Fast Casual recently published an insightful article authored by Robin Gagnon, Co-Founder and CEO of We Sell Restaurants, exploring the implications of Grubhub’s recent sale at a 90% loss. Titled "Grubhub Sold at a 90% Loss: What Does it Mean for the Future?" the article delves into the seismic shifts happening in the restaurant delivery industry and what the sale signals about the sustainability of third-party delivery models.

The article begins by examining Grubhub’s dramatic decline in valuation, from its $7.3 billion purchase price in 2020 to its recent sale for just $650 million. Gagnon identifies this transaction as a key indicator of the challenges inherent in the current delivery service model. These challenges include balancing consumer demand for convenience with the high operational costs and fees that have strained relationships with restaurant partners.

Gagnon's article says, “We are witnessing a critical reassessment of the third-party delivery model. The Grubhub sale isn't just an isolated incident; it's an indicator that the current model is not sustainable. The industry is likely to see a significant transformation with companies needing to find a balance between convenience and profitability.”

A Look at the Evolution of Delivery Services

Gagnon provides a detailed analysis of how delivery services have evolved through three distinct phases: pre-COVID, peak-COVID, and post-COVID. She notes that before the pandemic, delivery was largely seen as a convenience-based luxury catering to a niche urban market. Many restaurants viewed third-party platforms as supplemental revenue sources rather than core business strategies, and delivery companies focused primarily on aggressive market expansion rather than profitability.

During the pandemic, however, delivery became a lifeline for both consumers and restaurants. With dining rooms closed and public health concerns at their peak, third-party delivery platforms experienced unprecedented growth. This rapid expansion masked underlying profitability concerns as investors prioritized growth metrics like user acquisition and order volume.

Post-COVID, the landscape has shifted once again. With the return of in-person dining and heightened consumer sensitivity to costs due to inflation, delivery platforms face a reckoning. Gagnon explains that many restaurants are reassessing their partnerships with these platforms, turning instead to direct-to-consumer delivery solutions or smaller, localized services that offer better control over costs and customer experience.

Regulatory and Ethical Challenges: Grubhub's $25 Million Settlement

In addition to the challenges discussed, recent regulatory findings shed further light on the struggles facing Grubhub and other delivery platforms. Following a federal investigation, Grubhub agreed to pay $25 million to settle allegations from the Federal Trade Commission (FTC) and Illinois Attorney General’s office. The investigation uncovered deceptive practices that misled customers, drivers, and restaurants.

The lawsuit revealed that Grubhub misrepresented delivery fees, concealed hidden charges, and exaggerated driver earnings, claiming they could earn $26 per hour when the median earnings were closer to $11 per hour in 2023. Restaurants were also impacted, with some being added to the platform without their consent, leading to outdated menus, canceled orders, and reputational harm. Thousands of restaurants reportedly sent cease and desist letters to Grubhub, demanding removal from the platform.

While Grubhub denied the allegations, the company agreed to make changes to its platform, including greater transparency around fees, earnings potential for drivers, and subscription services. Nearly all of the $25 million settlement will be distributed to affected customers, restaurants, and drivers.

The Broader Implications for the Industry

“The Grubhub sale reflects the broader need for delivery platforms to innovate and adapt to a post-pandemic reality,” Gagnon writes in the article. She points to several areas where the industry must evolve, including creating more sustainable commission structures, leveraging technology to reduce operational inefficiencies, and fostering stronger partnerships with restaurants.

The article also highlights opportunities for delivery platforms to develop hybrid models that combine delivery with additional services, such as marketing support or loyalty programs. By diversifying their offerings, platforms can address profitability concerns while providing greater value to both restaurants and consumers.

Thought Leadership in the Restaurant Industry

Fast Casual’s decision to feature this article underscores Robin Gagnon’s status as a thought leader in the restaurant sector. As the Co-Founder and CEO of We Sell Restaurants, Gagnon has a deep understanding of the challenges and opportunities shaping the industry. Under her leadership, We Sell Restaurants has become the nation’s leading restaurant brokerage firm, assisting buyers and sellers in navigating complex transactions and achieving their business goals.

This article not only sheds light on the critical issues facing delivery platforms but also serves as a call to action for the industry to embrace innovation and sustainability. Gagnon’s insights offer a roadmap for companies looking to adapt and thrive in a rapidly changing market.

To read the full article, visit Fast Casual’s website here.