GrubHub CEO Thinks Data — Not Content — Is the Future of Restaurant Discovery

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Shares of GrubHub slid early Wednesday after the online ordering company reported stronger-than-expected revenue growth but slimmer profits in the seasonally strong first quarter of the year. The sequential decline in profit was driven in large part by a jump in sales, marketing and technology spending in the quarter as the company invests in a new delivery service and expands from major city centers to smaller, less-dense cities such as Baltimore, Miami and Phoenix.

The spending should not scare investors, however. The company continues to grow its core metrics, with active diners continuing to grow a little over 45% on a year-over-year basis and gross food sales improving steadily over the past few quarters. Meanwhile, the implementation of auction-based pricing, where merchants can pay to appear higher in search results, has improved the company’s share overall percent of gross food sales from $13.5% in 2014 to just under 15% this quarter.

The slimmer profits are largely due to increased investment in the company’s new owned-and-operated delivery network, said Adam DeWitt, chief financial officer at GrubHub, during an earnings call Wednesday. The company acquired two delivery networks in February in an effort to expand its addressable market to restaurants that do not currently offer delivery services.

“In terms of the investment, the incremental investment is almost all related to delivery — both in [hiring new] drivers and investing in technology,” said DeWitt. “We’re investing ahead of demand, and we need to get the scale at the efficient level. That’s why you’re seeing the margins go down.”

No plans to partner with Uber
The effort comes as the company now faces a host of new competitors with an array of strategies and models. The company’s largest, and still nascent, competitor is the local discovery firm Yelp, which purchased Eat24 earlier this year to push more aggressively into the online ordering market. But a deluge of new logistics startups, ranging from delivery companies such as Postmates to taxi apps such as Uber, have begun testing ways to help deliver food on behalf of local restaurants.

CEO Matt Maloney largely shrugged off concerns about the renewed competition during the call Wednesday, and said that the company does not plan to partner with the new services in the near future.

“Other than [the services we acquired,] no one has scaled to delivery from multiple locations to multiple recipients,” said Maloney. “We’re open to making partnerships, but deep integrations is key here. For the meantime, we need to be doing it ourselves in order to do it right.

Data — not content — will drive the future of discovery
As Yelp and GrubHub increasingly overlap, the two services will begin to compete more directly. A big part of the competitive claims will likely center around the discovery experience — where Yelp already has an upper hand.

But GrubHub’s Maloney has begun to make the argument that data, not content, will play a driving role in the way we evaluate restaurants in the future. During the call Tuesday, Maloney said that the company has begun to experiment with ways to use data about the hundreds of millions of orders made on its platform to help diners pick the right dish at the right restaurant.

“We have a much greater focus on discovery for diners, but we want to more and more surface the quantitative data, said Maloney. “Qualitative information is great, but quantitative can shows you what your neighbors love and I think that’s where the future of discovery will be.”

The mobile-geddon that wasn’t
After a week of reports that Google’s new mobile-friendly algorithm change would turn the web on its head, it appears that its impact is far less harmful than expected. GrubHub CFO Adam DeWitt said the company has seen almost no impact in its traffic during the week since the change went into effect.

“We were prepared for the switch. But we’ve seen absolutely no impact whatsoever to traffic from any mobile device,” said DeWitt.

Steven Jacobs is Street Fight’s deputy editor.