Yum Brands Buys a $200 Million Dollar Stake in GrubHub. (Bloomberg)

From the article:

And that highlights how much GrubHub and others of its ilk — Uber Eats, DoorDash, Caviar — are becoming powerful gatekeepers in the dining industry. Restaurants should not underestimate what a paradigm shift this is for them. In these digital marketplaces, the primary customer allegiance will be to the app, not to the individual restaurant.

 

That means restaurants will have to think hard about how to market and merchandise their offerings in what will essentially be a fiercely competitive digital food hall.

Also from the article:

Why does this consolidation matter for restaurant chains? In some ways, it makes their lives easier, because they can focus on making their relationship with one platform really great instead of trying to do business with a slew of them.

 

In other ways, though, it could make their situation harder. Less competition among delivery providers could make it easier for those players to demand bigger commissions from restaurants.

GrubHub has a large lead and I think this will become a winner take all market(see McKinsey study below).

My Thought Bubble

McKinsey has some interesting facts about the food delivery market.

  • Platforms are sticky. New-delivery platforms, which personalize the ordering experience by storing relevant customer data, are sticky (Exhibit 1). Once customers sign up, 80 percent never or rarely leave for another platform, creating a strong winner-take-all dynamic, in which the reward goes to the player who can sign up the most customers in the shortest amount of time.
  • Time is critical. The speed of delivery is the biggest variable in customer satisfaction, with an average 60 percent of consumers across markets citing it as a key factor. The optimal wait time is no more than 60 minutes.

The second point is the one I come back to in regards to how much leverage one or two players will have in a given market.

On the one hand, when restaurant A sees restaurant B sign up for a delivery service, restaurant A will not want to be at a disadvantage, so they sign up. It would seem that supply(restaurants) is unlimited, so the leverage would fall to the aggregator(food delivery app).

However, supply is not unlimited because even if there are 100 types of a particular restaurant in a city, only 10 exist within a 60 minute wait time, thus cutting supply to a reasonable level.

Currently, there are two to four food delivery apps per major city. They are competing for market share; so I doubt they have leverage over their suppliers(restaurants) now. Obviously, that could change.

In the first paragraph, Bloomberg stated that in the future, the major allegiance will be to the app. I’m not sure. People like what they like, especially when it comes to restaurants. I drive fifteen minutes out of my way for a Mexican restaurant; when five are within a five-minute drive.

More research will need to be done. Just putting it on your radar.

GrubHub Stock

Since hitting bottom in 2016, their stock has risen almost 400%.

(Click to enlarge)

Would I buy at these prices?

No, but I will be watching for any big dips.


Chart Art

I added these stocks to my watchlist.

Celgene Corp: Ticker CELG

  • Testing support zone $90-95.
(Click to enlarge)

CVS Health Corp: Ticker CVS

  • Testing support at $68.
  • Div yield-2.86%.
(Click to enlarge)

Allergan: Ticker AGN

  • Testing the 100 MMA at $160.
  • Div yield-1.77%
(Click to enlarge)

Simon Property Group: Ticker SPG(REIT)

  • Testing support at $150.
  • Div yield-4.98%. What fees do they charge?
(Click to enlarge)

That’s all for today. Have a great one,

Caleb

P.S.

This is a post I wrote back in February on an old site. I am just moving it over.

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