Interview With GrubHub's Matt Maloney: The Leader In Mobile Food Delivery And Pick-Up

A couple of weeks ago, I had the chance to interview the tech venture capitalist I most respect: Bill Gurley of Benchmark.  He’s had the Midas Touch for many tech companies, including OpenTable, Yelp, Twitter, Zillow, and Uber.  One of his investee companies that recently went public is GrubHub.

GrubHub is the leader in mobile food delivery and pick-up in the United States.  I think it’s an extremely interesting company which I’m following closely.

I had a chance to recently talk to GrubHub’s CEO Matt Maloney about where the company is at today and where he thinks it can go.  The transcript of the exchange follows below:

Q: Matt, you’ve talked about how we spend $70 billion a year in the US on take-out or delivery food.  If you apply that total addressable market to your commission rates, that’s about a $9 billion a year opportunity.  How quickly is this total market growing?  Is there evidence that our dining habits have changed in the last few years so that we’re ordering out more?

A:  The overall market continues to grow pretty steadily but the real change we are seeing in diner habits is the shift from offline to online. There is immense opportunity in the market as more than 95 percent of takeout orders are still being placed by phone and paper menus. In our 2nd quarter results, we saw the number of active diners increased by 51 percent year-over-year. We know that ordering food on GrubHub makes takeout a lot more convenient for diners, which we know is really important to busy professionals, parents and students.  Although we can’t say for sure if this indicates a change in terms of ordering takeout out more often, we are seeing more people place orders through GrubHub.

Q: You obviously did the big Seamless merger last year and you’ve talked how you believe this market is a “winner take most” opportunity.  Do you expect to do other acquisitions as time goes on?

A: We are always exploring different opportunities that help us bring more orders to restaurants and that provide the best user experience for our diners.  However our focus is on our biggest opportunity – converting phone and paper menu orders to our mobile and online products.  We think that our industry leading products and restaurant network – not to mention our 24/7 customer service – give us the best chance of capturing a large percent of this conversion.

Q: A lot of mergers sometimes bring culture clashes.  How were you able to overcome this with Seamless and were there things Seamless was doing which GrubHub wasn’t which you decided to adopt across the whole company post-merger?

A:  When it comes to mergers, company culture is one of the most important issues to address in order to retain talent. We’ve put a considerable about of time and energy into merging the historical cultures into one and focus on being the leading and most innovative food ordering company.

I know I’ve said this quite a bit, but given that the two organizations had such complementary products, teams and skillsets, we were lucky enough to have a variety of culture best practices that we could employ as a combined organization. For example, Seamless used to offer employees a free lunch once every two weeks which we have now implemented as a perk across the combined company.  GrubHub never had a corporate ordering product, but Seamless did. Teams across offices are now better able to enjoy both office-wide and team lunches using Seamless Corporate Accounts.

On the GrubHub side, our historical customer-centric focus – both from a customer care and product perspective – has us better aligning all our employees with the needs of our diners and restaurants. We are unified in our vision and in a great place to propel the company forward. 

Q: Until now, except for a small corporate business Seamless has in London, you’ve stayed confined to the US.  Do you intend to expand internationally?

A: With $70 billion in takeout annually in the U.S. and less than 5% penetration for online and mobile orders, I think it is important we tackle the opportunity in front of us.  

Q: There’s a mostly UK-based service similar to GrubHub called Just Eat which is currently piloting a program that emphasizes pick-up food (vs. delivery).  Do you think that approach is interesting for you in the future?

A: To clarify, GrubHub has offered pickup for years and we think this is a sizeable opportunity and is part of our $70 billion addressable market.  Pickup is a different use case to delivery and we believe we are well positioned to address the needs of that market.  We are always looking to innovate and the pickup experience is something that we are continuing to optimize for our diners.  An important thing to note is that we are always looking for ways to bring more business to restaurants, regardless of whether that is pickup or delivery. 

Q: Do you see GrubHub having a chance to offer your restaurant clients more software over time than just a new delivery order?

A: A major part of our success has been aligning our best interests with that of our restaurateurs. This is why GrubHub only gets paid when a restaurants receives an order. In terms of innovation, we already provide restaurants a significant opportunity to address the mobile opportunity.  Mobile provides diners with a different use case.  With 48% of our orders going through mobile, you can see the value we bring.  We are always looking for ways to continue innovating, but know that these innovations will continue to be aligned with the best interest of our diners and restaurants.

In terms of software, our in-restaurant tablet, OrderHub, enables our restaurants to process orders in just a few taps and has becomes a critical tool to the restaurateur. OrderHub is still in the early stages of its lifecycle and there is great opportunity to continue iterating in this area.

Q: Your average spend per diner dropped after the Seamless acquisition. What was different about the user base they were serving vs. the one you were serving prior to the merger and do you expect the average spend to increase again going forward?

A: You are actually pointing to one of the major geographic differences between the two brands.  Seamless remains very strong in New York  - and almost considered a religion.  New York is the perfect delivery market with almost non-existent delivery fees or minimums which is why busy New Yorkers order more often than nearly other city.  Seamless also has a great corporate product and those users order on our platform multiple times a week.   GrubHub is the national platform and while they don’t order as frequently as New Yorkers, they are all invaluable diners and we are acquiring them rapidly.

In terms of the merger, you just illustrated one of the major efficiencies that resulted from our merger – our brands no longer need to compete in market, creating a more efficient marketing spend. GrubHub is our national brand and Seamless is our New York City brand and we are acquiring diners under both brands effectively. 

Q: Why did the pace of new restaurants on the platform slow in the most recent quarter? Should that accelerate again?

A: We are not actively reporting the number of restaurant partners anymore but we currently have more than 30,000 restaurant partners. We don’t view restaurants as our primary growth driver but it is actually diners and orders that matter most. The share of those restaurants and the quality of restaurants are more important to us. We have a restaurant sales team who is working to increase the number of high-quality restaurants on our platforms and drive more. 

Q: Has your commission rate changed at all since you launched GrubHub? Will it move up or down as you get bigger?

A: We initially launched GrubHub in 2004 as basic restaurant listing site with a subscription model. However, as we introduced an ordering functionality, GrubHub changed over to a transactional model to better align the business interests with those of the restaurants we were serving. Restaurants have no upfront costs when signing up with GrubHub. We only get paid when an order is sent their way.

In terms of where we stand today regarding commission rates, these typically start around 10 percent with restaurants electing to pay a higher percentage to gain greater visibility on our platforms.  Historically GrubHub has seen an increase in commission rates in individual markets as restaurants compete for orders.  Our latest earnings reported our net commission rate at 14.2 percent, but this plays out differently in every market. This commission structure allows the local restaurants to dictate the marketplace, and given this dynamic, our more mature markets tend to be more competitive. 

Q: Some people only think of Uber as a taxi company while it likes to think of itself as a logistics company (with a bigger opportunity).  Do you think GrubHub is more than just a mobile food delivery company?  Is this just a core business from which you’ll be able to offer other services in the future?

A: GrubHub works within a very unique space. Takeout is vastly different from any other type of good being delivered – it requires the food to be ordered, processed, cooked, delivered and potentially consumed within an hour timeframe. As well, we process close to 200,000 orders a day and work with more than 30,000 independent restaurants that are all striving to meet the time-sensitive needs of their diners.  Just as Google is to online search and Amazon is to eCommerce, we want people to think of GrubHub as being synonymous with takeout food.

We are always looking at adjacent markets and opportunities, but with only 5% penetration of the $70 billion in food sales for independent restaurants, just addressing this market is a massive opportunity.