Delivery has been a staple in American fast food chains for decades, and has proven to meet the needs of customers who are getting busier by the minute.
Companies like GrubHub (GRUB) have burst onto the scene delivering for more than 30,000 restaurants nationwide. Now that they've created the formula for success in the market, Google (GOOG 0.56%) (GOOGL 0.69%) and Uber are taking a stab at this quickly growing luxury.
On today's edition of Industry Focus, we'll hear how these companies are projected to fare in the fast food delivery space.
A full transcript follows the video.
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Sean O'Reilly: UberX, UberBLACK Car, and now UberEATS. On this tech edition of Industry Focus.
Greetings, Fools! I am Sean O'Reilly joined here with the incomparable Dylan Lewis. How are you today, sir?
Dylan Lewis: Pretty good, Sean.
O'Reilly: We're fresh of Foolapalooza yesterday. Our annual employee business meeting. We all get together, hang out, celebrate the year that passed, the year that's ahead. What was your favorite memory?
Lewis: My favorite memory might have been Amy Dykstra singing Thinking Out Loud; that Ed Sheeran song.
O'Reilly: That was pretty magical.
Lewis: Yeah. That was absolutely incredible. The business meetings were great.
O'Reilly: Yeah. Good stuff.
Lewis: I mean, I hear her singing in the lobby sometimes.
O'Reilly: Come to think of it, she just does walk around headquarters singing.
Lewis: Yeah. I think she might be trained.
O'Reilly: Yeah. Clearly. They're like "Hey, we need you to walk around singing." Anyway, back to business. First and foremost, we're basically talking about the future of online food ordering and delivering, I guess. I don't know how else I would say it. We might be at the advent of something big here first and foremost is Google with their Place an Order. What's the deal here?
Lewis: That was kind of the catalyst for us talking about this. I think they announced yesterday that for mobile users, if you were to search Five Guys, or Quattro Formaggi -- something like that, something local around here -- you would be...
O'Reilly: Are you making hints about our lunch later today?
Lewis: I don't know. Tonight might be a Sweet Fire Donna's day.
O'Reilly: Okay. All right.
Lewis: So, as you search a restaurant you'll be prompted to place an order, rather than go to the page, or something like that. So, my immediate thought was "Whoa. What's happening with GrubHub on this?"
O'Reilly: That could really, theoretically mess them up, right?
Lewis: Yeah. But before you go shorting GrubHub, what Google's doing here is integrating with six food on demand providers, including GrubHub -- Seamless, something else they own -- Eat 24, Delivery.com, and a couple others.
O'Reilly: Very cool. So, did you get any kind of a read on how Google's going to make money off of this? Will they get 1% of the total bill, or what's their game there?
Lewis: Yeah, that wasn't clear. It was one of those things...
O'Reilly: Because that could be huge. Yeah.
Lewis: Everything that's out on it right now is press release briefings that are scant on details and high on optimism. So, I think it's going to be interesting to see what happens with this. It's nice, especially if you're a GrubHub investor, to see that Google's integrating them into a solution, rather than displacing them from the market entirely.
O'Reilly: Right. Which -- I don't know. I'm kind of wondering why because Google's relentlessly competitive with everything they do.
Lewis: Yeah. I think one of the most interesting things about this is you get a chance to look at how two tech giants approach the same problem differently. So, we have Google here and if you remember back to, I think it was late December, Amazon (AMZN -1.11%) launched Takeout & Delivery. So, this was their local food option -- this pilot program. They launched it in Seattle and it's been really small.
So, they decided -- it's hard to know whether it's a novelty project for where they have a big presence. They have a huge corporate presence out there. So, they have about 100 participating restaurants there. Whereas Google said "We're going to partner with people that are already really entrenched in this space." I think GrubHub has about 30 thousand participating restaurants.
It's totally different and I think Amazon wants to own it, maybe Google wants to partner up and take advantage of other people's scale.
O'Reilly: Yeah. Which is obviously ideal. So, the delivery market itself is about $70 billion, $9 billion of which is online. Is that going to be a lot higher in 10years?
Lewis: Yeah. It's hard to believe that only $9 billion is online.
O'Reilly: That's very odd to me because I do a lot of online ordering for my food.
Lewis: Yeah. What I realized was -- just how I use my phone and everything -- I was catching myself Googling things and then you'd click the phone number...
O'Reilly: Click the 'call' button.
Lewis: Yeah. So, this might be a data play for Google, too.
O'Reilly: Just knowing more about all of us.
Lewis: Yeah. So, rather than getting you 90% of the way there and then having you call and be off of their grid, you're still on their platform when you're making all these decisions.
O'Reilly: Can you imagine our co-worker Vince, what Google will think of him? "Boy, this guy really likes thai food. Wow."
Lewis: If you had a Google Maps of Vince going around to D.C. restaurants...
O'Reilly: All thai places.
Lewis: Yeah. It would just be covered. He gets around quite a bit -- the local restaurant scene.
O'Reilly: So, for investors, they want to take advantage of this because it does seem like this is the start of something. These numbers are not large for Google, or Amazon, is it? GrubHub's kind of your only play.
Lewis: I think so. Yeah. Like you said, this is only a drop in the bucket for Google. It's not going to really move the needle for them. Same thing with Amazon. I like GrubHub. I wrote something about them back in September and I was just checking back on it recently. They're up by 15% since then, and that's even after getting beat up pretty bad after posting earnings.
O'Reilly: They're profitable, so that's a win over some of the other companies we've talked about in the past.
Lewis: Exactly. Yeah, for the tech space. Something that I really like with this integration, I think it underscores the important of GrubHub testing out its own delivery solution and some of the acquisitions they've made. I think they bought two delivery service providers in early 2015.
O'Reilly: Wow.
Lewis: So, it was like $55 million. It wasn't a huge acquisition, but something that we always talk about with these tech companies is just attaching yourself to a platform, and then being at the mercy of the platform.
O'Reilly: Yeah.
Lewis: So, at least here they're not just the platform that is reliant on Google Search. They are also providing the delivery functionality that -- it would be expensive for Google to figure out how to make that happen.
So, they're offering quite a bit more than just 'search' and 'make food available'.
O'Reilly: That's actually a really good lead into our next topic, which is UberEATS.
Lewis: Yeah. It was the best week and a half in food delivery news. Ever.
O'Reilly: I am very surprised that Uber's going this direction. Anyway, OK. What are the details?
Lewis: They piloted this program out in Barcelona last year, and they are now...
O'Reilly: Spain, right?
Lewis: Yes.
O'Reilly: Okay. I was like "What?" Why Barcelona, I wonder?
Lewis: I don't know.
O'Reilly: Why not London, or New York?
Lewis: I'm not sure, but they have brought it to the states. It is in New York and Chicago and it's interesting because it's not quite GrubHub. It's not quite Seamless, and it's not quite Amazon Takeout and Delivery. It's kind of this weird hybrid.
Uber drivers -- or in some cases, bicycle messengers as I've read -- will go to restaurants, pick up a certain kind of food and it will be a specific sandwich that's available on the platform.
O'Reilly: Okay.
Lewis: Or a salad, or something, but not the entire menu.
O'Reilly: So, is it like you'd have an Uber bike messenger, they would go to The Pot Belly down the street and they would pick up five chicken and cheddars?
Lewis: It's something -- that's what I'm understanding it to be. Yeah.
O'Reilly: Okay.
Lewis: So, what they're doing is -- it's select menu items from a handful of restaurants in Chicago and New York.
O'Reilly: Okay.
Lewis: It's a flat delivery fee. I think it's $3 in Chicago, $4 in New York.
O'Reilly: That's pretty good.
Lewis: Right now in New York they're doing it between peak lunch hours; 11:00 and 2:00.
O'Reilly: Wow. Have you gotten any sense of the adoption rate here?
Lewis: I don't know. It seems expensive.
O'Reilly: Right.
Lewis: Guys at Mashable, a couple of their writers of product review were looking at the experience for users and it was a $15 sandwich plus tax and delivery wound up being $20.
O'Reilly: You'd have to be really busy to make that worth your time.
Lewis: Yeah. I think it works for large catering type things.
O'Reilly: Yeah.
Lewis: Like, if you were ordering lunch while you're having a meeting and there were six of you in a room. Maybe that makes sense. But they're also promising a 10 minute delivery window.
O'Reilly: That's pretty sweet.
Lewis: Which is insane.
O'Reilly: Yeah. Like, order at noon and it will be there between 1:00 and 1:10. Wow. I have to think that this has some legs because obviously you have to have a certain population density to make this work, but we just had -- it's not very rare for our listeners, we're here in Alexandria which is right across the river from D.C. -- they just opened up a Panera (PNRA) to go.
It's the size of a normal Panera, but it has a very large kitchen, and only about 10 tables for you to sit down at. But they're pitching to the whole corporate government angle. People that just need to get to the courthouse here in Alexandria or something, and the second that thing opened, I started seeing tons of delivery cars for Panera To Go all over here. Stunning how many people were ordering Panera and just having it delivered.
Lewis: And this is the perfect area for them to do that. There's a bunch of corporate offices, a lot of people that are probably just looking to have lunch meetings catered.
O'Reilly: Yeah.
Lewis: So, it totally makes sense.
O'Reilly: I really wonder when they're going to do Uber To Go -- or UberEATS here. That's -- yeah.
Lewis: Yeah. It's going to be interesting to see. Part of me thinks that this is Uber just throwing a ton of stuff at the wall with their platform and seeing what works and what doesn't work. The use case, to me, is kind of limited with how expensive it is.
O'Reilly: Right.
Lewis: But we'll see.
O'Reilly: Yeah, it's fun seeing these tech firms tackle old economy type things like food delivery. So, anyway. Very good. Well, thank you for your thoughts Dylan. Have a good weekend.
Lewis: Yeah. You too, Sean.
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For Dylan Lewis, I'm Sean O'Reilly. Thanks for listening, and Fool on!
