Read the full interview at inpractise.com
Are you loyal Seamless or UberEats? What would make you loyal as a customer?
There is little friction to switch delivery vendors today yet customer loyalty is crucial for the long run economics of all online food delivery players. We spoke with the Former Head of Product at Grubhub to explore:
- The impact of DoorDash and UberEats entering the US food delivery market
- How Grubhub responded strategically to new entrants
- The importance of selection and price for food delivery marketplaces
- Impact on customer loyalty and customer acquisition costs
- Potential long run shakeout of the US food delivery industry
Say you're CEO of Grubhub and you see new competitors distorting the economics, paying through the roof in customer acquisition costs. How do you stop yourself investing heavily and competing?
I think that's what they've been grappling with. Matt Maloney said, "Hey, we're investing a lot more in marketing, and number two, I love restaurants. I feel like the right thing to do is have a relationship, but you know what? We're not going to let someone else eat our lunch. We're going to add a lot of great restaurants in a premium model so all customers have the best possible selection."
They're going to go hard after that, really get their selection rounded out in the smaller markets. And then they're going to double down on their loyalty programme. They bought Level Up, a company that has a restaurant-centric view of loyalty. You could be running lots of different loyalty programmes within your app, one for every single restaurant, and see how you're tracking for getting free stuff from any restaurant you order from regularly. It's a way for restaurants to get traction with you as a customer on a platform, instead of being one of many. I think they're trying to engender more loyalty where consumers say, "Hey, I can go to Grubhub, I'm going to get credit for my purchases with a particular restaurant, and I can get free meals, but if I spread out my orders between the different platforms, I'm not going to get that."
Those credits in the loyalty programme, I assume they're only from partner restaurants?
No, they can be from any restaurant on the Level Up platform that configures their loyalty programme. Then Grubhub can offer it for that restaurant. If you've got a restaurant page, you can see, here's their menu, and by the way, here's their loyalty plan. Every time you order, you'll be able to see your progress towards getting your free meal or whatever they're giving you for free.
Why can't Uber do that?
They could do that, but they don't. Grubhub bought Level Up, which already has all that functionality. Uber would have to build it from scratch and get all the restaurants on the platform. I think part of the problem is, once you have a solution, you tend to have inertia. They have a loyalty programme with Uber, getting money back or credits towards future rides, but it's not restaurant-based, because Uber itself has nothing to do with the restaurants, only Uber Eats does. They have this loyalty programme they're planning on applying to Uber Eats, but it's Uber-based, it's not restaurant-based. They're having to pay the cash out of their own pockets for the loyalty programme, whereas through the Level Up platform, the restaurants can decide what they want their programme to be, and restaurants will be the ones paying for the rewards. I think Grubhub's approach is a much more scalable, profitable approach that's great for restaurants because they control it, but it's great for Grubhub because they can offer it to their consumers and it doesn't cost them any money.
It's also more expensive for restaurants if they're paying for it, and you can drive loyalty via Uber Eats without paying for it?
It'll be something the restaurants would have to figure out, but they already have these programmes in place. Most of them have a punch card system or something like that, so it's no different to what they already have. They're just able to extend it, and I'm sure Grubhub shares data with them that shows how their order frequency goes up when they offer that loyalty programme.
Do you think that's a competitive advantage for Grubhub?
They haven't even rolled it out yet in any big way, but they've talked about it for some time, so I assume it's coming. It would definitely be a competitive advantage and something that could, over time, create the stickiness they want. They would hope to get some traction and a head-start, before DoorDash or Uber Eats comes up with anything competitive. DoorDash has taken a loyalty approach, related to delivery fees. You can pay a monthly fee and get free delivery, so they turn it into a subscription model. That can potentially work too, but if Grubhub charges lower or no delivery fees for a lot of the restaurants I order from, it'd be cheaper to do Grubhub and have the loyalty programme where I'm getting some free meals along the way. It should be a competitive advantage for Grubhub if they do it right.
It seems like these companies can offer loyalty with or without the restaurant in some way, and it's going to be roughly the same price, especially when they all offer the same delivery.
Except a large portion of Grubhub's delivery, they don't do it themselves.