The Wall Street Journal wrote a great article on the new restaurant business model of delivery only, entitled GrubHub Looks Beyond the Sit-Down Restaurant for Growth.
Here are the points that we found most interesting in this article:
- GrubHub expects its base of more than 5 million home diners to place more online orders for food that is made by entrepreneurs with commercial kitchens—but without sit-down dining options.
- Check out our blog, A Restaurant Without A Restaurant, published on 4/29 to learn more about this trend
- By selling prepared food yet forgoing a sit-down restaurant, “you don’t have to pay for ambiance. You don’t need a table and chairs. You don’t need expensive real estate,” said co-founder and chief executive Matt Maloney. “You can save a ton of money” as a business owner, he said.
- The surge in orders Grubhub generates for restaurants is too big for some of them to handle.
- Some restaurants say they are signing up with Grubhub competitors that offer online-ordering services, to avoid a deluge of delivery diner requests they aren’t big enough handle.
- A challenge for food startups that opt for delivery-only… is how to get consumers to know your brand. “It’s a low barrier to entry and it’s hard to develop that brand loyalty,”
- GrubHub’s Mr. Maloney says that orders from delivery-only kitchens comprise somewhere in the low-single digits of the current orders, although he expects the segment to grow exponentially in the near future.
Check out this article from the Wall Street Journal
GrubHub Inc.’s latest growth recipe looks beyond the cornerstone of its business: the restaurant.
The nearly 11-year-old online food-ordering company connects home-and-office diners with some 35,000 restaurants. GrubHub’s average daily orders in the latest quarter rose 30% to 234,700. Its gross food sales grew 36% to $590 million.
GrubHub makes money by charging restaurants fees for each order. The company’s 2014 revenue totaled $235.9 million, up from $170.1 in 2013.
Beyond traditional restaurants, GrubHub expects its base of more than 5 million home diners to place more online orders for food that is made by entrepreneurs with commercial kitchens—but without sit-down dining options.
By selling prepared food yet forgoing a sit-down restaurant, “you don’t have to pay for ambiance. You don’t need a table and chairs. You don’t need expensive real estate,” said co-founder and chief executive Matt Maloney. “You can save a ton of money” as a business owner, he said.
GrubHub, which is based in Chicago and went public last year, is looking for ways to expand its base of food purveyors. Its 2013 merger with rival online food-ordering business Seamless provided a big boost.
But there may be limits to how fast the business can grow.
The surge in orders Grubhub generates for restaurants is too big for some of them to handle. Some restaurants say they are signing up with Grubhub competitors that offer online-ordering services, to avoid a deluge of delivery diner requests they aren’t big enough handle.
Nobu Shiozawa, co-owner of Long Island City Japanese restaurant Hibino, said he uses ChowNow, a Los Angeles company that allows him to embed a widget into his website to process delivery orders.
He said while ChowNow is less known, that is a blessing in disguise because GrubHub would bring in a mountain of orders from home diners. “It’s going to be chaos in the kitchen,” he said.
Competition is growing in the food ordering and delivery sector with a proliferation of services for home diners, from meal-kit service Blue Apron Inc. of New York, to high-end-focused-food-ordering service Caviar, which San Francisco payment company Square Inc. bought last year.
Joe Lopez, the co-founder and president of two-year-old Kettlebell Kitchen, considered opening a restaurant in Manhattan.
“It was just prohibitively expensive,” said Mr. Lopez.
Instead, he settled on a $10,000-a-month kitchen in the South Williamsburg section of Brooklyn where his staff prepare gluten-free and paleo-diet-friendly meals for delivery only. He said the rents in Manhattan for much smaller restaurant space were about twice that amount.
According to the New York City Economic Development Corporation, there were 8,463 full-service restaurants in the five boroughs in 2013, up nearly 53% from a decade earlier.
A challenge for food startups that opt for delivery-only, instead of sit-down restaurants in well-trafficked areas, is how to get consumers to know your brand.
“It’s a low barrier to entry and it’s hard to develop that brand loyalty,” to the food maker, said Cleveland Justis, executive director of the Child Family Institute for Innovation and Entrepreneurship at the University of California-Davis.
GrubHub’s Mr. Maloney says that orders from delivery-only kitchens comprise somewhere in the low-single digits of the current orders, although he expects the segment to grow exponentially in the near future.
“I think that what we’re seeing is a brand new opportunity,” Mr. Maloney said, referring to the expected growth of online orders placed with nonrestaurant kitchens.
“I think people will always go out to eat,” he added. “Right now, there’s a lot of great delivery food.”
