Grubhub and LevelUp
Customer Experience

Grubhub and the LevelUp valuation – What’s going on?

Food delivery giants like Grubhub and Doordash are leading a massive change in the $800 Billion (US and Canada) food and beverage industry. Grubhub founded in 2004 now has revenue over $1 Billion and a market valuation over $13 Billion. They have been increasing scale by acquiring smaller players but Grubhub’s recent acquisition of mobile payment and loyalty provider LevelUp, for a crazy high valuation of $390 million, may be a sign that this change goes beyond the convenience of delivery. The change is a full-on digital revolution in food & beverage that will affect every aspect of the space including peripheral suppliers in loyalty, payments and Point of Sale systems.

By James Christensen, CLMP

This digital revolution in Food & Beverage goes far beyond the growth of all these delivery companies. While digitally ordered food delivery is growing, the industry has also turned to order-ahead take out where there is no delivery involved. Starbucks now receives over 12% (25% in urban stores) of all their orders as a mobile order-ahead from customers using their payment and loyalty app. McDonalds, Chipotle, Subway and many other major brands have been expanding their mobile ordering capabilities.

The smartphone has literally put these brands’ point of sale systems right in the hands of their customers. The customers can see the entire menu on their phones, order on their own time, quickly order favorites or repeat previous orders, pay, and then skip having to stand in line to order when they arrive at the store.

World wide food delivery companies (aggregators, as they are often called) have been exploding in the last 5 plus years under names like Just Eats, Foodora, Delivery Hero, Caviar, and UberEats, to name a few. One thing they have all done successfully is create an e-commerce engine that allows them to sell a restaurant’s products to their customers, send the order to the restaurant, pick it up and deliver it. The product comes from the restaurant but customer relationship is with the delivery company. If this model sounds familiar it is exactly what Amazon does in retail and we know Amazon is more than just delivery.

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If this model sounds familiar – it is exactly what Amazon does in retail. And we know that Amazon is more than just delivery.

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This digital change in Food and Beverage is a classic online-to-offline (or clicks to bricks) phenomenon that has been seen in many industries. The use of mobile for researching, managing, ordering, and paying can create significant convenience to consumers. Uber has shown this can be a massive disruption and, in their case, completely change an entire industry. For restaurants, the delivery aggregators are actually helping to engage more customers and attract more business to the restaurants by simply improving convenience to the consumer.

The branded order-ahead programs, like Starbucks, give customers the ultimate in convenience in ordering and skipping the line while giving the brands a powerful and meaningful tool for directly engaging with their customers. There are even new pick up-only aggregators such as Ritual and Grab that are using the convenience of order-ahead, pay, and skip the line to create similar businesses to Grubhub for takeout/pick up only. They offer no delivery.

There are many other digital ways to order food such as kiosks and voice ordering from Alexa and GM OnStar, and the drive for convenience will likely create even more digital channels over time. At this point, however, the digital technology in food and beverage is available and is being used in various ways by both brands and aggregators. The technical challenge for the industry is that all the current digital ordering platforms out there today are all very stand-alone and there are no standards. While technology is a major catalyst to all these changes, the business model is more about who owns the customer in this new digital food world.

Retail’s apocalyptic time during the dot com era was full of many start-ups and billion dollar unicorns that were going to doom the entire bricks and mortar retail world. The retail store survived but there was a digital revolution that changed an industry so much so that many major brands went under and the new juggernaut of Amazon became a dominant player in retail. It was not just the technology of e-commerce that won the game for Amazon, it was the view of owning the customer and selling them what ever they wanted that won the game.

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It was not just the technology of e-commerce that won the game for Amazon, it was the view of owning the customer and selling them whatever they wanted that won the game.

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Another digital disruption story happened in the hotel industry. Just as hotels were learning the value of technology, the internet, and digital reservations they started partnering with on-line aggregators who were acting as affiliate channels and selling their rooms for them. These players, such as Expedia, Trip Advisor, and Booking.com are very similar to today’s new food aggregators. In fact, these companies figured out how to sell on-line reservations direct to consumers better than the hotel companies did and, today, they still take large share of all reservations made online. Again, the key challenge & opportunity of a digital channel is about “who owns the customer”.

So where are we in this new digital food & beverage industry? First of all, it is early. According to a Morgan Stanley report on take-out/delivery, digital orders currently make up about $30B out of a total take-out market of $200B and a majority of the total will move to digital in 3 to 5 years. That would be a 700% increase in digital orders! In addition, unlike the hotel industries, the market itself can grow significantly since people can be enticed to order in and forego making a meal at home. If a person who makes dinner 6 times a week and orders in once switches to order in 3 times a week that is a 200% increase in restaurant meals. Any thing that can help the restaurant industry achieve that kind of overall growth will catch on fast and lots of new players will enter the market.

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Unlike other industries, the market itself can grow significantly since people can be enticed to order in and forego making a meal at home.

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As this trend continues it will affect other sectors with the space. Grubhub currently boasts 14 million users accessing 80,000 restaurants in the US. And they offer nothing more than the convenience of delivery. Looking at this through a loyalty lens Grubhub has created a massive coalition program and have been able to charge very high fee to the restaurants (+25% of order) while only offering delivery convenience to the customer. If trends continue and digital orders reach $200B or 25% of the total industry sales that means 25% of all F&B customers may be “owned” by the aggregator and 25% of payments may be directed through new processing channels. This kind of volume could mean a large portion of orders would not even go though a local POS system. It is clear that the digitization of this mainstream industry will have a huge impact in loyalty, payments, and POS systems.

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Looking at this through a loyalty lens Grubhub has created a massive coalition program and have been able to charge very high fee to the restaurants (+25% of order) while only offering delivery convenience to the customer.

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Grubhub’s meteoric growth in delivery is impressive, however, the LevelUp deal indicates that their long-term vision is to become the Amazon of food and beverage.

LevelUp pivoted their own vision recently toward universal access of mobile ordering with their Chase Payment mobile app partnership. The goal is to allow Chase users to order ahead for take-out or delivery right from their payment app. It may take some time for Grubhub to realize this vision but it is a vision that goes considerably beyond delivery. It is very focused on the end user – giving the customer convenient access to ordering what they want, when they want it.

When you take this a step further and look at the data involved, it starts to become clear that Grubhub sees itself as the Amazon or the Expedia of F&B. In fact, Grubhub CEO Matt Maloney indicated that one of the goals of the LevelUp acquisition was to improve the data abilities to the point where the company can go beyond telling a customer about the best restaurant but can also tell them the best dish in their area.

In conclusion, the food delivery aggregators have used digital technology and the proliferation of smartphones to disrupt an entire industry – but their success is driving a digital change that goes far beyond delivery. With both food aggregators and major brands using digital order-ahead technologies, a large portion of orders now move to a world where customer data and customer “ownership” become ultimately important. Grubhub seems to understand this and they are investing heavily beyond delivery.

At the same time, other major players in food and beverage and other industries will want to get in on this disruption, including existing loyalty programs and payment offerings. In fact, it has already started as Amazon, Mastercard, and other business giants are already launching new digital food order ahead programs. Yes, that is happening now but that will have to be covered in future articles.

James Christensen, CLMP, is Co-founder of Avanti Commerce.
Loyalty, payments, and order-ahead

Grubhub and the LevelUp valuation – What’s going on?
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