How Does Grubhub Make Money? Business Model Guide

Grubhub provides a mobile and online food delivery service that lets customers take orders from restaurants in their local area. Grubhub is a partner with more than 300,000 eateries across 4,000 cities in the USA.

In 2002, the company was founded, and its headquarters is based in Chicago. Grubhub quickly grew to become one of the USA’s favorite food delivery platforms. Grubhub was listed on the stock exchange in 2014. It was acquired in 2020 for $7.3 billion by Just Eat Takeaway.

How does Grubhub make money? Grubhub earns its profits by charging restaurants different commissions based on total order value. Another source of income is its premium subscription service Grubhub +.

Business Model of How Grubhub Makes Money

Grubhub offers an on-line food ordering with food delivery market. Customers can choose from a vast network of restaurants in 4000 U.S. cities.

The company collaborates with several eateries, from local, small-scale eateries to major chains like McDonalds and Taco Bell.

The food preparation process is managed in the restaurants, it is Grubhub that takes charge of the remainder part of the procedure. Grubhub works with contractors independent of the company to deliver food on a regular basis. In certain instances Grubhub’s restaurant partner can take care of delivery when it has its own drivers.

In addition, it handles everything associated with payments, and the sorting of restaurants that are on its platform. Grubhub’s customer support is accessible 24/7 is able to handle any problems that may arise.

For the most loyal users, Grubhub will offer a membership program (called Grubhub+) that lets them save money on food prices and delivery.

Other options include real-time tracking of orders as well as the capability to order or re-order meals, the option to place orders for takeaway and then take it home and more.

Customers can place orders through the company’s website , or through the company’s Android or iOS mobile applications, respectively.

Commission Fees

Grubhub’s main source of revenue is derived from the charges it places on restaurants’ accounts for orders that are processed via its platform.

Grubhub offers a percentage charge depending on the total amount of the order. The company divides it fee system into six different categories, including:

Prepaid Order Fee

The fee is applicable when a user places the order on Grubhub’s site or application (and not via the restaurant’s site or phone). The cost is added to the total amount of food and drinks. If the restaurant provides its own delivery service charge, it is applied to the total of food, beverages and delivery amount.

Delivery Fee

Delivery charges are charged when Grubhub delivers the order on restaurant’s behalf. The delivery cost is equal to about 10% of the total order amount. If the restaurant is using the delivery services of Grubhub, it’s not allowed to charge customers for any other delivery charges.

Marketing Fee

Grubhub as the sole provider of this marketplace is accountable of the sorting process as well as the publicity it provides the restaurant owners it partners with. With greater than 27 million users that is equal to a lot of attention that a restaurant could receive at any time.

Grubhub offers a fee for marketing for the exposure. Its commission structures are tied so the more it pays for a commission the greater its exposure to Grubhub’s platform. The typical marketing fee is around 20 percent.

Telephone Ordering Fee

Phone ordering charges are incurred when a consumer is ordering food via Grubhub’s mobile service. When ordering via the app or the website the prepaid fee applies. Grubhub is not able to publicly disclose the cost structure of its phone order service but it’s within the same range as the prepay order system.

Order Processing Fee

Processing fees for orders pay for the cost of facilitating the payment. If a client like this, for example, makes use of Venmo in order to purchase their meal, Grubhub will have to pay the processor an amount of percentage. The company will charge that amount to its restaurants.

Processing fees for orders are approximately 3.05 percent. An additional 30 cents per transaction are added to the total as a fixed amount.

Pay Me Now Fee

Restaurants must pay a fixed amount of $1 each time they need their money to be transferred on the same day that they are received. In all other circumstances the payments will be received within the space of a few days, and are absolutely free.

It is important to note that all fees mentioned above are contingent on the quantity of orders that a restaurant expected to bring in. For chains with larger numbers such as McDonalds and Pizza Hut, a much less expensive fee structure can be agreed upon.

Grubhub+ Subscription Service

Grubhub+ is an Premium subscription provided for its loyal clients. Customers pay $9.99 per month for unlimited delivery for free and a 10 percent cashback.

Other benefits include acces for Elite Care for support, matching donations with the No Kid Hungry foundation as well as other benefits.

Similar to every other subscription service available nowadays the Grubhub+ service can be tried out for 14 days with no cost and can be cancelled at any point. Students at colleges, for instance are able to use the service at no cost.

This subscription model was first announced in February 2020 as a response to rivals launching similar offerings in previous years. Popular food delivery platforms that offer high-end subscriptions are UberEats, DoorDoash, and Deliveroo.

The availability of these services encourages customers to make more frequent purchases. Grubhub says that users can save money when their total monthly orders exceeds $100.

Grubhub Funding, Valuation & Revenue

As per Crunchbase, Grubhub has raised an amount of $284.1 million in eight rounds of capital. Some notable investors of this company are DAG Ventures, Benchmark, Lightspeed Venture Partners, T. Rowe Price and many others.

When Grubhub was first listed on the stock exchange in April of 2014, and it raised $192.5 million, the company stood at $2.7 billion. The company is now an estimated market value at $6.73 billion. This is nearly three times the growth in the last 6.5 years.

For the fiscal year of 2019, Grubhub reported revenues of $1.3 billion, which was up 30 percent over the previous year before. Grubhub lost $18.6 million in that span of time.

How Did Grubhub Begin? The Company Timeline

Grubhub was founded in Chicago it was founded at the end of 2002 in 2002 by Matthew Maloney (CEO), Mike Evans, and Roman Gaskill.

Prior to launching Grubhub Prior to launching Grubhub, both Maloney and Evans worked as principal developers on the development of Apartments.com. They were deeply dissatisfied with the ordering process for food that was hampered by a insufficient choices and frequently required calling into the restaurant to read out credit card numbers.

At Apartments.com at the time, they were developing a geographical search option (similar like Google Maps) for rental real property. They quickly realized this feature could be useful for the incredibly analog food delivery business.

Two years later, after two years of development after which they began the launch of the website at the end of the summer in 2004. To find restaurants and menus on the site the team travelled all over Chicago to gather many menus. Wayback Machine

At first Grubhub was using an advertising model that displayed on the wall, which was inspired by real estate market. Startups such as Zillow as well as Trulia were offering ads on their site. Similar to that, Grubhub was charging restaurants $140 to provide six months’ advertising placement on their website.

The issue was that the restaurant owners had already had paid thousands of dollars to have poor-quality websites built for them. They were therefore extremely skeptical of the other website services they were required to purchase.

The team quickly changed their approach and decided to only charge restaurants a certain percentage of commission each time they had a sale through Grubhub (more on this later). Restaurants were awestruck by the idea, which enabled Grubhub to take on hundreds of restaurants over the years that followed.

In the month of October, 2007 Grubhub had grown at an unstoppable rate that the company was in a position establish a second location at San Francisco. This expansion put the company on the radar for the local Silicon Valley investors, which shortly thereafter put up the first ever investment in venture capital financing (worth $1.1 million).

Another factor that drove growth, aside from adjusting their business models, was introduction the iPhone and Android application. Grubhub was one of the very first online food delivery services to provide an application. This exclusivity in ever-growing app stores frequently allowed Grubhub to be the first app that was food-related to be downloaded to their mobiles.

In the years following, Grubhub continued to add additional customers and funds to its operations. In 2010 the company had already sent orders of $85 to restaurants listed on their platforms. In addition, they had over 15,000 restaurant and 100 staff members were a part the platform.

Beyond the app, it became somewhat of a pioneer of technological innovation in the food delivery business. In fact, the company was among its first firms to create the app that restaurants could use (while providing iPads to restaurants) that allowed the company to take and reject orders.

A point-of-sale (POS) system cut down the time it took to take an order in the process that was previously handled by fax and telephone by more than 50 percent. Other notable features included tracking of drivers as well as the option to place an order in advance and then take food items to the store.

Another significant factor in growth was acquisition of rivals. Grubhub frequently bought others food-delivery companies to access the markets they were catering to. Grubhub has bought 13 companies in its history which includes heavy-hitters like Dashed, LABite, LevelUp as well as Eat24.

The biggest change was the form of a merger with Seamless and Seamless, which took place in of 2013. The combined company that together generated more than $100 million in revenues in 2012, was established in the form of Grubhub Seamless. Matt Maloney became the company’s CEO.

Seamless formed with two law firms in the year 1999 and was a very popular company throughout its home in the New York City area. While Grubhub was gaining strong presence within The Midwestern United States (mainly because it was based in Chicago). The combination was an ideal match.

The business continued to expand at a rapid rate and resulted in the firm’s IPO on April 14, 2014. This helped them raise $192.5 million. The business had a value of $2.7 billion. In the meantime the company had changed its name itself as Grubhubonly to prevent confusion and establish an identity.

After Grubhub’s IPO, Grubhub would start seeing more competition in what would become known in the fight for food delivery. Amazon was the first major company to take on Grubhub’s position as the leading provider through the introduction of Amazon Restaurants.

After that, another kind of competitor began to emerge, quickly growing market share. Startups with a lot of capital like DoorDash or Postmates. Uber was the first to launch, and with it the introduction of UberEATS was soon followed by UberEATS.

They use their own drivers’ fleet and independent contractors to take care of the orders. This was especially well-liked by smaller eateries who couldn’t afford employ drivers to deliver orders.

At the time of the IPO at the time, Grubhub wasn’t employing delivery drivers on its own. Instead the company relied on the restaurant to manage the delivery process and, consequently, be accountable for marketing restaurants.

In truth, a better business strategy because it eliminates the administrative burden of managing and hiring an entire group of driver. But since consumers are adamant about flexibility, convenience along with the speed (and as investors had been eager to invest billions in delivery companies that were burning billions of dollars every year) this model eventually was adopted as the standard.

However, the driver-based model came with a whole brand new legal responsibilities. One of the previous drivers Raef Lawson, filed a lawsuit against the business over alleged misclassification of the driver in the role of an independent contractor, instead of being a W-2 employee. He sought reimbursement for unpaid wages, expenses and other damages.

It was a blessing the case was a blessing for Grubhub (and several other companies that rely upon gig employees) The company ultimately prevailed in the court case, but was still under fire over the way it handled its compensation for driver. However, drivers weren’t the only victims of a poor treatment by Grubhub.

In the year 2019, its restaurant partners accused that the company was charging the hidden charges regardless of whether customers decide to order. The company was charging restaurants more than $2,000 annually through billing them in the background for calls to customers that the company made, such as those to make reservations at dinner, or complaints about the lack of sufficient plastic cutting boards.

Restaurant owners had the ability to deny the charges, however, they needed to go through their records and decide on the request within a time frame between 60 and 60 days. Owners typically did not have time to complete this.

Grubhub responded by increasing the time for owners to submit a claim for reimbursement within 120 days. The company also increased the amount of customer advisors who could assist restaurants in reaching more customers and address technical issues. Although these efforts seemed to be noble however, it was difficult for anyone to accept that the company was working in the best interests of the restaurant’s owners.

The in the year before, the company was discovered to be buying more than 23,000 domains with names that resembled the names of restaurants already in the marketplace or were looking to. They would go to the extent of designing websites that would redirect customers to Grubhub and make the transaction.

The aforementioned issues and the ever-growing competition Grubhub was facing led it fall in 2020. According to the research company Second Measure, DoorDash overtook Grubhub in U.S. monthly sales during the month of May in 2019. This means that its market share dropped between 45 and 30 percent by 2020.

The constant struggles to grow resulted in a lot of speculation in an industry that is ripe for consolidation. Uber was the second most used delivery service following DoorDash was reported to purchase Grubhub. The deal was a failure amid the concerns that regulators could break the company.

However, Uber announced in July 2020 that it was going to buy the rival Postmates for about $2.65 billion in a transaction that was all stock. Grubhub In the meantime was pursuing other strategies.

In June of 2020 the company reached the agreement European food delivery giant the Just Eat Takeaway.com, which acquired Grubhub for $7.3 billion. This deal made the largest food ordering service outside of China.

But Grubhub wouldn’t exist in the event that this deal didn’t cause another controversy. Yum Brands, which owns brands like Taco Bell and KFC, claimed to Grubhub in the Just Eat merger that Just Eat merger violated a agreement Grubhub and Yum signed in the year the year 2018.

In the course of the deal Yum Brands invested $200 million into Grubhub. Grubhub on the other hand provided Yum an advantage in pricing and service standards for thousands of KFC and Taco Bell restaurants. The complaint included that the $500,000 termination fee that Grubhub paid was not sufficient.

Today, more than 300,000 restaurants in the 4,000 U.S. cities are part of the Grubhub platform. There are more than 27 million people use the platform to order food every year, and it employs more than five thousand people in seven offices across the United States.

Grubhub earns money by charging restaurants different commissions and fees, in addition to via their service of subscription Grubhub+.

Grubhub additionally owns a number of other brands it has acquired over the years such as Seamless, Eat24, or LABite. Certain of these brands are still operating as separate companies and can contribute to the overall earnings of Grubhub.

For the sake of simplicity for simplicity, we’ll only concentrate on the revenue produced by Grubhub’s main offering. Let’s look below.