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GrubHub Counters Square and Shopify With a $390 Million Acquisition

By Leo Sun - Updated Jul 30, 2018 at 2:33PM

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The food delivery leader wants to expand its digital ecosystem.

GrubHub (GRUB) recently agreed to buy LevelUp, a Boston-based payments and loyalty services provider, for $390 million in cash. That was an unusual move for the online food delivery services company, which previously expanded by buying smaller delivery players like MenuPages, Allmenus, DiningIn, Delivered Dish, LAbite, and Yelp's Eat24.

GrubHub CEO Matt Maloney told TechCrunch that the LevelUp purchase represented "a different acquisition" that focused on improving the company's "product and strategic positioning" instead of scaling up its core business.

GrubHub's mobile app.

GrubHub's mobile app. Image source: GrubHub.

LevelUp helps restaurants like Pret a Manger, Potbelly, and Bareburger manage digital orders, payments, and loyalty programs through its online platform. LevelUp CEO Seth Priebatsch stated that his company had "worked to provide restaurant clients with a complete solution to engage customers" over the past seven years, and that joining GrubHub represented its "biggest and most exciting step in achieving that mission."

Countering Square and Shopify

GrubHub plans to integrate LevelUp's platform into restaurants' point of sale (POS) systems. This means that in addition to handling orders and deliveries, GrubHub can tighten its digital grip on restaurants by bundling in payment services and loyalty plans.

That could boost its average revenue per restaurant, help restaurants optimize their businesses with more data, and widen the company's moat against disruptive challengers like Square (SQ 8.52%) and Shopify (SHOP 5.04%).

Square -- which disrupted the traditional POS market with its smartphone, iPad, and stand-alone Register payment platforms -- recently launched Square for Restaurants. That platform merges all of a restaurant's operations, from booking tables to processing payments, into a single platform. It's also integrated with Square's food delivery service Caviar. Square is trying to leverage its first mover's advantage in next-gen POS platforms to become an all-in-one digital solution for restaurants.

Square Register.

Square Register. Image source: Square.

Shopify offers businesses bundles of e-commerce services, website designs, payment platforms, marketing solutions, and other services, with plenty of different templates for restaurants and grocery stores, making it a lucrative "one-stop" digital shop, like Square.

For now, GrubHub has a stronger position than Square and Shopify in the restaurant market. It controls half of the U.S. food delivery market according to Second Measure's March numbers. Square relies on its Caviar platform, which is much smaller than GrubHub, while Shopify lets restaurants choose their own third-party food delivery services. Buying LevelUp reinforces GrubHub's lead, and helps it counter some of Square and Shopify's more appealing ecosystem features.

Widening its moat against rival delivery services

Over the past few years, the bears often claimed that rival delivery services like UberEats and Amazon (AMZN 3.66%) would dent GrubHub's market share. Yet GrubHub kept scaling up by gobbling up smaller delivery services, and it retained its first-mover's advantage with its GrubHub and Seamless apps.

GrubHub's competitors are still struggling to catch up. Second Measure reports that Uber Eats controlled 21% of the market in March, followed by DoorDash with 15%, Postmates with 9%, Caviar with 4%, and Amazon at just 1%. There's plenty of room for all these services to grow since the food delivery market isn't saturated yet, but GrubHub can keep locking in its existing customers by expanding its ecosystem.

The road ahead

GrubHub, like Square and Shopify, is an expanding digital enterprise player that could entrench itself deeply into its customers' core businesses. The soaring demand for its services is clearly reflected in its growth metrics.

During the second quarter, GrubHub's active diners surged 70% annually to 15.6 million, its daily average Grubs rose 35% to 423,000, and its gross food sales rose 39% to $1.2 billion. Its total revenues rose 51% to $239.7 million, and its adjusted EBITDA soared 61% to $67.4 million.

A $390 million purchase is a major deal for GrubHub, which finished last quarter with $442.7 million in cash and equivalents. But it's the right move at the right time, and will help it evolve from a food delivery service into a better diversified enterprise services company.


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