Grubhub Ceo: We're Willing To Spend Aggressively On The Future To Beat Our Competitors

Posted: Apr 05, 2019

will continue investing in its long-term strategy and differentiate itself in the crowded online food ordering space even as its stock faces pressure, CEO Matt Maloney told CNBC.

"I have always been willing to be extremely aggressive investing in the future," he said in a Thursday one-on-one with "Mad Money's" Jim Cramer.

Cramer noted that Wall Street is "short-sighted" and typically frowns upon news that a company will make investments because investors are less inclined to buy into the long-term view.

GrubHub's stock is down about 9 percent in 2019 and off more than 50 percent from its all-time high in September.

"It's the cost of being public," Maloney said, shrugging off those concerns.

With a $6.4 billion market cap, the company is working to defend its position against other delivery services like Uber Eats, Square's Caviar, DoorDash, and Postmates. Grubhub has responded to increased competition with marketing campaigns and technology updates, which has cut into margins, Cramer said.

"The market now is 10 times what I thought it was 5 years ago" when GrubHub went public, Maloney said. "And it's because the American public has just adopted digital ordering as their preferred way to engage with their local restaurants."

Maloney said he is focused on making money as a marketplace that "sells demand generation," a marketing operation which creates interest in a product. Grubhub's primary product is to sell access to consumers, rather than being a logistics company, he added.

Grubhub partners with restaurants, who subsidize part of the transaction fee, Maloney said. That gives them access to customer data. He said it keeps prices cheaper on the platform. That includes the $200 million partnership with Yum Brands, the parent of Taco Bell, KFC, and Pizza Hut, nearly a year ago.

"As a tight partnership, we're able to execute on technology and growth for [Yum] in a way that nobody else in the industry is doing it right now," Maloney said.

Grubhub also serves customers ordering for pick up and catering. The company acquired Tapingo, a platform that focuses on pick-up orders, last September for $150 million to gain more access to the college student market, Maloney said.

"The gross margins on the logistics are not fabulous. The gross margins on the demand generation are fabulous, which is why I differentiate between a logistics company and a demand gen company," he said. "That's the profitable side. Everyone else in my industry is a logistics company, which has razor thin margins."

Even as the labor market remains tight, Maloney said the gig economy is still expanding, which Grubhub benefits from.

"We're seeing a lot of people want to be delivery drivers because the flexibility they get from being an independent contractor," he said.

By Tyler Clifford
April 4, 2019

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