GrubHub, the e-commerce company that went public last year, is taking delivery matters into its own hands. Instead of just processing restaurant take-out orders, now GrubHub will begin delivering the food with its own drivers.
On Thursday, the Inc. 500 alum announced it was acquiring a delivery service on each coast: DiningIn, based in Brighton, Mass., and Aliso Viejo, Calif. outfit Restaurants on the Run. The deals together are worth about $80 million and will enable GrubHub to connect customers to nearly 3,000 restaurants in one dozen U.S. metro markets, reports Fortune.
As a company that charges significantly less (14 percent) than the 20 to 30 percent fee that many restaurant delivery groups charge (including DiningIn and Restaurants on the Run), GrubHub is banking on ramping up its volume over pricing its service at a premium.
"There is economy of scale in the volume of deliveries," Bill Gurley, a venture capitalist and GrubHub board member, told Fortune, noting its plan to start charging customers whatever nominal fee is needed to make the delivery break even. "The more volume you have, the more economical you can be."
However, that's not the only reason GrubHub's foray into delivery is notable. The move puts pressure on Google and Amazon, both of whom have made major investments in on-demand delivery. Though Alibaba may have beat Amazon this week in the drone delivery game, Amazon continues to innovate around online shopping, ushering in Amazon Prime Now, a one-hour delivery option that debuted in New York City for $7.99 in December, and pouring billions into Prime shipping.
Meanwhile, Google beefed up its on-demand options in October, expanding Google Express to more cities for $95 a year or $10 a month and offering products from merchants such as Barnes & Noble, Costco, and PetSmart.
With GrubHub's number of active diners rising 47 percent to 5 million, and average daily transactions jumping 33 percent in the last three months of the year, according to its fourth-quarter earnings report, GrubHub seems well-positioned to enter the on-demand delivery wars. Revenue rose 49 percent to $253.9 million from $170.1 million in 2013.
But whether the 10-year-old startup, which is no stranger to being scrappy, has what it takes to go up against Square is another issue. Having paid roughly $90 million to acquire Caviar, a delivery service that works with highly-rated restaurants that don't normally offer the option, Jack Dorsey's payment startup clearly means business. And catering to moneyed cities like San Francisco, Los Angeles, and New York City may prove even more lucrative than all those small orders GrubHub processes.
As Square wrote in a blog post announcing the deal, Caviar's order volume had grown more than 500 percent year over year and 80 percent of the company's deliveries went to repeat customers.