More Grub From Bigger Hub
The ad was for GrubHub, a Chicago-based company whose Web and mobile service connects consumers with restaurants that offer delivery. Lee, the owner of the Hot Woks Cool Sushi chain of Asian eateries, thought the ad was memorable for its cheekiness — and its accuracy.
Diners order food “mostly when you go home and you’re desperate — when you’re naked and desperate,” Lee said. “It’s a very effective ad and it’s very telling. A lot of orders come in at 8 p.m., when you’re like ‘Oh, my God, I haven’t eaten.'”
Hot Woks Cool Sushi is one of nearly 14,000 restaurants signed up on GrubHub, which launched in Chicago in 2006. Lee estimates that for the busier of her four locations, online orders processed through GrubHub account for about 15 percent of total deliveries.
“Hands down, they generate tons of sales for us,” Lee said.
Business has boomed for GrubHub, making it one of the standouts of its industry and the Chicago tech scene. Last week, the company announced it had raised $50 million in venture capital, bringing its total funding to $84.1 million. The latest round allowed GrubHub to acquire New York-based Dotmenu, the parent company of two restaurant ordering websites: Campusfood and Allmenus.
The deal, whose financial terms were not disclosed, added more than 30 cities and 300 college campuses to GrubHub’s roster of 19 major metropolitan areas. The company said it also now boasts the largest restaurant listing in the country with 250,000 menus.
The Dotmenu acquisition gives GrubHub broader geographical reach and a foothold among college students. This is a smart strategy because getting “more involved at the college level will create loyalty among students, who do dine at home more than Boomers” and other generations, said Darren Tristano, executive vice president of Chicago-based Technomic, a restaurant industry consultancy. “They’re a strong driver of future sales.”
Any restaurant can list its delivery menu on GrubHub for free. The company makes money by selling a premium service where it processes online ordering through its website and takes a commission on those orders. Restaurants signed up for this service are highlighted in search result listings on GrubHub. Diners can search across any number of criteria, including location, cuisine or a specific dish. About 40 percent of GrubHub’s 14,000 restaurants use the premium service.
While restaurants make the deliveries, GrubHub takes responsibility for customer service, meaning diners can call the company’s toll-free line or chat with someone online if they have problems with their order.
“We do take responsibility for every order that goes through the site, which is a completely absurd policy to have implemented because we are setting ourselves such an audaciously large goal for making the delivery experience better for everyone,” said Mike Evans, GrubHub’s co-founder and chief operating officer. “That consumes all of our attention all the time.”
Evans said the company shares best practices across its restaurant partners and focuses on making the site easy to use for diners. This strategy has paid off so far, with GrubHub bringing in $8.3 million in revenue in 2010, more than double revenue of $3.4 million in 2009. This year, the company expects to double revenue from 2010.
The company has expanded, doubling its head count to 200 employees over the last year, even as prospects for the restaurant delivery industry are mixed. According to the NPD Group, delivery volume fell 6 percent in 2008 on the year, followed by a 9 percent drop in 2009 and a 5 percent decline in 2010.
Bonnie Riggs, an NPD restaurant analyst, said delivery represents about 3 percent of U.S. restaurant visits, and that share has remained constant in recent years. The segment tends to be a weaker performer because consumers would rather carry out than pay delivery fees, and restaurants favor on-premises dining.
“They would rather have someone come in and dine in the restaurant,” Riggs said. “If you have delivery and you’re a full-service restaurant … your checks are smaller. You don’t get the alcoholic beverage orders, which are highly profitable items.”
But Evans said he believes delivery is one of the fastest-growing segments of the U.S. restaurant industry, and GrubHub has room to grow. The company expects to drive more than $200 million in food sales to restaurants this year, compared with more than $85 million in 2010.
GrubHub faces competition from Seamless, a New York-based company that started in 1999 to link restaurants with corporate employees working after hours. Seamless is now pursuing the consumer delivery segment and has stepped up advertising in GrubHub’s hometown.