Amazon and Yelp Want a Piece of Online Ordering — Here’s Why There’s Still Hope for Startups

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chinese take out with smart phone on table and menuA wave of consolidation in the food ordering industry, headlined by Yelp’s acquisition of Eat24 last week, has reignited a 15 year-old race to capture a $70 billion online food ordering industry. But as market leaders go public and other firms barrel in on the industry, is there still room for younger companies to grow?

Matt Howard, chief executive at EatStreet, one of the largest remaining independent ordering firms, thinks so. We caught up with Howard recently to talk about whether the recent spurt of acquisitions marks the end of an era or the beginning of a new one — and what it all means for the remaining startups in the food ordering industry.

Do you think the handful of recent acquisitions signals the beginning or end of a wave of consolidation in food ordering?
In the last few weeks a bunch has happened. I don’t think that’s actually going to slow down. With Yelp getting into the space, Amazon committed to start online ordering, and GrubHub putting up some amazing numbers, I wouldn’t be surprised if you start seeing others like Google, Facebook or Groupon start entering the space, as well.

Additionally, international companies such as Delivery Hero and Just Eat are going to look at the U.S. market and I would assume figure out a strategy to target the market, as well. I don’t think it’s going to slow down, I think it’s just the beginning.

Leadership at GrubHub pitches food ordering as a winner-take-all market. Why are they wrong?
For GrubHub, being the first mover can be beneficial. But at the same time there are going to be multiple players in industry. I think there’s going to be at least three, just because it’s $70 billion a year — and that’s just delivery and takeout. I think there’s a lot of opportunity. The industry is so massive there’s plenty of room for players like us to get in the market.

Yelp recently entered the food market. Who will process more orders in five years: Grubhub or Yelp? Why?
They each offer something that’s very valuable to the public, and Yelp, with the Eat24 acquisition, will now be pretty powerful in certain markets. There might be one that wins over the other with just simply number of orders, but I think both are going to be very successful. There’s a potential for both to create a very big market and have a presence in that.

The nice thing about Yelp, I would say, is it has the advantage because it’s not just food ordering. With its new partnership program you can make reservations at restaurants and others where you can book your hair appointment and more. There’s an advantage to Yelp simply because they are doing more. But I wouldn’t be surprised if GrubHub eventually goes down that road as well.

GrubHub made a move into the delivery market, acquiring two local delivery companies. Given your experience, do you see the ordering and delivery components as something that should be owned by the same company? 
I think it is pretty risky what GrubHub just did. It’s a very different business. These are very different businesses (ordering and delivery). The margins are different, the infrastructures are different, the restaurants you work with are different. We’ll see if it’s the right call; it’s definitely a risky one.

There are other ways to build that infrastructure. You can facilitate delivery by partnering with delivery services and using infrastructures that are already out there. It will be interesting in the next few years to see if companies like Uber and Lyft and Sidecar start making that available. Sidecar already announced a partnership with Eat24 delivering food for them a day before they got acquired. That’s kind of interesting because you don’t have the risk of bringing it in-house, but you can still have the delivery infrastructure.

Talk a bit about the value of scale between different local markets in the food ordering industry. How can a smaller player beat a GrubHub in secondary markets?
EatStreet focuses on secondary markets across the country and the younger demographic within those markets — college students, young professionals, where we can create a really solid business. GrubHub isn’t in those markets yet; they are focused on New York, Chicago, Los Angeles — which they should be because there’s a lot of opportunity there. Even GrubHub admits in some of their bigger markets, where they have higher penetration rates, they are still at around 10 percent in some of their larger cities. They still have a long way to go.

We’ve seen a lot of investment in international ordering firms. How important is international to your strategy?
It’s definitely important in the next few years. I don’t think it’s important in 2015. With the market in the U.S. being at $70 billion a year and growing every single year, there’s a lot to work to do here. GrubHub only owns between 1 and 3 percent, people report. There is a lot of work to do in the U.S. market where we can create a really big scalable business in U.S. before we have to look elsewhere. It’s the five-year plan for us, it’s not the one-year plan.

What other issues are you seeing on the horizon?
We’ve seen others try to enter the market and have had trouble. This industry is not the easiest industry. We’ve learned a lot in the last five years of how you get through this market and using the knowledge we have to get through some of the bumps. There are companies interested in the space, but at the same time we’ve seen companies like LivingSocial try it — they tried it a few years ago and cut it from their strategy. It will be interesting to see now that Yelp made their move, do they really know what they are getting themselves into buying Eat24?

Liz Taurasi is a contributor at Street Fight. This interview has been edited and condensed.