Grubhub wants to move beyond delivery through its LevelUp partnership and other partnerships with fast-food chains. Making life easier for restaurateurs through point-of-sale integrations that are easy to use, though, will help it differentiate from its competitors among its restaurant partners.
— Andrew Sheivachman
When Grubhub announced its intention to acquire restaurant tech provider LevelUp for $390 million in July, it was easy to see how LevelUp’s loyalty offerings and point-of-sale integration could be crucial to Grubhub’s growth in a highly competitive sector.
Stan Chia, chief operating officer of Grubhub, said Monday at Skift Restaurants Forum in New York City that closing on the company’s acquisition of LevelUp will allow for deeper partnerships with its restaurant partners. Beyond just partnerships, though, life will become easier for restaurateurs already using Grubhub.
“I never think about this space as third-party delivery, we think about ourselves as a wonderful marketplace where everyone comes together,” said Chia. “We think there’s a big opportunity in pickup as well, and we look at LevelUp as an organization through pickup. When we looked at this deal, we said they’re going to accelerate our ability to be a better partner with restaurants…
“The restaurant space is where retail was 10 years ago, with customers and diners looking to move online. We look at it more as a way to further unlock online; pickup is another channel that is going to unlock this opportunity.”
Instead of competing against rivals like Caviar or UberEats, the focus is on unlocking the parts of restaurant ordering that remain offline. Customer data will be crucial to leveraging pickup and LevelUp is good at collecting and analyzing that data.
“At the end of the day this is a hospitality business, this is about the guest restaurant experience,” said Chia. “It’s a true statement that a lot of orders are still coming in over the phone. There’s over $100 billion that is coming through [offline] channels and we think a lot of it is coming through the phone.”
Chia also dished on Grubhub’s partnership with Yum Brands to bring online delivery to the company’s Taco Bell and KFC locations. Keeping the integration simple with existing systems will be key to appeal to the fragmented group of franchisees for whom margins are tight and complexity is a headache.
“A lot of markets we will expand to will cover the Taco Bell and KFC footprint,” said Chia. “We will double our footprint. To enable a channel like this you’ve really got to work on a way that’s as operationally simple as possible. I was in a Taco Bell two weeks ago and it’s a beautiful thing when it’s integrated. When you have thousands of locations, you have to retrain everybody to do anything. You have to do almost nothing for our process.”
He suggested that restaurants will indeed have to staff up to handle increased order volume, and not simply to handle the technological complexity of a new system. Grubhub’s initial data shows that integration with the restaurants’ point-of-sale systems increased order accuracy almost 35 percent.
The plan is for partnerships like with Yum Brands to help fuel Grubhub’s expansion into more secondary and suburban areas in the U.S. It’s also helping Grubhub reduce seasonality, which helps it save money on customer acquisition during warmer months where diners are more likely to eat in a restaurant instead of ordering delivery or picking up.
“As a nine-year-old once said, sometimes you just want nacho fries and you want it now,” joked Chia.
[Updated with full transcript]
Full Transcript of Discussion With Stan Chia
Skift Table: Thank you so much for joining us everyone. I’m Kristen and the editor of Skift Table. I titled this session Don’t Call it Delivery because so much of what’s happening in this space isn’t about necessarily getting from A to B. So much of the new technology and the new innovation that’s happening.
Stan is the COO of Grubhub. They have 85 thousand restaurants on the platform operating across the U.S. and London and 16 million active diners. Thank you so much for being our first speaker at our first Forum.
Stan: You’re very welcome.
Skift Table: No pressure. Great. One of the biggest pieces of Grubhub news recently was your $390 million acquisition of LevelUp which closed last week. I wrote a piece in the magazine that everybody got that was a lot speculation based on your CEOs remarks about why you chose to do it and what we might see in the future. Now that it’s closed, I would love if you could just tell us a little bit more from your perspective of about the acquisition and what your plans are for the future.
Stan: Yeah, sure thing. Well, good morning everyone. Excited to be here with Kristen. One of the reasons we agreed to do this is because she decided to title the session Don’t Call it Delivery, right? We work with a lot of restaurant partners, you know, we talk about this all the time about, you know, for me personally too, you know, I never think about this space as third party delivery which I think a lot of the folks in this space have become. For us, we strongly don’t consider ourselves third party delivery. We think about ourselves as a wonderful marketplace where everybody comes together. We enable all of our restaurant partners, the 85 thousand restaurants that are on the platform today are all partnered with us.
Deeply partnered in some cases. To get to LevelUp, you know, as we continue to look across the space, you’ll see some of the things that we’ve done in the past. Restaurants as a partner allows us to really think about the restaurants [inaudible 00:02:15] enabling guests, but also making sure that as restaurants take advantage of this channel, they do it in a way where it’s really non disruptive to internal operations. It’s really profitable for them too. So integration and components of that are really important things to us.
I think it was almost two years ago that we announced point of sale integration into the marketplace for a lot of leading point of sales and we’ve continued to expand that. As we looked across the space and said, “How can we really accelerate these efforts?” We got to know a lot of companies. We looked at LevelUp and we said, “This is a wonderful organization that will enable us to really become a comprehensive solution and partner for almost every single restaurant.” LevelUp does multiple point of sale integrations. They integrate across a lot of channels. I’m sure there are multiple people here in the room who are working with them especially on the restaurant operator side. They work with over 200 restaurant brands.
They’ve built out not only integration, but they also think about loyalty as a platform which is a great area, I think, for us to engage in. Further more, again, this session so aptly titled Don’t Just Call it Delivery, we think there’s a big opportunity in pick up as well. We looked at LevelUp and we said, “Today, organically through kind of in-store payments, they have about 100 thousand order a day pick up business that does about $400 million in revenue annually on a run rate basis.” We looked at this and said, “They’re really going to accelerate our ability to become better partners with restaurants through integrations.”
They’re also going to be able to really help guide us and teach us as we work with restaurant partners on how to build up additional channels for online.
Skift Table: Great. You mentioned point of sale integration which is super important I think. I think everyone in the room is probably familiar with the iPad problem of the photos that you see. The restaurants have like 30 iPads. We all know what’s going on there. The point of sale integration changes that, but it also does a lot of other things. Can you just talk through some of the other benefits of point of sale integration?
Stan: Yeah. I think certainly, I think the term I’ve used and I get out to restaurants. I think the very first time I was in a restaurant who’d used multiple providers, the restaurant owner brought me around to his host stand and said, “I gotta show you something.” And I said, “Okay.” Under the host stand he unveiled it almost with this curtain and he goes, “Check out my command center.” He’s got eight different tablets all running. I think more internet bandwidth was sucked up from that host stand than everything else that he was running in-store.
That’s when we said we gotta solve this problem. I think there’s a couple of things to think through with point of sale integration. One, there’s going to be a lot of clarity and lack of error around invoicing and accounting, right? I mean, that’s clearly something, you know, everybody who uses a tablet in restaurant with a point of sale without integration is going to require double entry. A lot of times with double entry you see accounting errors, you see reconciliation issues that are at the core of it and your finances don’t make sense.
That’s going to be a limited point of sale. From an operational perspective, we also see two really strong things. A lot of times point of sale will trigger what happens later in the kitchen, right? Whether that’s through print outs. Whether that’s through a kitchen display system. Whether that’s through however the back of the house runs. Point of sale integration will actually drive a lot of the errors down as well as allow for a lot of the efficiency in terms of ensuring the back end house for the most part is running exactly as it would without the inclusion of something else.
We see it as a big opportunity to drive better reconciliation, accurate financials, but also to run a very efficient online enabled operation for restaurant partners.
Skift Table: Great, and LevelUp’s a big part of that.
Stan: Big part of that.
Skift Table: Great. So LevelUp is currently operating as it was pre acquisition, is that correct?
Stan: Yep. That’s correct.
Skift Table: Any plans to change that?
Stan: I think right now, you know, we want to make sure that we don’t disrupt anything that they’ve built. They’ve built a great group. They’ve got fantastic clients. We’re going to continue to look at what happens in the landscape and if things require an evolution, we’ll evolve.
Skift Table: Cool. Yeah. Do you think that all the in-store pick up will change your core business or is that just like a great new frontier on the marketing side to get people acquainted about?
Stan: Yeah. I don’t know if, maybe change is too early of a word. I still think, you know, in terms of online as a channel, we’re very early in the restaurant space. I think we look at this and we say, you know, the restaurant space is kind of where retail was like 10 years ago with consumers, guests, diners really starting to move online. I think pick up is another option. New York is, again, a great example of usually at the forefront, delivery, pick up, people have been doing this forever. Now there’s an online way to do this.
We look at it more as a way to further unlock online. I think, you know, the report we look at, it’s Morgan Stanley report we think, the take out business online, a restaurant’s about $200 billion in [tam 00:07:16]. For us last year we did about $4 billion in gross food sales so we can see a ton of runway there and we think pick up is another channel that’s just going to unlock a lot of the opportunity.
Skift Table: Are the restaurants that you work with that may offer pick up or new restaurant partners, are they taking most of their orders on the phone? Is that kind of how it works or [inaudible 00:07:38] switch them to totally digital and then once people are used to it you can put the pick up option in and everyone’s really excited about not having to talk to a human?
Stan: I don’t know about that. You know, I think there’s still a very human process to this, right? I mean, at the end of the day this is a hospitality business so I think for us the guest experience, the restaurant experience is so important. Directly I would tell you when we look up it is still a true statement that a lot of orders especially off premise orders are still coming in over the phone.
Skift Table: It’s like 50%, right?
Stan: Yeah, I mean, hard to [inaudible 00:08:12], but I would still tell you as a leading provider here and you guys know a lot of people who operate in this space, there’s over a hundred billion dollars that is coming through not one of these channels and so we think there’s still a ton of it that’s coming through the phone.
Skift Table: Okay. Cool. Another piece of big news from the year, earlier this year you announced an exclusive partnership which came with a $200 million investment from Yum! Brands which is KFC, Taco Bell and also Pizza Hut. This requires a lot of working with franchises. In your most recent earnings call, your CEO referred to on boarding the franchises as the final gating item to the success of the partnership. Staff needs to be on boarded to the process. Tests need to be run. The technology needs to work and there are a ton of Taco Bell and KFC locations. How’s it going?
Stan: It’s going. Man, that’s, there are a lot. I mean, when you say there are a lot, there are a lot of Taco Bells and KFCs around the country. It’s going well, right? They are, well, they’ve been a great partner to us. As we look at it, I think this year, you know, so far this year we’ve announced from a delivery footprint perspective, we’ve announced an additional 70 plus markets that we’ve launched. I mean, we’re really getting to a lot of the coverage, right? I mean, Grubhub itself is live in 16 hundred cities.
A lot of the markets that we expand to will cover the KFC, Taco Bell locations and, you know, by the end of the year, we’ll probably be more than double our footprint from when we started this year. A lot of that is through partnership with them, but also partnership with a lot of the other restaurant brands and independent restaurants that we work with across the country. When we go through them back to the theme of integration, franchises and for those who are in, you know, franchises are really, you know, we know as everybody does that the margins are slim, right? So to enable a channel like this back to earlier comment, you really gotta work on a way that is as operationally efficient as possible.
Part of our efforts with Yum! Were to make sure we were really partnered omni channel in a digital way, but also in an operational way. As we stand up, you know, we’ve got thousands of locations live already, so it’s a real testament I would say to the teams at Grubhub who aren’t here speaking, but also to the Yum! Teams in terms of all the work that they’ve done with the physical operational infrastructure to stand up delivery markets, but also to build the tech. As we’ve been launching these I was in a Taco Bell about two weeks ago where we were demoing some of the fully built out tech and it’s a beautiful thing when it’s integrated, right?
The order comes in, we see it come in and from a staff perspective and on boarding franchises, you know, when you have thousands of locations to have to retrain everybody to do something different is a massive effort. Really what they have to do is almost nothing different for our process. We have a geo fence process that triggers everything. When the driver is approaching, it bypasses the point of sale, but it’s entered there as a record. Fires into the kitchen display system and the staff goes ahead and makes it.
In the actual restaurant with the integration that we’ve built, it is almost seamless, no pun intended, for the operator. How’d you do it? [crosstalk 00:11:24]. But it really is. It’s a wonderful experience. The staff does everything as they are going to do and they get to take advantage of a wonderful channel that we believe brings a lot of incremental volume to them.
Skift Table: Do the stores have to hire more employees in the kitchen?
Stan: I think they’re going to have to, to deal with the volume that we’re going to bring, but not from an efficiency stand point.
Skift Table: I see. I see. Have you had trouble getting franchises buy into this? I know it was a corporate decision so it was something that kind of came down from above, but …
Stan: You know, I think the great piece or at least our perspective on this is it’s a corporate partnership, but the franchises make the ultimate decision, right? I mean, what we’ve seen is that the franchises are really excited. They’re really excited to have their corporate group for a partnership that is really beneficial to them. They really went out on this as a franchisee and we’ve seen massive adoption, like I said. On both brands we’ve got thousands of locations live now. Thousands of locations and thousands of locations that require all those franchises to actually opt in to want to be in this deal with us and they are all doing that. There is no mandate. There is no forcing function if you will.
The franchises still have to do and we’ve seen tons of excitement and tons of adoption.
Skift Table: Great. Are the diners excited?
Stan: Yeah. I think diners and guests, you know, we joke about this all the time. I don’t know how much of it Grubhub has [inaudible 00:12:44]. We turn it on and we’ve seen a ton of orders come through, especially from internal employees. It’s a great day [inaudible 00:12:50] you can expect from the brands there as well. We see a lot, a lot of excitement. I’d even offer you one more fact to talk about point of sale integration. We launched, as we launched with them early, we did launch with them with that tablet process as we wanted to work out some of the kinks in the process.
The minute we went live with point of sale integration, we’ve seen our order accuracy which is essentially what the restaurant is packing into the order to make sure the … we’ve seen that accuracy increase almost I think 35% points the minute we had point of sale integration live. It’s a real benefit that enhances the experience of not just the operator, but the guests as well.
Skift Table: Cool. Yeah. I asked ahead if Uber Eats this on stage so I’m going to ask you this too. Fast food delivery, do you think it’s working so well because people don’t have to actually like, there’s a shame of going into a fast food restaurant, right?
Stan: Whatever he said I disagree with completely! Just kidding.
Skift Table: No, like I do like Taco Bell, right, but I don’t know excited I am about walking into a Taco Bell and walking out. I mean, seriously, do you think there’s kind of an untapped fast food audience that maybe more likely to …
Stan: You know, I don’t know. I’m sure there’s maybe some of that. I would tell you again, I think what the excitement is, is really that the convenience of it. Whether it is you don’t want to walk in or not, I mean, I can’t speak for everybody. I would tell you personally, you know, whether you want it or not like most of the time it’s a convenience play. You’ll have to see, I think we talked about it there is a, I’m going to head from here to the Taco Bell convention in Vegas where they all the franchises and there’s going to be a wonderful event there talking about how and why we think guests are doing it.
I’ll give you a preview of it later.
Skift Table: Can you tell me?
Stan: It’s wonderful. We have every demographic essentially as a teaser there talking about why they want their food enabled through an online and delivery channel. Really I don’t think it’s about shame. I think it’s just about wanting. In the words of a certain nine year old, you just want nacho fries and you want it now, right?
Skift Table: When the Yum! deal was announced, your CEO also mentioned his excitement to learn from Pizza Hut, of one of the OGs in the delivery space. Any cool Pizza Hut tricks of the trade or secrets that you guys have adopted or you’re excited about?
Stan: Yeah. I think they are definitely the OG of the delivery space. They’ve been doing it forever. They’re a great partner. It’s great insight into how we continue to take the experience of an operator who’s been doing delivery for such a long time and for us to bring, you know, what we think is some of our special sauce of technology and enable that, right?
I mean, they’ve been doing it for a really long time. We’re only restaurant focused, only food focused, so even when we talk about delivery and we build our algorithms, food freshness, all the prep times, everything we build into is around food. We take a lot of that insight and knowledge as we learn from Pizza Hut and we try to infuse technology around it.
Skift Table: Are you going to power their deliveries at some point?
Stan: I think we’re going to continue to look at great ways to partner across the brands and should that become something that we want to both pursue, we surely might do it.
Skift Table: They’re doing autonomous research for an autonomous pizza delivery vehicle right now I think.
Stan: I think they did announce something. I think they got pumps too, right? Like they got pumps you can order Pizza Hut through your shoes.
Skift Table: Yeah? Or Dominos, I don’t know.
Stan: I think it’s Pizza Hut, right?
Skift Table: Pizza innovation.
Stan: I mean, that’s what we’re going to take out of their book. I’m going to have like Grubhub sneakers here. A little a button that you can order Grubhub on. Boom, there it is.
Skift Table: Is this breaking news?
Stan: Product announcement.
Skift Table: A big thing that we’ve noticed at Skift Table is delivery companies — we’ll use that term generously — reaching out beyond the major urban areas into suburban and even rural areas. You mentioned so many new markets this year already. What’s the biggest barrier there? Is it, you know, recruiting and couriers? Is it consumer adoption, you know, they’re not, people may not be used to delivery, as used to delivery as someone who lives in New York, San Francisco, or L.A. How’s that going?
Stan: It’s a great question. When we talked about the 70 [markets] that we launched, you know, primarily we are in most of the very large urban markets where technology adoption is there, delivery is acceptedBut we’re seeing lots of success as we launch into new markets. A lot of our recent market launches are really places like Charleston, South Carolina; Reno; Lexington, Kentucky. Maybe not the large urban centers, but there and even within markets like Atlanta, Georgia going out into the suburban markets like Alpharetta, going further north into Cumming, Georgia.
What we continue to see is that we’ve built a marketplace that really allows for reinforcement. This is really a model that works for everybody. One of our big things is we have to make sure, and we hold really true to this is as we’ve built it up, when we build up our marketplace, everybody has to win, right? The guest has to win. The restaurant has to make money. Our delivery partners also have to make money.
A lot of the smaller cities are just as hungry for this, right? I think one of the things really worth mentioning, which we thought was unbelievable, our business sees a lot of seasonality with weather. When we get into the second quarter, you know, the last quarter that we talked about, generally we spend a little less on advertising. We expect acquisition to be a little slower, right, because more people are going to go out once the weather turns, and they’re going to want to eat out.
What we actually saw in the midst of all these market launches as we’re doing this, in the second quarter with less spending we saw more new guests and more new diners try Grubhub than ever before. We continue to see that I think as we expand out that really the whole space is shifting. Guests are really looking for it and everybody’s excited about the channel.
Skift Table: No one likes to talk about competition, but it is competitive. It’s a competitive space and there’s competition for actual footprint. Then there’s also competition for the kinds of partnerships like Yum! that you’ve announced, harnessing the power of a huge brand, it can drive growth, all of these things. What’s your priority in terms of growth?
Stan: I think for us without making it sound too generic, but I think it will sound a little bit like that. As we grow, part of what we have to do is make sure that we provide a great experience for all of the people who participate in our marketplace. I mean, I think you know we’ve experienced a lot of tremendous really rapid growth and as we’ve done that, you know, that challenge for us is always keeping that balance.
The comment I made earlier I think is a lot easier said than done is making sure that everybody who plays in the marketplace regardless of whether you’re in the heart of Manhattan in Hell’s Kitchen or whether you are in Stockton, California. It really, really is a challenge to make sure that everybody who’s there, restaurants, guests, couriers, everybody is winning.
I think that’s what you’ll see our team is singularly focused on is making sure everyone who works or uses us has a wonderful experience.
Skift Table: Great. So we’ll go to a couple audience questions. I’m going to start the second one, but does Grubhub level the playing field for smaller or newer restaurants who are competing with well known restaurants and chains? If so, how?
Stan: Yeah. Maybe the right way for me to think about this is every single type of restaurant is a partner and a customer of ours whether you are a single location, whether you are a thousand location brand and part of our suite of offerings is such that we have multiple opportunities for restaurants to take advantage of whether that’s in acquiring new guests for them through Grubhub.
Whether that’s in taking advantage of customized marketing channels, we allow every restaurant to participate in there. I think it’s a pretty even playing field from our perspective.
Skift Table: What is Grubhubs strategic advantage in the long run over Uber Eats of Caviar with integration?
Stan: For us, you know, we’re definitely aware of competition. We’re so focused on our customers. Maybe the answer that I would give you would be less on them and just more on us. I think one of things we pride ourselves on again is we don’t, we’re not distracted in the way a lot of companies do.
They get focused on multiple avenues. They start to figure out are they delivery companies? Are they transportation companies? Are they something else? We’re not. We’re an online marketplace business really focused on restaurants and take out. That has allowed us I think to continue to build products and services that are totally there.
I know I said this before, but we were the first on point of sale. You see us doubling down on integration because it’s a really big deal. You see us doubling down on understanding what restaurant operators have to go through whether that’s in the operations, whether that’s in how they want their brand represented, whether that’s in marketing. I think for us, our singular focus on this is a huge advantage and then you combine that with the fact that we are, we’re the largest provider in this space, right? You talked about it. We’re in 1,600 cities, almost 16 million active diners. We process about 423,000 orders a day.
That allows us to realize efficiencies that we then pass through to the people who participate, right? So I think there’s a few advantages within there that we feel really strongly about in terms of how we’re focused and there’s good reason to work with us.
Skift Table: Cool. Can you tell us about Sliced, Grubhubs internal restaurant? It’s a great way for employees to build empathy, but what have you learned?
Stan: Oh yeah, sure. I love that. I actually want to know who asked that question. I’m excited to hear that it’s there. As part of our obsession, you know, with customers, we do a lot of different things to allow us to walk a mile in our customers shoes. Sliced is one of those things.
In our largest offices around the country we have Sliced locations. We essentially have rooms that are fake restaurants on our campuses where we test our latest point of sale technology integrations. We test the tablet. We test what it means and we run it just like a restaurant. Employees have to staff it.
Then they order so they go through the entire process of what a restaurant operator would have to go through and they learn that. In conjunction with that since they asked about Sliced because we’re passionate about it. We do that. We also do all kinds of programs. My own direct staff has to go into real restaurants and actually work because while we try our best to mimic it, there’s nothing like really being in a restaurant to see what that’s like.
We also have a driver program. When we were first launching our own delivery-enabled service, we codenamed it Reindeer. I mean, kind of Santa, you know, we gotta do that. As we’re bringing gifts to everybody. As we kind of grew out there, now we’ve, our version of mobile Sliced is to have company cars where our employees also go out and do real deliveries and kind of walk the walk of that. Our first company car for this purpose explicitly was code named Rudolph. We have Sliced and we have Rudolph and, you know, we continue to build on that.
Skift Table: Great. Thank you so much for joining us.
Stan: Sure. You got it.