Grubhub Attracting Interest; America's Dietary Ranking
Readers of my previous books on food delivery ("Milkman 2.0" and "Food Fight!") will know that I am not a believer in the efficacy of the "Taxi" model for meal delivery. The purchase of Grubhub by Just Eat Takeaway in June 2021 for $7.3 billion will go down as one of the most ill-conceived acquisitions in recent history. However, at the current valuation of Grubhub of $1.1 billion considerable interest has recently emerged from strategic buyers. Part of the appeal is that financing strategies involving arbitrage with the valuation of JETS are available that effectively can reduce the cost of the deal to the acquiror to zero. Further information is available upon request.
Some of the potential acquirors are obvious -- Amazon and Target's Shipt come to mind -- while several others are under the radar. The return to profitability of JETS in its most recent quarter -- several quarters ahead of its previous predictions -- adds some urgency for buyers. The fact that PE firms have lost their appetite for meal delivery in the current economic environment does not mean that a deal cannot be done.
One challenge will be for the acquiror to create a management team to run Grubhub. Because of its distant third-place position in restaurant delivery, the strategy of creating a profitable advertising platform (as DoorDash, Uber Eats and Germany's Delivery Hero have attempted) is probably not viable, at least in the short run. Depending on the identity of the buyer, the best strategy may simply be to lower Customer Acquisition Costs, as all of the 3PL firms have tried to do in recent months by partnering with banks or Amazon Prime to do the heavy (and expensive) lifting of acquiring cutomers.
One competing delivery strategy that does not seem to be working is the streaming model that Gopuff has attempted. The firm announced earlier this month that it was raising the price of its Gopuff Fam unlimited service from $5.95 per month to $7.99. Even at that price, the deal is simply too good for heavy users. The delivery companies have been slow to recognize that getting subscribers to their services is not like signing up memberships at a gym where there is little or no marginal cost to providing the service. The drivers need to be paid. And in the case of Gopuff, there is no merchant or restaurant that will contribute to the cost of providing the service. Gopuff owns the inventory themselves in their warehouses.
As I had predicted in the newsletter two weeks ago, Instacart has decided to postpone its IPO. As a result, analysts and investors will have to wait to see the S-1 that will reveal how the company is able to achieve profitability by delivering low-margin groceries.
Separately, the study released by Tufts on October 17 that offering Medically Tailored Meals could save U.S. health insurers $13.6 billion per year by reducing hospitalizations by 1.6 million per year has received considerable attention and deservedly so.
However, to my mind the more striking finding was buried in a study from Tufts that was released on September 19, with the headline "Globally, Diets Are Not Much Healthier Today Than They Were 30 Years Ago." Where is the surprise? Why is this interesting? The shocking revelation was in the rankings of the quality of diets in 185 individual countries.
The highest scoring countries were Vietnam, Iran, Indonesia and India. The lowest scoring countries were Brazil, Mexico, the United States and Egypt.
I think one of the underrated stars of the White House Conference on Nutrition held on September 28 was New York Mayor Eric Adams. His Honor gets a lot of bad press: every time someone is mugged on the subway train, he gets blamed for being soft on crime. But his remarks on nutrition were spot-on. America doesn't have a hunger problem so much as it has a problem with the wrong dietary choices. In other words, there isn't a shortage of calories so much as there is a surplus of the wrong kind of calories.
The great conservative pundit William F. Buckley Jr. pointed out in an interview in May 1970 that solving the problem of hunger in America could be solved inexpensively. His solution was to oblige all grocery stores to provide unlimited quantities of lard, soybeans, powdered milk and bulgur wheat to anyone who wanted them. When the interviewer suggested that this was a rather monotonous diet, Mr. Buckley replied that "Alice Roosevelt Longworth [President Theodore Roosevelt's eldest child] considers bulgur wheat to be a delicacy."
On a more sanguine note, readers should follow the progress of Do Good Foods, which recycles surplus grocery food (after community donations) into nutritious animal feed. The impact on the environment and food waste can be meaningful and co-founders Matthew and Justin Kamine ( who raised $169 million for their project) are to be saluted.