February was a busy month for the online ordering industry. In the matter of a week, Grubhub bought a delivery company and Yelp entered the delivery market with the acquisition of Eat24.
David Bloom, the CEO of Ordrx — an open platform allowing merchants, primarily restaurants, to share their menus and inventory — says that recent waves in the online food ordering industry are indicative of myriad opportunities for local restaurants and smaller markets. Though big players like GrubHub and Yelp may seem to have daunting scale, he believes this is “chapter two of online ordering and restaurant commerce,” Bloom says. “We’re not looking at the endgame.”
Do you think the handful of acquisitions recently signals the beginning or end of a wave of consolidation in food ordering?
I think it is the beginning of consolidation. Interestingly, there’s not a whole lot of players of scale to consolidate. This is phase one of an expansion of food ordering, because with three or four acquisitions, this industry is consolidated. After that, it’s just open, green field for all the merchants that are involved, and all the customers and markets that aren’t being served.
Yelp recently entered the food ordering market directly. How do you see the competition playing out between Yelp and GrubHub.
When you look at the dollar value of transactions that go over some kind of digital channel like a Grubhub or a Yelp, or even a PizzaHut.com, relative to the total amount of spend here, both of these guys could grow by 10,000 percent and they would barely bump up against each other. I think the real issue is less about who’s going to be doing more. It’s whether there’s really anyone doing enough to claim that they are a true leader in this industry. Because the leader in this industry right now is analog. It’s the phone, it’s walking in off the street. That’s the thing that these guys are really competing against.
[Yelp] feels that restaurants and their commerce platforms are so strategically important to their future that they wanted to own more of it, be more vertically integrated. They’ve done that before with restaurants — they’ve bought a reservation service, but they still work with OpenTable. And that’s a little bit obvious, because OpenTable has dominant market share. No one has that kind of dominant market share in the restaurant food ordering space. It tells you just how important this is for them.
GrubHub made a move into the delivery market, acquiring two local delivery companies. Do you see the ordering and delivery components as something that should be owned by the same company?
In my experience, businesses are technically good at one thing, and maybe they can extend that a little bit. Running a fleet of drivers and doing that last-mile physical delivery is not the same as doing the e-commerce part. In the same way that I’m suspicious of Google getting into last-mile fulfillment, I’m suspicious of GrubHub getting into last-mile fulfillment. It’s just not in their corporate DNA. It requires a new set of operational challenges.
That said, GrubHub is an execution machine. They’ve done really well building their business. They’ve had their eyes on the prize and they’ve gone about building things in a very specific way, and they’re disciplined. I’m not gonna say no, but I’m definitely suspicious. I’ll be curious to see how it plays out.
We talk a lot about the shift in existing orders moving from the phone to the internet. But how can mobile, and other technologies, actually growth the role of ordering in the lives of consumers?
When you look at the demographics, obviously younger people are more engaged on their phones, and more engaged in restaurant food ordering, than older generations. I think this is part of a coming demographic wave that is going to make ordering a lot more important to merchants.
I’m heartened by how many people are signing up for food ordering, but when you see independent, small merchants, I’m not seeing them doing much more with their online, mobile food ordering then sign up for it. They’re going to need to pay attention to it like they pay attention to the cleanliness of their bathrooms and making sure the Cisco guy drops off frozen French fries. This is my advice to merchants: This is how business is getting done in this generation and into the future, so figure it out.
On that same note, how does this shift change advertising and marketing for restaurants, now that they have delivery metrics at their fingertips?
This is actually one of the most interesting challenges. People are making purchase decisions far earlier in their thought processes than they were before. It used to be, you’d think: I am hungry, I need to get food, where should I go? And then you go, out into the street or get into your car, and make a decision based on what you see. But the ability for someone to transact in that moment means that decision is taking place earlier, and marketing needs to push itself earlier to influence the decision-making of the consumers.
I think there’s going to be a lot more spend on digital marketing, even for independent businesses, and there’s going to be a lot more creativity put around it. People need to figure out how they’re going to get in front of their customer and get that market share. There are many more chapters to be written before this all shakes out. That said, people are going to start to feel left behind.
Leadership at GrubHub pitches food ordering as a winner-take-all market. How can a smaller player beat a GrubHub in secondary markets?
The costs of merchant acquisition and customer acquisition are both high, especially when it comes to restaurants. You need restaurants and consumers that are so close together, within a mile or a few miles of each other. So it’s very hard for anybody, big or small, to get economies of scale. The restaurant you acquire in Cincinnati doesn’t help you with your customers in Akron. Who’s on the ground that can operate a little bit more efficiently, and perhaps have lower capital return rate?
Those local food ordering portals and delivery services will be more satisfied with lower return than GrubHub, which needs to meet Wall Street expectations. I think local players still play an important role. We’ll see if GrubHub and other bigger players can figure out how to crack the nut on market entry costs.
Annie Melton is a contributor to Street Fight.