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GrubHub Takes Another Step Towards (Take-Out) World Domination with IPO

Following one of the biggest years for Internet IPOs since the dot-com boom, 2014 is shaping up to be even better, making many more tech entrepreneurs and investors rich in the process. The most recent big name to go public—GrubHub Inc. The Chicago-based online food-ordering platform opened on the New York Stock Exchange last Friday, priced at $26 to raise about $192 million. Shares of GrubHub quickly jumped to over $40 per share and eventually settled at $34 per share upon the closing bell. Valued at over $2.6 billion after a strong debut, the cash infusion should help GrubHub continue its pursuit of transforming restaurant takeout and delivery.

Founded in 2004 by two software engineers Matt Maloney and Mike Evans, GrubHub now works with nearly 30,000 restaurants in more than 600 cities. Users are able to order food online from their choice of restaurant for either takeout or delivery, with a hefty commission going to GrubHub. Last year the company merged with its chief rival Seamless.com to form a behemoth that now dominates the food-ordering space under the name GrubHub. The company reported $137.1 million in sales last year, with an average of 135,000 food orders processed per day. With a firm grasp on the market after the merger, GrubHub certainly had the size to justify a public offering.

GrubHub is looking to take the money it has raised in the recent offering to expand into more restaurants as well as increase its user base. CEO Matt Maloney says that most people in the country are still ordering food with a paper menu and a phone call. “It’s ridiculous,” he said. “That’s where all the growth is.” Seemingly, it is only a matter of time until people throw away their paper menus and start ordering online. As of 2013, GrubHub had 3.4 million active users, still with plenty of the market untapped. As more aspects of our lives are made easier by use of the Internet, GrubHub has placed itself in a position to reap the benefits.

GrubHub will also look to grow by increasing the number of restaurants on the platform. Although GrubHub has not revealed how much they charge restaurants for each order, restaurants working with GrubHub report that the online platform takes about a 15% cut. While this already seems like a big chunk of each food order, GrubHub’s commissions could increase as more restaurants sign on. Conceivably, the more each restaurant pays GrubHub, the higher that restaurant could be listed on the site. If GrubHub is able to sufficiently overtake the food-ordering game, restaurants will clamor to move up GrubHub’s list of restaurants to attract more eyeballs, thus profiting GrubHub further.

One of the challenges that GrubHub has been facing with the order process is that many restaurants receive online orders by email or even fax. That’s right, by fax. The process of receiving orders on a fax machine is often slow going and restaurants often encounter problems completing every order on time. Yet GrubHub has introduced a solution to this. They now offer every restaurant a customized Amazon Kindle Fire with the company’s OrderHub app pre-loaded. According to GrubHub, the use of this device cuts order times by 80% and kills 85% of “where’s my food” calls. The problem is that many old fashioned restaurants are resistant to this technology and prefer to receive their orders by fax machine or automated phone calls.

While GrubHub seems to have solutions for both restaurants and consumers to make the food-ordering process simpler and more convenient, change is often slow going. Nevertheless, GrubHub has positioned itself well to capitalize on the modernization of food ordering. With the recent IPO, GrubHub will be able to use the new capital to get on the radar of more hungry people looking for a better way to order food.

Photo Credit: Braden Kowitz, via Flickr

About Jeff Goodman

A Carmel, CA native, Jeff is NBR's Finance Editor. He likes squash (the vegetable not the sport) and Sporcle, a website devoted "to mentally stimulating diversions."

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