More first-time customers tried ordering food through GrubHub in the first quarter of this year than ever before as the Chicago-based company continues its expansion to new cities.
GrubHub has launched in 50 new cities so far this year, CEO Matt Maloney said recently, following the release of the company’s first-quarter earnings.
The idea is to get into towns across America that have been long overlooked by the on-demand economy. In February, Maloney set a goal of expanding to 100 new markets by the end of the year. A partnership with Yum Brands, the Louisville, Ky.-based parent of Taco Bell, KFC and Pizza Hut, announced earlier this year is expected to help achieve that goal.
“The whole strategy of signing up really good chain partners is working,” he said. “We’re able to sign them on as anchor tenants and go into a lot of small towns that would have been difficult otherwise.”
Expansion into those second-tier cities is “growing so fast, they’re pulling the whole company,” said Adam DeWitt, GrubHub’s president and chief financial officer. The company announced last month that it had expanded to cities including Dayton, Ohio; Fort Wayne, Ind.; and Sarasota, Fla.
GrubHub also is partnering with burger chain Five Guys, Corner Bakery Cafe, Ruby Tuesday, Argo Tea and Mississippi-based chain Newk’s Eatery on food ordering and delivery, Maloney said.
The company’s revenues were $232.6 million in the first quarter, a 49 percent increase from the same period last year. Its daily orders were up 35 percent from the first quarter of 2017.
Some analysts turned bearish on the company’s stock after it neared the triple-digit price range earlier this year. Competitor Uber Eats is gaining market share, analysts noted.
Maloney said the food delivery industry could reach $200 billion and GrubHub has not been affected by competition.
“Our industry is barely scratching the surface,” he said.
There’s no shortage of activity in the food delivery business, with investors watching the cost and pace of existing companies’ expansion, said Jeremy Scott, a research analyst who covers GrubHub at investment bank Mizuho Securities. The market could winnow down to three players over time, and GrubHub will be one of them, he said.
Partnerships with national chains have accelerated consolidation in market share among the top players. That’s likely to continue, Scott said. The services with higher delivery fees likely will face some headwinds. In smaller cities where food delivery services are expanding, the median household income is lower, and customers won’t be willing to pay high delivery charges, Scott said. The majority of restaurants listed on GrubHub can be delivered for less than $4 in most markets, according to Mizuho’s research.
“That, to me, is the winning formula,” Scott said.