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Grubhub Banks on Partnerships to Steer Away Competition

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Grubhub (GRUB - Free Report) is relying on partnerships to counter competition from the likes of Doordash, Uber (UBER - Free Report) arm UBER Eats and Waitr Holdings (WTRH - Free Report) in the U.S. online food delivery services market.

Notably, the company is trailing DoorDash in terms of market share. Per the latest report by analytics firm Second Measure, Grubhub’s share of the U.S. consumers’ meal delivery sales in August was 32%, lower than DoorDash’s 36%. Second Measure’s data do not include sales from Grubhub’s latest acquisitions — Tapingo and LevelUp.

Nevertheless, the company’s solid partner base that includes the likes of Yum Brands!, Shake Shack, Blue Apron, Dunkin’ Brands Group and Yelp, among others, is a key catalyst.

Moreover, the partner base continues to expand with the addition of Dine Brands, the parent company of Applebee's Neighborhood Grill + Bar and IHOP restaurants; McDonald’s (MCD - Free Report) ; and Panera Bread in recent times.

This is expected to expand Grubhub’s footprint and user base. Notably, the company ended second-quarter 2019 with 20.3 million active diners. Further, momentum in gross food sales is a key catalyst.

Acquisitions Aiding Growth Amid Rising Expenses

Moreover, Grubhub has been supplementing organizational growth with acquisitions. The takeover of Yelp’s Eat24, Groupon’s OrderUp and Boston-based Foodler have broadened its portfolio of restaurants. The addition of Eat24 strengthened the company’s position across Tier 1 markets and almost doubled its business in a large number of Tier 2 markets.

Further, the LevelUp acquisition strengthened Grubhub’s customer base. The acquisition of Tapingo — a leading mobile-app for campus food delivery services — is expected to allow the company to serve more than 500,000 active diners across 150 universities.

However, increasing expenses due to planned expansion into new delivery markets and higher investments in marketing and advertisements are likely to keep margins under pressure. Furthermore, as these markets will take some time to generate volumes, higher upfront costs will hurt profitability.

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