. Raef Lawson, one of the company’s former drivers, filed a lawsuit alleging that the company misclassified him as an independent contractor instead of a W-2 employee. He sought compensation for unpaid wages, costs, and other losses.

Grubhub (and many other firms which rely on gig workers) eventually won the case, but not without facing criticism for the way it compensates its drivers. 

However, drivers were not the only ones who felt treated unfairly by the corporation.

In 2019, the company’s restaurant partners accused it of charging them hidden fees — even when clients do not place an order. 

The company was covertly invoicing some restaurants more than $2,000 per year for customer calls, including those for dinner reservations or complaints about not having enough plastic cutlery.

Owners of restaurants technically had the option to contest those charges, but doing so involved going through all their records and resolving the issue within 60 days. Time is often a problem for owners when it comes to maintaining their properties.

Grubhub responded by extending the 120-day window for owners to register a claim. The company intends to triple the number of account consultants accessible to assist eateries in gaining additional customers and resolving technical issues. 

The efforts appeared admirable, but it was hard to trust Grubhub was looking out for the restaurants’ interests.

That same year, the firm was busted for purchasing over 23,000 domain names that sounded identical to those of restaurants that were either on the market or were attempting to enter. 

They would even create websites that would bring customers to Grubhub, where the purchase would be completed.

All of these issues, together with the ever-increasing rivalry, contributed to Grubhub’s dethronement in 2020. 

DoorDash surpassed Grubhub in monthly sales in the United States in May 2019, according to data firm Second Measure. As a result, the firm’s market share declined from 45% in 2018 to approximately 30% in 2020.

In a sector ripe for consolidation, the persistent growth challenges generated a lot of rumors. Uber, which overtook DoorDash as the most popular delivery service, was reported to acquire Grubhub. 

That acquisition fell through due to regulators’ fears about the combined corporation being broken up.

However, Uber announced in July 2020 that it would purchase rival Postmates through an all-stock transaction valued at roughly $2.65 billion. However, Grubhub had other plans.

A deal with JustEatTakeaway.com, a European food delivery competitor that acquired Grubhub for $7.3 billion was reached in June 2020. The merger created the world’s largest food ordering business outside of China.

However, Grubhub would not be Grubhub without that deal igniting extra debate. Yum Brands, which owns Taco Bell and KFC, accused Grubhub of violating an agreement between the two companies in 2018.

Yum Brands invested $200 million in Grubhub as part of the agreement. According to the charges, Grubhub’s $50 million termination fee was insufficient. On the other side, Grubhub provided Yum with attractive pricing and service standards for thousands of KFC and Taco Bell locations.

Today, the Grubhub platform connects over 300,000 eateries in 4,000 cities across the United States. Each year, the platform processes over 27 million orders and employs over 5,000 workers across seven sites in the United States.

Why Grubhub Stands Out from its competitor?

GrubHub has rapidly grown by utilizing technology. GrubHub, or similar companies, would not exist without technology. The company entered the market quite early and quickly established a network of partner restaurants. The on-demand food delivery company relied on this to grow.

The company has maintained a healthy balance between expenses and commissions. Startups that are unable to handle their cash quickly fail. The company excels at offline marketing despite being an internet services provider. GrubHub was advertised on billboards, transit hubs, buses, and subways, among other places.

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