Square (NYSE:SQ) recently launched Square for Restaurants, which merges all of a restaurant's operations -- from booking tables to managing payments -- in a single platform. It's also integrated with Square's food delivery service Caviar.

That's a smart move for Square, since it leverages its growing payments business to bolster its disruptive presence against traditional POS (point of sale) systems providers. Square could also boost its revenues per restaurant by cross-selling products like accounting software and loan packages.

Square Register.

Image source: Square.

Square's move is certainly bad for the traditional POS industry, but it could also be bad news for restaurant delivery giant GrubHub (NYSE:GRUB).

This could be the catalyst Caviar needs

When Square spent $90 million on Caviar in 2014, many analysts were concerned about its expenses and tough competition from GrubHub, Amazon (NASDAQ:AMZN), and UberEats.

However, Square gradually integrated Caviar into its expanding ecosystem of services for managing payments, orders, and customer relationships. In Square's 2017 shareholder letter, CEO Jack Dorsey declared that integration "differentiates Caviar from food delivery services." The introduction of Square for Restaurants merely makes the integration official.

Caviar also offers a corporate catering service called Caviar for Teams. It recently acquired Zesty, a smaller corporate catering start-up, to expand that platform.

Caviar only controlled 5% of the U.S. online food delivery market last year according to Bloomberg Intelligence. GrubHub, which also owns Eat24, controlled 52% of the market. UberEats ranked second at 15%. Cowen & Co. estimates that Amazon, which wasn't listed in Bloomberg's estimates, controlled 11% of the market.

How Caviar could hurt the competition

GrubHub's core strength is its first mover's advantage and sprawling network of 80,000 restaurants, which give it a wide moat against Uber's fleet, Amazon's e-commerce foundation, and Square's growing list of payment customers.

However, each of these platforms charge restaurants vastly different fees. GrubHub reportedly charges 12% per delivery, while its Seamless service charges 24%. Amazon charges nearly 30% according to Cowen & Co.

GrubHub's mobile app.

Image source: GrubHub.

Caviar currently charges customers 18% per order. However, if Square is serious about cross-selling Caviar's delivery services to restaurants, it might reduce that fee for customers that use its other services.

Square doesn't disclose Caviar's growth metrics, but during last quarter's conference call CFO Sarah Friar stated that the platform "continues to perform very strongly" in terms of order numbers and average ticket size. Friar noted that Caviar's service becomes "another way" for Square's partners to grow their businesses, and that "it's effectively the omnichannel play for food."

But GrubHub's ecosystem is also expanding

Square's core business is growing rapidly. Its gross payment volume (GPV) jumped 31% annually to $17.8 billion last quarter, which boosted its total adjusted revenues by 51% to $307 million.

In addition to its core payments solutions and Caviar, Square's ecosystem also includes analytics and CRM services, its peer-to-peer payments platform Square Cash, its financing arm Square Capital, and Weebly, an e-commerce website creation platform. Putting all these pieces together, it's easy to see Square's long-term goal: to become an "one stop shop" for digitizing a brick-and-mortar business.

However, GrubHub is also leveraging its market-leading presence in deliveries to expand its ecosystem. These moves include adding more analytics features for restaurants, integrating its deliveries into Amazon's Alexa, and inking delivery deals with various fast food chains, hotels, and even stadiums. GrubHub also holds partnerships with POS platform providers like Upserve's Breadcrumb POS and Toast.

Like Square, GrubHub can expand that digital ecosystem to cross-sell more services to restaurants. If push comes to shove, GrubHub could leverage those strengths to hold Caviar at bay.

Potential competitors or potential partners?

Square's Caviar is still too small to compete against GrubHub, and GrubHub's partnership with POS providers indicates that it's not interested in Square's core market. Therefore, it might seem like Square for Restaurants is destined to cross paths with GrubHub -- but I don't think the two platforms will necessarily become competitors.

There's actually room for a mutually beneficial partnership if Square integrates its payment services with GrubHub's platform: Square would gain access to more restaurants, while GrubHub would gain another major POS partner.

However, that partnership probably won't happen due to the perceived competition between Caviar and GrubHub. For now, GrubHub investors shouldn't worry about Square, but Square investors should see if its ambitious plans to conquer restaurants pan out.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.