Whenever we see something positive out of the third party delivery (3PD) companies we are instantly skeptical. Remember, these companies persist in a category that’s willing to burn endless amounts of investor dollars to grow market share, usurp customer relationships, and charge merchants to death to satisfy their flywheels.
Grubhub Direct looks to be a step in the right direction, however, and follows what other 3PDs have been moving towards: a deepened relationship with restaurants through enhanced product offerings. You know, things we’ve been talking about for years.
Grubhub had a bit of a product head start, but who knows if that’s the case anymore. Grubhub acquired LevelUp, a loyalty provider that counts brands as large as Smoothie King as customers, and even built a full POS – Grubhub Ultimate. It manifested itself in a kiosk format, but don’t be mistaken: it’s a POS. Here’s an email from a salesperson pitching it last year:
We talk to restaurant owners everyday and have heard first hand how much courage and resolve it takes to make it through challenging times like these. We are very proud to be partnered with you and want to make sure we can help you be in the best position possible for when business ramps back up.
We believe our Grubhub Ultimate service can give you the tools you need to stay competitive in this new environment. Ultimate consists of a full-service POS, self-service kiosks, customer displays screens, cutting edge mobile ordering technology and a suite of other services. These tools can help you reduce costs, increase ticket sizes, drive mobile traffic and increase customer satisfaction. Please take a quick look at Grubhub Ultimate here: (https://vimeo.com/359334216/13a4860d82).
Every dollar counts in this new environment and we have priced this product according: $0 upfront cost, $0 hardware costs, $0 monthly fee, $0 installation costs and significantly reduced mobile ordering fees. If you have 10-15 minutes this week let’s hop on a call and see if we can create a plan on how to win with GH Ultimate.
Grubhub sales person
Consequently it doesn’t seem like a big stretch for Grubhub to launch Direct, especially as DoorDash and UberEats have offered website-building services for quite some time. Here are some of our thoughts as we read through the press releases.
Payment Fees
Grubhub purports that merchants will “pay standard credit card processing fees.” What the hell does that mean? Toast’s “standard” payment fees look to us like 4%+ card not present fees… that’s over 1% of pure margin. Is that what Grubhub is defining as “standard”? This needs further investigation.
Diner Data
Grubhub made sure to emphasize that merchants would get access to customer data but ONLY from transactions that run through Grubhub Direct: NOT through Grubhub itself. In other words, Grubhub is allowing merchants to build their own websites and embed online ordering functionality. If a consumer orders directly from the restaurant’s website, the restaurant gets the customer data. If the consumer comes in through the Grubhub app, however, the restaurant would appear to get nothing.
Better than nothing, but standard for any online ordering solution.
CDP = LOL
One of the biggest travesties of COVID has been the rise of CDP, or customer data platforms. A CDP is just a new acronym for CRM, and it’s a joke. We don’t mean to be disrespectful, but there are probably 100,000 CDPs out there at this very moment, and they’re all pretty much the same. We view CDPs like we view writing hello world on your first middle school coding assignment: a weekend project.
A CDP is a glorified database. That’s it. The hardest – and we mean hardest – part of a CDP are the integrations, but that’s not even a product constraint: that’s a service constraint. By that we mean if you’re willing to pay to have disparate data sources integrated, your dog could build a CDP.
To prove our point, brands with 1,000+ locations pay less than six figures for “mature” CDPs. These brands could build the CDP themselves, but they’re choosing a vendor to avoid the integration work. So really, CDPs are canned integration APIs with basic data filtering capabilities.
Voila!
We feel like we’re pulling the mask off a bad guy in a Scooby Doo episode but the emperor really has no clothes here.
Grubhub Overestimates an SMB’s Capabilities. A lot.
So here’s the thing: just because you give SMBs the data and the tools, it doesn’t mean they know how to use them. We’d wager that 999 out of 1,000 independent restaurants will have no idea what to do with a customer database. They won’t create marketing campaigns, target the right customers, or even measure the results of these actions.
Grubhub might know this already though, and Direct could just be a big show for a bit of PR and a new monthly revenue stream.
SMBs need automation, not more data or tools. They’re both too busy and too unsophisticated to put any customer data to work. Hell, even larger merchants struggle with executing the right marketing, and we’ve dealt with a lot of them over the years.
Restaurant Marketing/Ordering is Getting Crowded
If you thought things were competitive already, this is yet another big mouth to feed. Now it seems like every POS company has some online ordering and website-building capability, as do a myriad of third parties, and now we’re adding the 3PDs to the list.
This has to be concerning to companies like Bentobox, ChowNow, Lunchbox, and PopMenu, whose core business propositions are slowly eroding. Will the 3PDs do the website, ordering, and CDP as well as a third party?
Probably not.
But for an SMB, does it really matter? If you’re selling to SMBs with a website/menu/online ordering service, you’re already running a boiler room sales operation because your ACV is like $1,000 a year. You can’t get the economics better unless you move upmarket, but then you run into stiff competitors like Olo.
The average SMB ($500K GMV) isn’t smart enough to appreciate the product differences between what a 3PD might offer and what a third party offers, so it might be moot as the 3PD’s offerings are 80% as good.
3PDs have a much higher ACV on their core ordering/deliver business and could turn third party solutions into also-rans as they use their distribution muscle to commoditize website/menu/online ordering services.
The math told us it was only a matter of time before 3PDs went after more of the stack. And anyone selling themselves as a CDP – good luck.
[…] We’ve written about this before, but CDP is a glorified database. […]