Just Eat Takeaway acquired Grubhub for $7.3 billion in 2020 only to sell it for $650 million just four years later. What went wrong in this short amount of time?

In November 2024, global food delivery powerhouse Just Eat Takeaway announced it would sell Grubhub’s United States operations for $650 million to New York-based fast casual restaurant chain, Wonder. The transfer of Grubhub to Wonder was a major financial disaster for Just Eat Takeaway, who acquired the American delivery company for $7.3 billion in June 2020 as a means to expand the service beyond China. Just four years in, Just Eat Takeaway wrote off over $6 billion, marking the sale as one the largest missteps in recent business history, entering the ranks of Microsoft’s disastrous Nokia acquisition. Why did Just Eat Takeaway push for an acquisition of Grubhub while the warning signs were glaringly obvious?

Just Eat Takeaway acquires Grubhub

In June 2020, Just Eat Takeaway.com announced it would acquire Grubhub Inc. for $7.3 billion, marking the creation of the largest meal-delivery companies in the world. Just Eat Takeaway won a bidding war against Uber, who was eyeing an expansion in the meal delivery market. After tense negotiations that stretched into the political realm, at last a deal was struck with regulatory approval. Grubhub would aid Just Eat Takeaway in launching the service in the U.S. market. 

The merger of Grubhub with Dutch-based Just Eat Takeaway would be guided by NautaDutilh, who would oversee the share structure. The Los Angeles Times observed that the inability for Uber to acquire Grubhub acted as a symbolic failure, as it saw the merger as a surefire way to increase its revenue and safeguard its business as its ride hailing service came to screeching halt due to pandemic lockdowns. Just Eat meanwhile was in dire need of new customers to satisfy shareholders and ride the wave of increased demand in the food delivery market. 

Food-delivery market expands

The losses incurred by Just Eat Takeaway are easy to trace in hindsight, but there were little warning signs during the period leading up to the acquisition of Grubhub. The food delivery market was rapidly expanding, tripling since 2017 by 2021, ballooning to over $150 billion. In the United States, McKinsey noted, the market had doubled over the course of COVID-19 pandemic. As the market matured through user-friendly apps and a strong driver network, all lights were green for the food delivery industry to rapidly expand as the world went into lockdown, forcing restaurants to welcome food delivery companies such as DoorDash, Just Eat, Uber Eats among others.  

Food-delivery companies saw major investments coming their way, with executives pushing funding rounds hoping to meet the demand and gain momentum over competitors. Rebel Foods attracted $26.5 million in July 2020, Reef Technology raised $700 million in November 2020 and Wolt managed to raise $530 million in January 2021. Uber acquired Postmates for $2.65 billion in 2020. Start-ups DoorDash and Deliveroo went IPO in December 2020 and March 2021 respectively. The food delivery market, despite looming uncertainty, was booming, with investors throwing money against the wall hoping to find the golden ticket. 

Market maturity happened in four key markets, McKinsey noted, namely in Australia, Canada, the United States and the United Kingdom. In the U.S. the market for food delivery doubled and in Australia fourfold between 2018 and 2019, the consulting firm calculated. As the world entered the global pandemic growth accelerated, with markets growing four to seven times in 2020 and 2021 compared to 2018 figures. The previous successes and the rapid growth over just two years, created a sense of urgency at investors who wanted to turn a quick profit. 

The growth of the food delivery industry outpaced that of the U.S. restaurant market, which grew by an average of 3 to 4 percent annually. Meanwhile food delivery sales grew double that rate. Growth was primarily driven by millennials and Gen Z consumers, McKinsey commented. Rising food delivery sales however weren’t a surefire way for restaurants to protect their revenue. In December 2020, the UBS Evidence Lab, cited by CNBC, found that revenue at U.S. restaurants fell, despite soaring food delivery orders. Industry experts already predicted a decrease as consumers were less willing to leave their homes as temperatures dropped, rather opting for food delivery. 

Grubhub growth skyrockets

Grubhub was emblematic of the volatile nature of the food delivery market. In the years leading up to its acquisition, the food delivery start-up was riding a rollercoaster of soaring stocks and eye watering financial results. Grubhub was becoming a Wall Street darling as it was striking lucrative deals with upcoming U.S. brands, with little in its way to stop its exponential growth. In May 2015, CEO and Grubhub co-founder Matt Maloney spoke with CNBC about the company’s plans to win the online food delivery wars. 

A year into the company’s IPO, Grubhub processed an average 235,000 orders per day and had over 5.6 million customers on its platform. Revenue at the food delivery start-up was increasing exponentially, reaching a 51 percent year-over-year growth rate, coming from $58.6 million to $88.2 million by 2015. Malony attributed the company’s success to its aggressive innovation strategy, allowing it to expand rapidly into the public market, resulting in its strong revenue performance. Continuing to say the start-up aimed to become the number one marketplace for food delivery. 

Maloney admitted that he left out a lot of growth potential by skipping New York for the first years since the founding of Grubhub. This proved to be a pivotal mistake as New York’s dense urban landscape and consumer audience could act as a springboard to faster revenue generation for the newly founded food delivery platform. Maloney said he first wanted to develop the right model, proving it could work, before entering the highly competitive market of New York city. 

Grubhub prided itself by creating a platform that allowed restaurant entrepreneurs to build their business. As critical observers however, we can argue that aggressively attracting new customers to its platform would act as a flywheel that forced restaurants to join in order to safeguard its clientele. However, that is a discussion beyond this piece. At this point in time, Maloney was primarily concerned by attracting capital to further expand its business in an ever more competitive landscape.  

In 2015, food delivery platforms such as Grubhub were novel technologies, generating a lot of buzz and excitement with news outlets such as CNBC, who eagerly followed the development into this new space. Maloney pointed out that the technology has been making its way into key markets such as New York city, where the entire concept of restaurants has been turned upside down with kitchens dedicated themselves to deliveries only. Today, we would call this ghost kitchens. 

Grubhub fueled its growth by acquiring MenuPages, Dotmenu, parent company of Campusfood and Allmenu, and FanGo over the course of 2011 through a Series E funding round, worth $50 million, seeing investments from Lightspeed Ventures and Benchmark Capital among others. Hype might have been building around Grubhub, many were just as skeptical around the company’s operations. Especially in the extremely competitive U.S. food delivery market.    

A somber outlook

At surface level, Grubhub seemed to have everything in place to become the top food delivery company in the United States. But, already early on, industry onlookers were raising questions in relation to the company’s growth. In June 2015, a month after Maloney’s interview with CNBC, Fabian Knigge at Seeking Alpha, warned of looming competition for Rocket Internet, a now well-known internet juggernaut, infamous for its aggressive market tactics that squeeze out competitors into bankruptcy by forcing them to run deep into debt.   

Rocket Internet had built up quite an investment portfolio into the food delivery space under its “Global Online Takeaway Group” (GOTG) business unit, having a 52 percent stake in Foodpanda, 40 percent in Delivery Hero and having full ownership of Pizzabo.it and LaNeveraRoja. Combined, Rocket Internet was larger than Grubhub and Just Eat, operating 71 countries and dominating in 59 of them. The GOTG, Knigge noted, also had a strong starting position, operating in fast growing developing economies with a larger, younger target demographic, who was more willing to take up new technologies. 

Grubhub came into markets that were already dominated by large players such as Just East and Delivery Hero, Knigge noted. Meanwhile the financial performance was lackluster, with Gruhub operating under a Price to Earnings ratio, with the only way to stable revenue development was to attract more customers to its platforms at an accelerated rate. This growth can come from multiple avenues, Knigge pointed out. Grubhub can ride the wave of economic growth, acquire new companies, improve margins or increase its market share. 

Grubhub’s growth was primarily driven from increasing market share, claiming 5 percent of the food delivery market. At the rate at which the market was expanding and the growth rate of Grubhub itself, Knigge calculated that the food delivery market would be saturated within seven years. That’s a very short time frame for a company that still has to obtain stable profit margins. Hence, the only way for Grubhub to acquire enough market share to improve its financial performance is through acquisitions or margin improvement. 

Economic growth meanwhile offers little relief as the company’s high exposure in countries like the US and UK won’t allow for rapid expansion. Grubhub’s competitors on the other hand are far better positioned for growth without relying on traditionally food delivery oriented markets. Rocket Internet can enjoy rapidly growing economies in developing countries, where competition is less fierce. These markets will organically expand as its citizens come online and will be open to digital products such as food delivery services. 

The uncertainty around Grubhub’s ability to improve margins could be witnessed in its volatile stock. Only a month after Knigge’s skeptical commentary on the company’s growth opportunities, Grubhub’s stock fell dramatically after a quick surge. The financial performance frightened investors, raising the alarms around the start-ups revenue generation opportunities. Despite showing strong revenue growth, analyst at Cowen & Co, Kevin Kopelman, noted that organic growth was slowing down, fearing the intense competition would further dampen Grubhub’s prospects. 

Financial woes at Grubhub

In October 2019, Grubhub shares fell by over 40 percent after poor financial results, which led to the company receiving five rating downgrades. CNBC noted that the food delivery start-up lost over half of its market value as competition increased from UberEats, DoorDash and PostMates. In order to maintain its clientele, Grubhub relied heavily on promotions, CNBC observed. The poor results, which were close to the end of the year, left investors worried whether it would be able to recover lost earnings for 2019. 

Analyst at Bank of America, Nat Schindler, commented that the food delivery market was becoming ever more unpredictable as new start-ups were aggressively trying to enter the market. We can spot this extreme volatility in the tainted balance sheet at Grubhub as it entered the 2020s. By the end of 2019, Grubhub generated a loss of $18.57 million after years of strong growth. The year 2020 however, would prove even more disastrous, where the company generated a loss of $155.86 million.  

The poor financial performance can be attributed to the high marketing expenditure over this period. In 2013, the worldwide marketing expenses of Grubhub were a modest $37.35 million. Marketing costs grew rapidly, exceeding $110.32 million by 2016. However, costs really started to spiral out of control in 2018, when marketing expenditure reached $214.29 million, ballooning to $310.3 million in 2019 and peaking in 2020 at $402.5 million. The latter two years marked significant cost performance issues.

The losses fit the narrative of the company’s executives. In April 2019, CEO at Grubhub, Matt Maloney, told CNBC the food delivery service was aggressively investing to execute its long-term strategy and create a competitive advantage. Maloney said he was always a big investor. Wall Street however was reluctant to see Grubhub spend vast quantities on running its business, with the stock  being 9 percent over the course of 2019 and 50 percent lower than its peak in September last year. Maloney explained that’s the cost of being a publicly traded company. 

Grubhub reached a market cap of $6.4 billion and had to put everything in its power to secure its top position, CNBC noted. The delivery service saw strong competition from Uber Eats, Caviar and DoorDash among others. In hindsight we know that the competitive landscape and the inability of Grubhub to develop a strong value proposition, was a running theme for the company. The investments had eaten into Grubhub’s margins, CNBC observed. Maloney remained optimistic, pointing out that American consumers were just getting familiar with online food delivery services. Interestingly enough, Domino’s had already been pioneering the concept for years. 

Grubhub was able to maintain margins over time, despite lower transaction fees for connected restaurants. By partnering with restaurant chains in exchange for customer data, it’s able to offer a more competitive deal, attracting big name brands such Taco Bell, KFC and Pizza Hut, brands part of the Yum Brands umbrella. Maloney pointed out Yum brands allowed the company to develop a cutting edge digital strategy and generate momentum.  However, he admitted that margins for its catering business were razor thin, with logistics squeezing the company’s financial performance. 

In March 2020, margins came under further pressure for the food delivery service as it decided to suspend the commission fee for independent restaurants who were forced to halt operations as the world was getting into lockdown. In a statement, cited by CNBC, Maloney said that restaurants formed the fabric of urban society and as long-term partners, Grubhub wanted to weigh in and help them in times of need. Restaurants could hold on to the fees food delivery companies charge, which can range up to 30 percent on delivery orders. The statement was met with skepticism, as the 30 percent fee cuts deep into profits for connected restaurants. Grubhub’s service fee remained undisclosed. 

Winner takes it all

The question remains, why Just Eat Takeaway was so determined to acquire Grubhub, knowing that the financial performance and growth strategy at the food delivery company was lackluster at best in the years leading up to the acquisition. We can better understand the acquisition of Grubhub in the light of Takeaway’s ambitions to grow abroad, which started with the acquisition of the domain takeaway.com back in 2009. Takeaway started out as Thuisbezorgd (delivered at home), but the name was poorly suited for an international expansion, with founder of Thuisbezorgd, Jitse Groen, aiming to place all its brands under the Takeaway label in due time. 

Groen explained that purchasing the Takeaway-domain would benefit the global expansion of the brand, becoming a recognizable name for audiences around the world. Already back in 2009, Takeaway had ambitions to enter the lucrative food delivery market in the United States, with Groen aiming for a market entry in 2010. In March 2010, Groen commented during an interview with Dutch eCommerce magazine Twinkle, that acquiring strong domain names was a nightmare, with takeaway.com acting as the right candidate for the company’s international ambitions. It would take a decade before Takeaway would finally enter the U.S. market.

In June 2020, Just Eat Takeaway announced the acquisition of Grubhub in an attempt to break through in the American food delivery market. But, the announcement was met with skepticism, labeling the acquisition a massive gamble on part of Groen. While many industry onlookers were impressed by Groen’s rise to become the top food delivery company, starting from an attic in the Dutch city of Enschede. Now, he has become one of the largest players in the United States through Grubhub. Groen told the Dutch broadcasting agency NOS, that he was optimistic about his fortunes, commenting that he and his team were well equipped through experience obtained in other regions. 

The eyewatering amount of $7.3 billion didn’t surprise Jan-Willem Grievink from the independent knowledge platform FoodService Instituut Nederland (FSIN), explaining that the only way to grow and expand the reach of software platforms such as Just Eat and Grubhub, is through acquisitions. This strategy requires vast sums of money and can be witnessed across other digital segments where companies like Amazon and Alibaba acquire and invest aggressively to outpace each other. Expert on international digital platforms, Martijn Arets, told the NOS that Groen would take a massive gamble on Grubhub, pointing toward the intense competition in the U.S. food delivery market. Delivery giants such as Uber Eats, Postmates and DoorDash, he said, are looking for ways to expand their market share. 

As we’ve learned, the rise of strong competitors in the U.S. market is no new development and has been preluding the acquisition of Grubhub by Just Eat Takeaway for years. Just Eat Takeaway might have taken a gamble, executives at Grubhub sighed a breath of relief as they were acquired by the Dutch food delivery service. Reuters noted that Grubhub would evade possible antitrust investigations as Uber lost its bid to acquire the food delivery service. Furthermore Groen told Reuters that his company had a strong starting position in the United States as it would compete against companies that were burning cash, while Just Eat Takeaway was profitable and wouldn’t succumb to pressure to stabilize its balance sheet.

In his statement to Reuters however, we may find the primary motive for the company’s acquisition of Grubhub. Groen commented that the food delivery space can only be survived by those who claim the largest market, otherwise falling prey to being squeezed out of the market. This phenomenon is better known as the food delivery wars, where the companies top players battled it out to acquire as many new customers as possible to turn a profit. The forces of the food delivery market dictated its actions. 

Grubhub sinks

Over the course of 2022, dark clouds loomed over Grubhub. In April 2022, news came out that Just Eat Takeaway was evaluating the potential sale of Grubhub as the platform’s sales started to decline as the world went out of lockdown. After enjoying strong momentum during the 2020s, the tides were starting to turn for the food delivery giant. In the first three months of 2022, sales fell by 1 percent, with Just Eat struggling to maintain orders made on its platform. In 2023, problems at Grubhub started to grow exponentially as its sales started to plummet. 

In October 2023, third quarter sales at Grubhub started to fall as competitors, as many had predicted years before, were eating away market share. Sales dropped by worrying 13 percent year over year, coming from 78.7 million to 68.5 million orders, with the average order value falling by 18 percent. The average order value is a vital revenue stream for commission based companies such as Grubhub. A partnership with Amazon couldn’t wade off the decline. Meanwhile, Just Eat Takeaway kept looking for a buyer for its ailing American business unit. Competitors DoorDash and Uber Eats were growing their customer base in favor of Grubhub. 

In January 2024, Grubhub saw orders drop again over the last quarter of 2023, seeing sales falling by another 13 percent year over year, dropping to 67 million, with the gross transaction value decreasing by 15 percent. Just Eat Takeaway was feverishly looking for ways to prevent a further drop in sales and stabilize its revenue. Grubhub had to aggressively cut costs to prevent cash burn, something Groen was very proud of in the lead up to the acquisition a few years earlier. DoorDash and Uber Eats enjoyed the increased momentum, seeing their market share increase as Grubhub struggled to retain customers. 

The inevitable eventually happened with Just Eat Takeaway deciding to part with Grubhub in November 2024. Admitting defeat by taking a massive loss on its prized possession that had to secure market dominance in the United States. As with many similar cases, a lot of hurt and confusion could’ve been prevented by Just Eat admitting beforehand that the American market had become saturated, with Grubhub entering the food delivery service industry far too late to make a reasonable chance of maintaining and increasing revenue. 

We cannot know however how the situation would’ve looked if Just Eat didn’t offer any resistance to large players such as Uber Eats and DoorDash in their domestic market. They could’ve built up a large enough war chest to topple Just Eat Takeaway in Europe. This remains speculation on our part. The forces acting on food delivery companies are strong as their only way to turn a profit is through increasing orders exponentially. Grubhub had to cut down on spending, further opening the gates for its primary rivals to take away its customers. Hence, the United States was, and could never be, a potential market for Just Eat Takeaway.