Can the American food ordering service become Amazon in the world of restaurants?

A few weeks ago, the Grubhub food ordering service got into the news reports, reporting positive financial results for the 2nd quarter of 2018, and at the same time announcing the connection to the LevelUp mobile payment platform.

Since then, the interest of observers has focused on the positive impact of the LevelUp implementation and, in particular, on how this will affect Grubhub's ability to diversify its trading offers.

Thanks to this deal, Grubhub is able in the future to provide restaurants from its affiliate network with the option of accepting pre-orders with their subsequent receipt at the establishment, as well as new CRM initiatives and loyalty mechanisms for mobile wallets based on LevelUp proprietary technology.
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LevelUp is integrated with most cloud POS systems that provide fast-food restaurants, including leading Toast, ShopKeep, NCR, Clover, Revel and Oracle / MICROS projects. And, if we talk about the core business of Grubhub for receiving online orders and their delivery, then this feature of LevelUp will help Grubhub to improve payment methods by implementing the advanced functionality of cloud POS systems.

However, the listed examples of synergy are not at all the main points in this story.

The acquisition of LevelUp opens up the possibility for Grubhub to play even bigger. Now the company can be among the leaders in the area of ​​processing restaurant orders through all channels through which consumers prefer to interact with establishments: online orders with delivery to your home or office, orders to takeaways and even, perhaps, online booking of tables in classic restaurants and the so-called fast food establishments.

At the same time, Grubhub has the ability to develop a mobile platform that will support all of these interactions, along with a loyalty program that heats the interest of restaurants and consumers.

During a telephone conference on the financial report for the second quarter, the issue of mobile payments was raised, but Grubhub representatives said that they have no serious plans on this matter. However, mobile payments can be a powerful help for Grubhub in the process of its transformation into a leading platform for restaurant orders.

Recall that Chase has invested several tens of millions of dollars in LevelUp in the expectation of receiving technological assistance in launching and distributing Chase Pay at fast-food restaurants. This happened before the integration of LevelUp with Grubhub.


Source: chasepay.thelevelup.com

Chase LevelUp is presented as a primary partner for online orders using Chase Pay and Chase Commerce Solutions.

Chase Commerce Solutions is the third largest merchant service provider in the United States.

And LevelUp did business before Chase entered the restaurant business segment. LevelUp is a branded mobile payment platform that used the same card readers in the form of a cube to pay for the QR code using its own application in the physical payment terminals. A unique feature of the LevelUp service was the loyalty component, which allows you to track consumer spending in all partner restaurants and reward these users with cashback as certain thresholds are reached.

Despite the fact that Chase plays an almost imperceptible role in these news, its actions can help to realize one of the most interesting and innovative cases in the history of restaurant payment systems - let's call it “Amazon of the restaurant world”.

Large and small share of the online market

No matter how big a player in online ordering and delivery is Grubhub at this point, the size of the market even now promises him solid growth.

During the aforementioned newsgroup, the Grubhub CFO announced that the cost of the US delivery market is estimated at about $ 200 billion. Of these, the online segment accounts for about $ 20 billion, or 10%. This means that 90% of restaurant orders are still placed in a physical institution and about half (46%) of orders for restaurant delivery are still processed by telephone.

However, as in the case of the transfer of offline commerce to the Internet, the scope of online restaurant orders is growing rapidly due to the desire of consumers for a convenient service, regardless of whether the order is delivered to your home or taken at the establishment.

According to the Technomic report, 86% of consumers place online orders for ready-made food at least once a month, and a third of them claim that they did it less often a year ago. The delivery segment is expected to grow substantially over the next five years. And this growth will be provoked by the older members of the millennial generation, who will soon start families and start using home delivery to get rid of self-cooking.

Today, Grubhub’s market capitalization is $ 11 billion , and its active user base has reached 15.4 million, or 70% more than a year ago. Service offers are available in 125 fast food chains. Every day they placed 423 thousand orders. Grubhub is also now integrated into the Yelp platform, which allows its users to place orders on the Grubhub partner network directly via the Yelp interface. LevelUp adds to all this another 100,000 daily takeaway orders and 200 new establishments.

Grubhub also helps process orders and food delivery from establishments that really cannot be called restaurants in the usual sense of the word.

We are talking about companies that prepare food only to order, and they have already concluded with Grubhub exclusive delivery contracts in major cities. Such "places" appear in the list of options when the consumer is looking for suggestions on a particular type of kitchen. Often they provide great deals on first order to motivate a customer to try their dishes. Consumers at the same time do not know that in front of them is not the usual restaurant, which you can come to. But this fact will hardly bother customers if they like the food.

The new restaurant paradigm is gaining popularity, because the habit of consumers for convenient service and delivery is becoming the norm as rapidly as the cost of maintaining a full-fledged establishment increases.

Despite the fact that 90% of all orders are still left in a real facility, the meal itself is held there only in 10% of cases. At the same time, rental of premises, the choice of a favorable location in places with a large flow of people and the remuneration of staff - these are solid items of expenditure.

Green Summit oversees the work of several such virtual establishments in New York and Chicago, and DoorDash, a competitor to Grubhub, opens its own virtual kitchens in order to make it easier for restaurant operators to open establishments in major cities.

Amazon analogy

If something in this story (or everything at all) sounds familiar, as if we are talking about the way of becoming a large platform, then it hardly seemed to you.

Amazon began as a seller of online books, gathered a large range of literature in one place, and later connected the sale of CDs and provided a convenient service for finding goods, buying and shipping.

This strategy allowed the company to reach a critical mass of consumers and expand the range to modern dimensions.

Expansion of product offers was due to third-party sellers, which Amazon invited to its marketplace. Today, they account for more than half of all sales on the platform. The relationship between them and Amazon is full of love and hate at the same time: companies like to sell, but do not always like the role of the second violin in the ensemble with Amazon.

Products under its own brand Amazon also won a large share, first in significant categories such as batteries and diapers, and later in clothing and accessories. With the purchase of Whole Foods and its own brand "360", sales of Amazon branded products will only grow.

Prime Premium is Amazon’s main growth engine. The program offers consumers various benefits, including free shipping, which remains one of the main benefits. Prime subscribers spend twice as much as ordinary users, and, apparently, even increasing the cost of the program to $ 20 has not had a negative impact on their number.

This is partly due to the fact that Prime provides access to many more lucrative offers than before. Subscribers to the program receive discounts on Whole Foods, free delivery for 2 hours, discounts on Avis car rentals, a free subscription to The Washington Post, free books for Kindle, free access to Amazon branded baby products, access to Alexa and its growing set skills, as well as streaming video and music.

And, of course, Prime gives you the opportunity to use Amazon Pay mobile online payment platform. This offer is even more profitable for Chase’s Amazon Prime Rewards cardholders, which provides a 5% cashback on any purchases made on Amazon.

All this brings us to Grubhub, LevelUp, Chase and the fight for the title of “Amazon of the Restaurant World”.

Amazon restaurant world

The only segment where Amazon didn’t manage to gain momentum was online orders and restaurant delivery.

Yes, the company has Amazon Pay Places and Amazon Restaurant, but these solutions lack penetration density: they can boast only single transactions with large networks in some large cities.

The reason is that restaurants are a purely local business, for entry into which it is necessary to agree with thousands of small local institutions on the introduction of payment systems. Grubhub and LevelUp in conjunction with Chase may well create something like Amazon in the world of restaurants.

This triad of partners has the ability to introduce many local establishments into the game, integrating their business with modern payment systems and a full-fledged platform for processing online orders.

With the help of the "big three" institutions can create their own branded mobile wallets based on LevelUp technology and include special offers and promotions relevant to their area and locality.

Mobile wallets technology will certainly contribute to the emergence of new features in the Grubhub mobile application, including tracking individual orders and setting recommendations for the entire network. All this will open up new opportunities for profit and will lead to the emergence of marketing agreements with brands wishing to influence consumer choice.

Here you can also add a large-scale loyalty program Grubhub, attractive for both restaurants and consumers. If you add a mobile payment platform to it, you’ll have an almost complete analog of the situation with Amazon Prime and the benefits its subscribers get when using Amazon Pay. Chase Pay may well act as a payment solution provider.

No matter how crazy this may sound, the scenario is quite realistic against the background of Chase Pay’s interest in the provision of food services, taking into account the investments made by the company.

This version is also supported by the fact that around Grubhub there is a whole group of players who are ready for innovation: from traditional companies like Yum! Brands and online aggregators like Yelp to ambitious newbies, such as the Green Summit, and representatives of the financial sector, for example, Chase, with its huge user base and desire to turn Chase Pay into a popular mobile payment platform.

In general, whoever won the title of Amazon in the restaurant world - Grubhub, Amazon itself or anyone else - the struggle for this area in the next few years will be a worthy spectacle, and winning it will be a coveted prize.