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GrubHub Inc (GRUB)
Q3 2019 Earnings Call
Oct 29, 2019, 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Adam Patnaude -- Head of Investor Relations
Good morning, everyone. Welcome to Grubhub's Third Quarter 2019 Earnings Question-and-Answer Call. I'm Adam Patnaude, Head of Investor Relations. Joining me today to discuss Grubhub's results are Founder and CEO, Matt Maloney; and our President and CFO, Adam DeWitt.
This conference call is available via webcast on the Investor Relations section of our website at investors.grubhub.com. Today we'll be answering questions about our third quarter results, which are contained in our press release and also discussed in our shareholder letter. Both the press release and shareholder letter have been attached as exhibits to our current report on Form 8-K filed with the SEC and are posted on the Investor Relations section of our website.
I'd like to take this opportunity to remind you that during this call we will make forward-looking statements, including guidance as to our future performance. These forward-looking statements are made in reliance on the Safe Harbor provisions of the Securities and Exchange Act of 1934 as amended and are subject to substantial risks and uncertainties that may cause actual results to differ materially from those in these forward-looking statements.
For additional information concerning factors that could affect our financial results or cause actual results to differ materially, please refer to the cautionary statements included in our filings with the SEC, including the Risk Factors section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed, with the SEC on February 28, 2019, and our quarterly report on Form 10-Q for the quarter ended September 30, 2019, that will be filed with the SEC. Our SEC filings are available electronically on our investor's website at investors.grubhub.com or the EDGAR portion of the SEC's website at www.sec.gov.
Also, I'd like to remind you that during the course of this call, we will discuss non-GAAP financial measures in talking about our performance. Reconciliations to the most directly comparable GAAP financial measures are provided in the tables in the press release.
Finally as a reminder, all of our key business metrics exclude transactions like LevelUp and Tapingo where Grubhub only provides technology or fulfillment services. And now, we'd like to open the call up for questions. Operator?
Operator
And before we go to questions, I'd like to turn the call over to Matt Maloney, founder and CEO. Go ahead please, sir.
Matt Maloney -- Chief Executive Officer
Thank you. I just want to say a couple of things. Thanks for everyone for digesting the letter that we sent out last night. We switched up the method of communication, because I think the story was very complex and we wanted to get it out clearly and as simply as possible. I think we did a great job of outlining the issues that the industry faces and how we are looking to address those through our strategy. To the past, like, 12, 15 hours, we feel that a lot of calls and inbounds, there's a few items that I just want to clarify before we get into the Q&A, because I think it can be helpful. The first is, there was some misunderstanding whether this was an evaluation of Grubhub's situation specifically or if it was industry. This -- we have more experience in this industry than anyone else. This is a explicit overview of the entire industry and every team that's executing in this space needs to address their strategy in light of the facts that we outlined in the letter.
The overall growth rate, I would just wanted to be clear is where we think it is, right now, there is not going to be artificial accelerants from any of the supply side innovation that was outlined, and I think we all need to address that as it's an industrywide behavior. The second is, there is some confusion around the promiscuity of cohorts in or any older cohorts versus the newer cohorts. To be clear, a very small fraction of our diners use other platforms in general and the newer diners use multiple with a much greater degree of frequency. The older cohorts are definitely more stable, but we think that small parts of those cohorts are testing the waters at different points and that's why closing the restaurant gap is so important.
I think the point of this strategy is that we're taking our profitability and reinvesting it back in the business as aggressively and competitively as we can and we would not do that if we thought the fundamental profits of the business were at risk. And there was a point in the call last night when somebody brought up the analogy that we have the biggest weapon that as reloaded every single day and we will never have to beg for ammunition, and I think that's pretty appropriate in this case. So, I wanted to address those two things before we got into the rest of the Q&A, but -- I'm happy to turn it back to the operator for questions now. Thanks.
Questions and Answers:
Operator
[Operator Instructions] And with that, your first question comes from the line of Ralph Schackart with William Blair. Go ahead please. Your line is open.
Ralph Schackart -- William Blair -- Analyst
Good morning, Matt. Thanks for the initial comments and for all the good detail on the shareholder letter last night. Maybe if you just give a little bit more color and share perspective on what's working with Grubhub's current strategy? And as you see it, what's needed with the new strategy in the GAAP you sort of talked about in the letter? Also maybe share some perspective on what led you to say this is the right time for Grubhub to invest in any specific areas? And then just a quick follow-on, how much of the strategy shift do you view as offensive versus defense of the nature? Thank you.
Matt Maloney -- Chief Executive Officer
Yeah, Ralph. Great question. So let me start out by saying the only thing that matters now is diner side differentiation. We're not seeing any of the acceleration from the supply side innovations. There are three scaled out national players and so our initiatives are focused on creating the most compelling platform for diners. So they don't need to look anywhere else for what they want.
If you think about the industry historically, third-party delivery unlocked new pockets of growth over the past few years. But with all the -- the major players, at least, expanded across the whole US, delivery coverage has now been commoditized. And we've said stuff like this before, we all have roughly the same algorithm, same driver interactions, the same ETAs, five minute difference in delivery time is negotiable for diners, effectively delivery as a function is commoditized and now with non-partnered restaurant inventory becoming more prevalent, supply side is soon going to be commoditized as well. So, I mean, first and foremost, we need to clearly close this restaurant gap [Phonetic]. We're already on our way, we're scaling aggressively, we have tens of thousands of non-partnered restaurants already listed, we've been piloting for a while, we've already made the call to scale this out, we're just announcing it right now. This is one of the two letters areas that we highlighted in the letter where we need to improve our consumer value proposition. I would say, this part is the more defensive side as diners are starting to sample multiple platforms. We want to make sure that there is no reason for diner to slip back to a previous platform once we've effectively still in that diner from a competitor.
And so for restaurant inventory, to start there, we planned to expand our unpartnered restaurant inventory and grow our sales staff to add more partnered restaurant inventory. We tested this, call, place and pay, we've -- in the past we've shared with you before it's a bad experience for diners, it's a bad experience for drivers, it's a bad experience for restaurants. But our peers have shown real growth and not profits, but they've shown growth using the tactic and we think there is a benefit to having a larger restaurant network from finding new diners and not giving, again, diners any reason to go elsewhere. So it's more expensive for the diner, because the restaurant isn't paying and there are higher fulfillment care costs and we don't make a lot of money on these orders, since the diner pays for freight and there's definitely mixing cost associated with these orders in addition to the initial start-up costs, and because of all that, we planned to increase our restaurant sales staff aggressively. We still firmly believe that partnering with restaurants is the right path forward in this industry. So we're planning to bring a lot more employees on to help get restaurants across the country, sign up for marketplace immediately when we start to see success in the place and pay.
So with that backdrop, the commoditization of the delivery and the restaurant supply, which I think has happened more or it's happening faster than I think we thought it would happen. But with that as a backdrop, the winner in this space clearly has to have a differentiated experience for diners. We believe we have two core advantages in this space and this is where they often starts to come in. First, we have a huge advantage of pricing. We have the largest partnered independent restaurant network available. This independent restaurant network supports 80% of our order volume now. As we go into 2020, we'll have over 100,000 SMB, independent restaurants on our platform, and it's a network that's taken us two decades to build. So with the significant scale in these independents, who are willing to pay for demand generation, that's the key. We can offer the lowest prices to consumers, because we don't have to seek profit and aggressive consumer fees. Many of you have done pricing surveys that's consistently supported that we have lowest prices and it's extremely difficult to offer our pricing of the majority of our volume came from the largest enterprise brands, because they only pay us for delivery and they don't need us for demand generation.
So first, we have the core pricing advantage and second, we're immediately increasing our already aggressive investment in restaurant loyalty programs. So the Perks program, which we talked a lot about in the last earnings call is already very exciting. Over 20% of our diners are redeeming loyalty rewards right now. Restaurants have given away over $70 million so far this year on our platform to diners and the restaurants have seen that free food increases their competitiveness on our platform, which is rewarded by accelerated growth for them. So we'll be spending a lot of money in the next 12 months priming the pump for restaurant loyalty programs to show them the immediate ROI to generate that long-term investment from restaurant groups on our platform.
We think that the loyalty can be a unique differentiator, a unique long-term differentiator, because of our LevelUp infrastructure. LevelUp has been evolving restaurant loyalty tools for years now. We also share our customer data with our closest partners to help them build an asset over time and we have our in-house POS integrations. In the in-house POS integrations, they allow us an unprecedented level of flexibility and sophistication to build and manage the business rules for loyalty programs. We have real-time access to inventory, real-time access to prices. And so, our loyalty programs will always be better than anyone else's loyalty programs who go through a third-party integrator for POS integrations. We know that diner loyalty programs drive growth for restaurants. We've seen this for independent and enterprise partners and we know that restaurants are willing to fund these rewards over the long-term as long as they show positive ROI.
We also know that our competitions diners are placing more and more orders in our platform, so we want to retain as many of these diners as possible. Our goal is to build extremely engaging experiences for diners that reward usage with economic and emotional incentives. We've seen in the data that we're able to steal share that diners are sampling across platforms, especially in the newer markets that we've entered in the last year.
We want to capitalize on each of those opportunities. We want to make sure that the diners when they sample our platform, see, all the restaurants they want order from and see as much economic incentive in terms of lower base price as well as loyalty rewards to be as sticky as possible.
In order to emulate our pricing advantage, our competitors will have to dramatically expand their independent partnerships, which they're trying right now, but this takes a lot of time and it's very difficult. In order to emulate our loyalty advantage, the competition will have to give away a tremendous amount of money, which is a very challenging problem when they're each losing over $1 billion a year.
And thanks to WeWork recently, there's a lot of pressure to achieve profitability. So when you're asking me about the timing, there's is definitely a timing element to this. Everyone knows that there is extreme pressure on profits right now. And so this is the time that we should be leveraging our advantages to create a differentiation that to replicate will be extraordinarily expensive, especially to our competitors' bottom line. In the longer term, we're at least two years ahead of the industry in terms of our loyalty technology and tools, and I think that we have a long runway to execute on this strategy very effectively.
Ralph Schackart -- William Blair -- Analyst
Okay. Thanks for the extra color, Matt.
Matt Maloney -- Chief Executive Officer
You bet.
Operator
Your next question comes from the line of Tom Champion with Cowen. Go ahead please. Your line is open.
Thomas Champion -- Cowen and Company -- Analyst
Thanks very much. Good morning, guys. Can you maybe provide any more granularity around the order trends that emerged in August? The letter talks about this, do they continue to deteriorate or has this sort of stabilized in? Can you just talk -- you discussed it a little bit, but can you just describe why this is an industrywide phenomenon or if it's more specific to Grubhub? Thank you.
Adam DeWitt -- President and Chief Financial Officer
Yeah, I'll talk about the -- it's Adam, Champion. I'll jump on the order trends and I'll let Matt talk about the industry comments. But the -- in terms of the trends that we saw we saw. I think, we tried to lay it out fairly, clearly in the letter. We noticed in August that growth had deviated noticeably from where we thought it was going to be and it caused us to take a closer look at the causes. And you see kind of the results in the letter, which is -- we saw that the newer cohorts in our newest markets, as Matt said, were not maturing at the same level of frequency as we had expected or we would have forecasted based on prior cohorts behavior. And when we dug in further, we noticed that a lot of those diners were coming to us already customers of other platforms. And so by nature, some of them would be ordering on multiple platforms wherever, some of them may stay with Grubhub, but the maturation frequencies was a little bit lower and it jumped out in August when we looked at the data.
In terms of stabilization, I think the comments I'll give there is we're a third of the way into the fourth quarter and obviously our month -- our quarter-to-date performance was baked into our guidance and what I'd say there in terms of order growth, it's -- we're currently viewing it as slightly lower than the third quarter, but not another leg down and most of that's just from having three full months of weaker order behavior versus the two that we had in the third quarter. So hopefully that's helpful.
Matt Maloney -- Chief Executive Officer
Yeah. And Tom, in terms of industry versus Grub, there is a few data points that we're triangulating to make that statement. And the first is the third-party data, and I have with elegancy and accuracy many times. But if you look at it and all of the data shows everyone down turning consecutively and there is definitely something in that data. The second thing is its structure. I think we did a really good job of evaluating the historical growth patterns in the industry. If you look at our growth, prior to what we label to supply side innovations, you could see that by nature consumers in this offline to online transition, they do not run in mass to the online platform, it is slow and steady, long-term growth. It's been a hallmark of this industry until 2017 when you saw the first innovation, and in 2018 when you saw the second, and expectations that the industry would maintain at that growth rate I think were exaggerated. Now we're back down to a place where all of the competitors are effectively in all of the markets with commoditized delivery as well as supply. There is not an obvious way that anyone has an edge outside of the strategy we're outlining here. And so we are all going to be held within the aggregate growth rate of the industry and whatever that ends up being.
A third point that we're looking at is, all of this came about because we realized we were stealing share and markets, we were not expecting to steal share. So, it's kind of a surprise to us as well, interesting opportunity is how we're looking at it right now. We had the incumbent mindset concerned about where we were going to be losing share and here we are in our most aggressive markets where we told all of you guys a year ago we are going to grow as fast as we could, here we are stealing share and the share that we were stealing was less valuable than we expected it to be, but that's because these weren't fresh, clean brand new cohorts, these were Dolan [Phonetic] diners who had a history of ordering on other platforms and we didn't have the same restaurant network in many of these communities, but they were expected to and so the fact that they're performing a little bit less I think is pretty, pretty logical and we have to -- we have to fix that because we hope to see those cohorts perform at or above what we were hoping.
And then finally, many of our competitors are private companies that are raising money right now and so we're talking to the same investors that they are and we're hearing their stories that they are not growing as fast by any stretch. And so there's a lot of dancing around that fact and I think there's a lot of investments you'd expect if you were trying to hide the fact that your fundamental accelerations gone around international investments or acquisitions that I think are just trying to avoid the reality of what we outlined in the shareholder letter. So we chose the fact to be straightforward and transparent with exactly what we're seeing and address that reality in our strategy and discuss that with all of you now.
Thomas Champion -- Cowen and Company -- Analyst
Appreciate the comments. Thank you.
Operator
Your next question comes from the line of Ron Josey with JMP. Go ahead please. Your line is open.
Ron Josey -- JMP Securities -- Analyst
Great. Thanks for taking the question and appreciate the commentary. I wanted to drill down a little bit more on just the lowered 4Q guidance specifically and just trying to understand the delta or maybe difference between demand softness that potentially you're seeing? Or maybe on the revenue side, just the ramp in contra-revenue that led to that sort of decline in guidance for 4Q revenue, any bridge there would be helpful. And then to that end, talking about overall rationalization and just the $100 million in EBITDA or at least $100 million next year in the 2020, can you just talk to us about where these costs might be coming from? Understood restaurant sales, but anything on the tech side? And I ask only because you talk about the $2 per order, assuming everything would be steady state, are you focused on cash flow? So if you take that $2, then you get the 100 [Phonetic], it's a meaningful amount of investment. So any revenue bridge would be helpful and insights on where you're investing next year would be great. Thank you guys.
Adam DeWitt -- President and Chief Financial Officer
Yeah. Thanks, Ron. So in terms of the fourth quarter, I'm glad you asked the follow-up there. So, obviously, I just had some comments about the growth rate in the fourth quarter, but both EBITDA and revenue we are taking down about $60 million. And what I'd say there is a rough -- a kind of rough brackets, about half of that is due to the -- is due to volume and half of that is going to be on the revenue side is going to be due to revenue per order, as you said, contra-revenue. I do want to highlight, dig into that a little bit deeper because it's not -- what we're not doing is ramping up on promotions. What we're doing is, are the things that we outlined in the letter, one is supporting kind of these free delivery campaigns with some of the larger enterprise brands McDonald's, KFC, Taco Bell, Panera. We found that these are really good ways to seed, get our diners to first get the awareness that those enterprises are on our platform, helps attract new diners, helps retain diners etc. And then we're also using pricing levers to work on. Matt talked about differentiation in the platform. So loyalty, working on new diner conversion and testing into kind of optimal pricing for non-partnered, the loyalty programs, etc. And so when you look at that $60 million that we took down on the revenue side, that's -- that's how it breaks down. But from a growth perspective, we're not anticipating another big step down at this point from DAG growth.
What you're looking at 2020, I think that the first thing -- the first thing you have to realize is we are not giving 2020 guidance right now. I think the purpose of putting that number out there was to say it's kind of underlying. We firmly believe we will be generating significant profit next year while we're investing and our platform gives us the ability to do this and lean-in on these opportunities. And so that's not formal guidance. But if you want to think about it in broad-strokes, we can do it from the -- I'll do it from the $2 in order or you can think about it more broadly from the Street. The $2 number is really saying, "hey, this is for managing the business to lower volume and trying to extract as much cash flow as possible". And to your point, there is a -- there is a lot of investment applied in there, but we're operating the business as though we're supporting a much higher growth rate, right? If we wanted to get the $2, I'll do it both ways. If we wanted to get the $2 in order, what we would do is, take down our advertising by a bunch, and then take a bunch of costs out of overhead and instead of investing behind initiatives. If you want to do with the other way, which is kind of think about where the Street was versus where -- versus that $100 million. I think that's probably a little easier to think about for -- obviously, the Street number is not our number, but in broad strokes what I would say is, about half of that is volume related based on current trends, and then half of that is investing behind these initiatives. And so, at the end of the day, the reality is we are investing, right, all of that. If we're keeping the business at the same size at a lower volume, the implication is that we're investing. So we're investing a lot more than the explicit amount that we're putting into these initiatives, but for all the reasons, Matt outlined, we have a lot of confidence that it's going to drive long-term growth and put us in a better spot in the long-term.
I do want to -- the last thing there is what we're thinking about the spend behind the initiatives and I gave you some real -- some real high level bracket as to what that -- what we think that spend is going to be. We got to remember that that's all discretionary, right? So we have the ability to ratchet that down if it's -- if it's not working, or move out of it over time and so it's not -- it's not the same as, let's say, when we launched delivery in 2015 and we had all of this expense out there and it would have been hard to unravel, a lot of this is testing, pricing levers, trying to accelerate restaurant sign-ups and things that we have a lot of control of. So I hope that help give a little bit more color to both the 4Q guide and broad strokes for the fourth quarter, roughly half of that decline is the initiatives, and so for both 4Q and 2020, it's about 50-50 in terms of the volume decline and then the initiatives.
Ron Josey -- JMP Securities -- Analyst
That's helpful. Thank you.
Operator
Your next question comes from the line of Brian Nowak with Morgan Stanley. Go ahead please. Your line is open.
Brian Nowak -- Morgan Stanley -- Analyst
Thanks for taking my questions, guys. I have two please. So the first one, just on the comment about the low double-digit growth rate and the way to think about the industry. I guess there is third-party data out. We're probably going to hear from another food delivery company pretty soon over the course of the earnings season who may refute that. So I guess, I'd be curious to sort of hear what mathematical analysis or what gives you confidence that it's actually the industry that's slowing low double-digits and not a Grub-specific problem? And then the second one, I think, in the letter you say a common fallacy in the business is that an avalanche of volume, food or otherwise are going to drive logistics cost down. I guess, in your previous slides you've laid out how self-delivery and the marketplace can sort of get to the roughly the same profit per order. What changes now that you think the previous analyses were incorrect as you think about the long-term profitability of delivery? And what is the right way to think about long-term profitability of a delivery order now? Thanks.
Matt Maloney -- Chief Executive Officer
Hey, Brian, let me address your first point and maybe give a quick pass at the second and then Adam can follow up with the specifics on what you're asking about. I mean, the industrywide versus Grub-specific, I kind of just answered that question. When you look at the third-party data available when all of the data is pointing in the same direction, it's hard to argue that it's completely wrong. Secondly, looking at the other food app that is going to be talking about this and potentially refuting it, their innovation is outlined in our paper as well and it justifies their significant growth at a point in time and I don't think we have seen that growth rate consistently executed on since then. And so I think that if you look at the fact pattern of the past few years, it supports the analysis that we put forward last night and we're stealing share in specific markets. So we're looking at markets where, for example, it's only one competitor. We're launching in that market successfully, both on our logistics and an advertising diner perspective. We're evaluating those diners and seeing that we are attracting consumers that have consistently ordered on other platforms. So even in these smaller very new markets, we're seeing -- we're budding up head-to-head against the competition. And so I don't think there is a question of if this is just us or if this is industrywide? I guess only time will tell, but I think that our argument is concise and accurate.
The fallacy around a lot of activity will make your delivery network more efficient and that -- we put that in there because we're hearing a lot of noise around Cornerstore delivery, Walmart delivery, various exercises that you're delivery team can execute on and the justification that there is kind of this asymptotic decline of incremental expense to zero and that's just not true. So we kind of laid it out in clear terms, it takes about a half an hour to do something, to go pick something up, to take it somewhere and to drop it off. Clearly, there is a bundling opportunity, which we've been talked about before and everyone's trying to crack that code. But you're not going to get to a place where it costs $1 to deliver something, even if you deliver everything that needs to be delivered across the entire country. So I think, we were just poking a hole in that thought bubble around. "Hey, we're going to really make our ICs extremely busy and we're going to see the incremental cost go to zero and this is going to be full on profit". I think there's a lot of bogus arguments floating around our industry when you're trying to justify incremental jolts of capital. And so we're just trying to pop those fallacies when we see them.
Adam DeWitt -- President and Chief Financial Officer
Hey, Brian, just to follow-up real quick. In terms of the industry going to low double-digit growth, our comment is that it's going there. It may not be there next month or the month after, but it's trending there quickly. I mean, you know how growth rates work, where you just have this pent-up amount you're comping different periods and things like that. But the growth is -- from our perspective and the data that we're looking at, the growth is slowing quickly. And we think that long -term this industry can support low double-digit growth. There's a lot of opportunity left. But as Matt said, there's not a lot of magic tricks where you can just throw 100,000 new restaurants on the platform and give delivery or give options to people that don't have it before. And so it's going to be a ground battle where we're competing and as Matt said on diner differentiation.
And just a couple of extra thoughts on the cost of delivery, I think those comments were meant not to counter what we've said historically on delivery, which we still believe is absolutely true, where for in SMB where we're sharing the cost of delivery, we can deliver the food economically at a price that's reasonable to a diner. I think it's meant to underscore some of the challenges of working on the extremes of the model where you're working with, for example, a QSR, even if you're partnered with the QSR. I think we've talked about this before, that if the AOV is lower and the tip is lower and the amount that you're getting paid is lower, it's a lot more challenging to make the economics work. And so you have to pass that on to the diner and just by adding a ton more volume of QSRs, you're not going to be able to drive that price down or the cost to Grubhub down dramatically. And that equation is even more dramatic when you think about QSR -- a non-partnered relationship, where we're bearing a 100% of the cost.
Brian Nowak -- Morgan Stanley -- Analyst
Got it. Okay. Thanks guys.
Operator
Your next question comes from the line of Brad Erickson with Needham. Go ahead please. Your line is open.
Brad Erickson -- Needham & Company -- Analyst
Thanks, guys. Just two from me. One, given that you mentioned you're not making as much money with the larger QSRs versus independent SMB restaurants. Can you explain the rationale just, I guess, around the investment? You talk about with some of those larger delivery partners. I guess, it seem like those initiatives are leading you right back to sort of the same lower-LTV diners, which have emerged in these newer cohorts. So still just need some help understanding a strategy in light of needing to remedy what appears to be, I guess, some marginal -- marginally lower diner LTV.
Second, on signing up restaurants where you're not contracted with, just what have you seen in terms of new diner acquisition and where you started doing that? Or what do you expect out of that? Just curious if it's as simple as just jump-starting your performance marketing conversion in subscale markets or what are your expectations for that new arrangement? Thanks.
Matt Maloney -- Chief Executive Officer
Hey, Brad, I'll talk about the QSR. So, yeah, 80% of our volume is currently going to the SMBs, it's definitely a higher margin the restaurants are paying us for the demand generation. It makes the model work. The challenge around QSRs it's what a lot of the consumers want. And so it's -- I would almost say it's impossible to win the category without QSR. And we've seen over the past few years, especially in the non-partnered models, when they list the QSRs on a non-partnered basis, they have a tremendous jump-start in their funnel and their new diner marketing. So I wouldn't think about it in terms of lower-LTV cohorts of consumers. I think about it as, definitely we're not getting paid for demand gen. Demand gen is where we make our profits. Hopefully we're getting paid for the delivery, but it makes our marketing more effective. And so you're creating a funnel and this is what we saw with the Yum! markets over the past 18 months. As you have a market that were completely not executing in. And so we drop a Taco Bell, a KFC, a few cornerstones from the Yum! network in there. And then we pepper a bunch of SMBs around that and that creates the initial marketplace for us. And what we've seen is that consumers that begin ordering from Taco Bell, because Taco Bell is doing their advertising, they're doing their in-store, they're promoting their channels on Grubhub. You have the consumers are introduced to Grub via the brands that they know and love, and then they start to broaden and they order from more and more SMBs. In fact, we've seen a lot of diversification of ordering from consumers, especially in these early Yum! markets where that was kind of our bet, that diners would come to the platform from the QSR relationship and then they would diversify and start to order from more of the SMBs that would then justify the actual marketplace and we are seeing just that. So I wouldn't say we're getting lower-LTV cohorts. I wouldn't say that the QSRs are one of the reasons that we're seeing the cohorts not performed where we thought they would. I would say the QSRs are definitely doing their job and attracting consumers to our platform, and it's our job to then channel that demand to the SMBs to make a higher margin on those consumers.
Adam DeWitt -- President and Chief Financial Officer
In terms of the non-partnered, as Matt mentioned, we've rolled out a bunch of them in a few markets. And to your point and to our strategy and the way to use them, we think that they do help us acquire new diners. So if a diner is looking online for a specific restaurant, they can find us in SEM or SEO now as a non-partnered restaurants, whereas before they couldn't. And so we do find that the percentage of diners that are ordering from the non-partnered that our new diners to Grubhub is higher than the percentage of new diners that order from a typical Grubhub partnered restaurant.
I will say that we've underlined this a bunch and we've seen it in practice so far, which is the prices that we have to charge the diner because they're basically bearing full freight for the cost of the delivery on the non-partnered, are so high that the conversion on those orders is a fair amount lower. And so even though we're adding tens of thousands of restaurants, I think we said, we're going to -- we're likely to double our restaurant supply over the next year. We don't expect the numbers of orders to be similar at all to the partnered restaurants. And I think it's our job over time to make those restaurants -- turn those restaurants into partnered restaurants and drive the cost down, so we can drive more volume, more conversion. But, adding them to the platform does help us in a similar way that Matt just walked you through with QSRs helps us attract some new diners. And also if we have a diner who is a very loyal diner and he is looking for specific restaurant, it at least gives them the option to order from that restaurant. So, we're seeing those things play out so far but it is early.
Brad Erickson -- Needham & Company -- Analyst
That's great. Thanks.
Operator
Your next question comes from the line of Aaron Kessler with Raymond James. Go ahead please. Your line is open.
Aaron Kessler -- Raymond James -- Analyst
Yeah, I mean, just a couple of questions. Maybe just quickly back to the initial growth, I think there are some third-party data for September, it's just about 40% growth year-over-year. Just want to see if your thoughts on that or you think the growth was much lower than that? And second on the loyalty plans that you talked about, it sounded like you're talking about maybe experimenting with a few different types of loyalty plan, should we expect potentially a subscription plan that you would experiment with? And then interesting to get your thoughts on service fees as well, most of your competitors charge service fees. Even if you guys charge a very nominal service fee, let's say $1, I mean, that could generate significant increased EBITDA revenue for you as well to maybe offset some of these investments. Thank you.
Matt Maloney -- Chief Executive Officer
Hey, Aaron, yeah, again, I go back and forth on my support of third-party data. I think it's fundamentally inaccurate, because it sampled. However, when you see all the signals trending in the same direction, there's probably some kernel of truth there. I think that one industry report saying there is 40% growth, I mean, I wouldn't be shocked. I wouldn't be shocked if that was accurate. I'm just saying that it's coming down over time. We've had tremendous growth, incredible growth in this industry over the past two years. So if you take all of the growth of all the players together, that is the growth I'm saying is coming down. Long-term steady state, we're seeing low double-digits. I don't think there is magic in that number. We can't control it. The higher the better, but what we've seen in the past is that this is not an industry that flocks from offline to online. I would say five years ago, we were all in on television, we are all in on every type of consumer awareness channel that we could think of and we weren't growing a 100% per year. So there's just a fundamental friction to consumers going from offline to online. The only thing that accelerates that trend is supply side innovations, I don't see any supply side innovations on the horizon right now, at least, none that we are not participating in to equal or more than our competition. So, I would say whatever the industry rate is, this year or next year, it's coming down over time, if you look at the total.
Loyalty, yeah, there's going to be ton of loyalty testing going on in the next year. As Adam was saying earlier, a huge part of the EBITDA take down that we're talking about, we don't have specifically allocated to programs we have allocated to testing. We know it works. We see in our current marketplace, Just Salad extended their loyalty program from their branded channels into our marketplace and we saw a share shift from other healthy QSR concepts to theirs, especially when they ran specific promotions to drive loyalty rewards. It absolutely works. It makes restaurants more competitive on our platform. Like I said, we've given away -- restaurants, I'm sorry, I have given away over $70 million in our platform so far this year and it works. So we're going to continue to iterate around concepts that make restaurants more competitive on our platform to the benefit of consumers, because we believe that the more economic incentives we can allocate to consumers, the higher the stickiness will be. Once we have -- once we close the gap on restaurants, there will be no reason for consumers to go elsewhere, because we will have all the restaurants and we will have the lowest pricing and we will have the highest economic incentives and emotional incentives for restaurants or for consumers to order in our platform. So I'm not sure what forms that will take. We're definitely going to be testing a subscription program. We already have one that we're playing around with. I think someone asked about it on the last earnings call called deal pass, it's kind of a pay-it-forward type concept. It's not perfect, but we are on our way there. I think when we launch things, we'll be transparent about them, because we'll be excited, we'll be launching it and we see that it is effective.
Service fees. So, here's the thing about service fees and we've done an incredible amount of research on this. It doesn't matter if the cost to consumer is strict delivery fee, strict service fee or combination of both. It's the aggregate diner burden that they face that defines conversion. So, it does -- like sub-$10 diner burden, it's irrelevant how you split it, consumers are smart, they figure it out. They see $6 here, $4 there, it's still $10. Once you exceed a $10 burden, things get a little squirrely, but you are also in very low conversion area where it kind of doesn't matter that much. So we are absolutely testing service fees. We're absolutely trying to figure out a way to maximize conversion with a given diner burden and we have been for months. Whatever we have on our platform right now is what we believe the current best practices and that's justified by exhaust of A/B testing. That will change over time. We will continue to optimize. We will continue to try to increase conversion for given cost constructs. And I believe that over time you will see all of our competition doing the same thing. But the reality is, it's very hard trick a consumer to pay more than they want to pay.
Aaron Kessler -- Raymond James -- Analyst
Great. Thanks for every detail.
Operator
Your next question comes from the line of Heath Terry with Goldman Sachs. Go ahead please. Your line is open.
Heath Terry -- Goldman Sachs -- Analyst
Great. Thanks. Matt, just to follow up on that last part, the part about it's very hard to trick consumers to pay more than they want to. I mean, it would seem just given we've now got sort of five years or so of this that there is at least some evidence that I guess whether or not you want to consider five-year long-term or short term that there is -- that there is at least some segment and maybe it's the fool some of the people, some of the time, part of the segment that it does work or has worked for some of those competitors out there. And I guess to some extent, I guess, the question is, is there a sense in your mind that you simply have to play along with this as long as that part is going to work for that segment of the audience. And then back to the discussion about what may have happened in August. Specifically, is there a sense that focus on profitability that you seem to see coming from some of the privately funded competitors out there that are maybe now a little bit more aware of the need to get to profitability is also driving that significant slowdown in the broader market. Are you seeing a change in behavior around consumer subsidies, driver subsidies that would have led to that sharp fall off in industry volumes, because consumers are reacting to that kind of pricing environment?
Matt Maloney -- Chief Executive Officer
Sure. To your first point, I think that shell games around pricing, they do make tiny differences. It's not that it doesn't work, but it's not going to move the needle. I mean, you'll see like a fraction of a percent increase or decrease in conversion as you play around. And I think it is more impactful, for sure, in the pricing-sensitive segments. So you have consumers that they don't really care what it costs and they're just going to order it anyway. I think you've seen a lot of that over the past few years, especially in communities where you didn't have the option to do any delivery historically. And all of a sudden you can have anything delivered. And sure it costs a lot but like you can get it delivered. And I think you've seen a lot of that as we equalize the supply available on different platforms, I think you're going to see consumers make a different choice because they realize that -- we were actually laughing internally a couple of days ago because McDonald's is on multiple platforms and McDonald's is a really smart operation and they know the demand triggers for the different prices of their items and so they held strict requirements around what the fee structure is for consumers, both menu price, which they define as well as service fees, which they define as well.
And we are poking around some competitor sites and we noticed a $5.99 Big Mac meal available for like $10.70 all-in fees, and it was ridiculous. And it's completely outside of the rule set that McDonald's has put forward, but that's the kind of sleight of hand you're seeing in our marketplace and it's ridiculous. So I think that -- the number one thing that matters to consumers is restaurants. So I think they're willing to pay more if they're able to get restaurants that they are only able to get from the expensive platform. But once the restaurants have equalized, they're not going to continue paying those fees. They're incredibly price sensitive. That's what see over and over again in our test. Like I said, it doesn't matter if it's delivery fee or service fee or a combination of both, it doesn't matter if you hide the fees or if you put them front and center on their ticket. They understand what they're paying. They're not going to pay two extra food and bev and a delivery/service fee in order to get delivered, unless that's the only way they can get a delivery. So the amount of restaurants I think is paramount, then the price sensitivity kicks in. And I don't think that the tactics that have been used in this industry are sustainable once a solid competitor with all available restaurants is an option for consumers.
Adam DeWitt -- President and Chief Financial Officer
And Heath, on your question related to August and the competition. I don't think we've seen anything -- any dramatic sea change in spend. It's possible that that's happening, but we haven't seen it, whether it's in on the diner acquisition side, on the restaurant side or even the driver supply driver cost side. I think one thing that we haven't mentioned, which I think is worth mentioning about our thoughts related to the fourth quarter and 2020 of next year and the shift in strategy, we're operating under the assumption that behavior doesn't change. And so when we talk about investing behind these initiatives and kind of our baseline expectation for next year, that's all assuming that the competitive environment continues to be very engaged and very complex and doesn't change. So if it does change, we think that there is upside. I would actually -- if competitors spending less money, I think it will be easier for us to acquire and retain diners and drive frequency. So I think that would be a positive for us, not necessarily negative.
Operator
Your next question comes from the line of Jason Helfstein from Oppenheimer. Go ahead please. Your line is open.
Jason Helfstein -- Oppenheimer & Co -- Analyst
Hey, thanks for taking my question. And it's worth putting out because we're going to keep talking about this for a while. Amazon just announced today that they're making grocery delivery service free for all Prime members in the United States. And I think there's still a whole lot of questions about how anyone makes money on grocery delivery.
But onto you guys, so you discussed in the letter some of the reasons why consumers are going to competing platforms and steps you're going to take in the fourth quarter next year to make Grub more compelling for diners. I know you don't -- you're not giving guidance for next year, but can you help us bridge the financial impact between, I think, prior consensus for next year was like 3.40 [Phonetic], you're saying EBITDA next year will be more than a $100 million [Phonetic] at the low end. So maybe help us understand how much of this is revenue, how much is the expenses I think you said in the fourth quarter, it's half and half.
And then on the expense side, I guess, you've made a decision to invest a lot of money. Why not partner with other companies who have some of the attributes you're looking for? Just kind of -- I think a lot of people think this is a pretty extreme decisions you've made and maybe talk about why you think that this was the necessary decisions. So two questions. Thank you.
Adam DeWitt -- President and Chief Financial Officer
Hey, Jason, on the first question, I tried to answer that with Ron earlier, but the -- obviously, the Street number of 3.40 is not our number. But if you're thinking in broad strokes, how to get from there to the 100 [Phonetic] number that we gave. Again, just a step back on what the 100 is, right? We wanted to -- we're not giving guidance right now. We just wanted to underscore that we can make an aggressive strategy change to lean in because of the base profitability and talk about how we are still going to make a lot of money next year, even with these initiatives, right? So the 100 number is just -- it's just a baseline to give you guys an idea of how we're thinking about, what this means for us in 2020. That said, if you're trying to build the bridge, what I'd say is it's roughly half lower volume and roughly half explicit spend on initiatives. And obviously, the lower volume reduction EBITDA implies investment and we talked in the letter about how we could make a different decision, retrench and make a lot more money, in which case our infrastructure would probably be a lot smaller. But instead our plan is to grow into that infrastructure over time and lean in with the spend. So it's about half and half. I didn't really break it into revenue and expense, but at least that gives you an idea how to get from the Street to the 100.
Matt Maloney -- Chief Executive Officer
And Jason, I didn't -- I didn't heard about Amazon's decision about grocery, but I think they're seeing the same thing we are, in that there is weakness in the private markets. There is a push for profitability. I think some of these companies are finally going to be held accountable for a lot of their investments. And we see an opportunity as the only profitable player in this space that has incredible TAM ahead of us. So we're going to go after that with everything we have. We're going to take the profitability. Like Adam said, we're still going to make a lot of money next year. We're not going to breakeven. We're not losing money next year like our competitors are going to take a tremendous amount of our profit and we're going to channel right back into our industry to be as competitive as possible with the restaurant network when we see the opportunity where we are stealing share from competitors. And on top of that, we're going to leverage our internal assets around loyalty programs that we've been building for years to try to make the platform is sticky as possible. We're creating a scenario where to replicate our consumer-facing differentiation, our competitors are going to have to spend a incredible amount of money exactly at the time that their shareholders and Boards are forcing them into a more profitable investments. So I think this is exactly the right time. I don't know who we partner with to win our space. But this is our opportunity to take share to win and to reestablish ourselves as the leader and the innovator in this space.
Adam DeWitt -- President and Chief Financial Officer
And Jason, just one last thought on the economics of why delivery economics are so or the logistics economics are so challenging in our space is the low AOV, right. There's just not a lot of room in the transaction, if you're talking about $30 in the lower and we've always said that in order to drive the most demand in this business you want the AOV to be closer to $20 [Phonetic], and it's just not going to go there if you have to charge the diner $10 to pay for the cost of delivery. So that's -- when you think about delivery in our business versus other businesses and also the nature of it having to be on the minute on demand as opposed to a group of hours makes it also significantly more challenging. So as you're thinking about logistics related to food delivery or on-demand food delivery versus other industries, I think there's a couple of unique factors that make this business particularly complex.
Operator
And our final question comes from the line of Elliot Alper with D.A. Davidson. Go ahead please. Your line is open.
Elliot Alper -- D.A. Davidson -- Analyst
Great. Thank you. So as you're pushing into the sales efforts of converting non-partnered restaurants to partnerships. What do you planning on doing differently compared to how you sold your product suite before. And what are some of the reasons you're seeing restaurants that would want to create this new partnered relationship?
Matt Maloney -- Chief Executive Officer
Yeah, Elliot that's a great question actually. The difference between a non-partnered relationship on the platform and a partnered relationship why would a restaurant choose to partner when they have a non-partner option, it's because the diner experience sucks. The volume is going to be way low, it's not going to be as accurate. I appreciate that. There is no way to fix the issues. It's less accurate delivery time. They're not going to have promotion on our platform. And we know this because conversion is way lower on the non-partnered and the AOV is way higher. So I mean, people don't want to pay 12% for delivery or service or whatever you're going to call it. And it's going to be tough, but it hasn't been a noticeable problem. We've been piloting this for months. We've seen it. And the reality is non-partnered restaurants are on the platform for the consumers that specifically want that non-partner. We're obviously going to try to route diners, who want a burger to a different partnered burger option. But if they want that specific restaurant that has no partner, that doesn't have a partner with us, no relationship, we're going to allow that to happen. But we're going to do whatever we can to route demand to partnered restaurants where the economics are not so miserable and the experience is way better.
And so it's when -- what we're going to show them is this is what life looks like as a partner. And this is what it costs to be a partner and this is how we're going to grow your business as a partner versus as a non-partner. But that's -- it is absolutely trickier and we're already gearing up the teams and they're already executing on the strategy.
Elliot Alper -- D.A. Davidson -- Analyst
Great. Appreciate it.
Operator
[Operator Closing Remarks]
Duration: 60 minutes
Call participants:
Adam Patnaude -- Head of Investor Relations
Matt Maloney -- Chief Executive Officer
Adam DeWitt -- President and Chief Financial Officer
Ralph Schackart -- William Blair -- Analyst
Thomas Champion -- Cowen and Company -- Analyst
Ron Josey -- JMP Securities -- Analyst
Brian Nowak -- Morgan Stanley -- Analyst
Brad Erickson -- Needham & Company -- Analyst
Aaron Kessler -- Raymond James -- Analyst
Heath Terry -- Goldman Sachs -- Analyst
Jason Helfstein -- Oppenheimer & Co -- Analyst
Elliot Alper -- D.A. Davidson -- Analyst
