Just Eat acquires Grubhub: is this good news for smaller businesses?
When few providers become owners of over 50% of the market, it likely means that independent restaurants will have less and less negotiating powers.
Just Eat Takeaway, the parent company of one of Europe’s leading food delivery service Just Eat, said on Wednesday that it had agreed to buy U.S. company Grubhub in an all-share deal for $7.3 billion.
While Grubhub’s CEO and founder Matt Maloney will lead the combined group’s businesses across North America, Jitse Groen, CEO and founder of Just Eat Takeaway.com, will lead the combined business globally.
By now, we can all agree even just by first-hand experience how one of the many side-effects of the global pandemic shutdown, is definitely the transformation of the restaurant and food delivery business.
If on a way, the pandemic blasted the industry years into the future by accelerating already ongoing processes, on the other, it’s not all organic change. Restaurants, big and small, had to find new ways to intercept their customers making their way into the tricky, challenging and sometimes dangerous, environment of food delivery apps.
Tricky because unless businesses, regardless of size, were already equipped and structured to provide delivery service, trying to catch-up in the middle of a global pandemic is what can be defined as “swimming upstream”.
Challenging since in the last ten or more years, the landscape of food delivery apps has significantly transformed both in the sense that it’s more and more crowded but also because well-established delivery companies are setting prohibitive fees and marketing policies to stay competitive.
Dangerous as delivery platforms are not a one-fits-all business model and for some smaller realities, they can have a boomerang effect.
Delivery often eats away a portion of sit-in customers and eventualy doesn’t lead to an actual solid increase of overall sales despite data. In addition, the incurring fees and strict customer retention policies erode the already dwindling restaurant profit margins (15%-20%) and lead to actual loss on behalf of restaurant owners.
According to credit-card analytics firm Second Measure, throughout the end of April, in the U.S. alone, collective sales of delivery services nearly doubled compared with the same time last year.
Even as restaurants are reopening, delivery is likely to remain a bigger part of their business than before the pandemic.
As highlighted by Nathaniel Popper in his interesting New York Times article, what is truly striking is how the gap between the success of the apps and the struggles of the restaurants is widening. Perhaps the Grubhub acquisition by Just Eat Takaway represents a further step in this direction.
Andrew Rigie, executive director of the New York City Hospitality Alliance said consolidation among third-party delivery firms “poses significant concerns.”
Since food delivery it’s always been a market played by the rules of good old-fashion American competitiveness, a factor which also allowed to keep at ban price inflation, restaurant owners are now expressing serious concerns. When few providers become owners of over 50% of the market, it likely means that independent restaurants will have less and less negotiating powers and will have their hands tied.
The European landscape in this sense is a few years behind as delivery apps really began to pick up later on, probably due to geography and lifestyle differences however, what’s going on in the U.S. it’s likely a projection of how things are going to quickly evolve in the Old World as well.
I’m curious about what future developments will look like.
The main challenge the situation poses is probably finding a balance between promoting local realities, which constitute the main core of delivery platform business, while staying competitive in an increasingly crowded scenario. On the other hand, restaurants are responding by finding alternative ways to organize their own delivery service so as not to rely on third-party apps.
One thing for sure is that the business needs to shift together with consumer habits and as it often happens, those who adapt quicker, are the ones to thrive.
