Grubhub GRUB stock jumped over 3% in the opening hours of trading Monday following an announcement that it will partner with Dunkin' Brands DNKN. The coffee and donut giant’s stock climbed less than a percent.
Grubhub is set to deliver Dunkin' food and drinks, with the partnership set to start in New York City. Delivery will be available from over 400 locations across the five boroughs and is offered through Seamless, Grubhub’s New York brand. The companies also plan to expand the service in the coming months to cities that include Boston, Chicago and Philadelphia.
Meanwhile, Dunkin' competitor Starbucks SBUX unveiled its delivery service earlier this year. Partnered with Grubhub competitor Uber Eats UBER, Starbucks has started delivering in 6 other cities after the program had success in Miami. It is important to point out that expanding these programs for both Dunkin' and Starbucks may prove challenging as many people want their coffee to be hot, thus delivery may be limited to a relatively small range around any given store.
Uber Eats also has one of the more lucrative food delivery partnerships. Since staring a partnership in 2017 with McDonald's MCD, Uber Eats has become available at over 9,000 McDonald’s stores and accounts for over 2% of all of McDonald’s business.
Grubhub’s stock has fallen 30% in the past 12 months and the company has also lost the lead in terms of market share. Grubhub, DoorDash and Uber Eats all compete to be the leader in the growing food delivery market. But while DoorDash has steadily increased in popularity, Grubhub has been on a decline. In March 2018, Grubhub had nearly double the market share of DoorDash with 34.4%, but has lost over 7% of its market share since then. Meanwhile, DoorDash has added over 10% to its market share, bringing it to 27.6% as of March 2019 to make it the new industry leader.
The new partnership is an opportunity for Grubhub to recapture some market share and expand its consumer base. Many consumers are often rushed in the morning so the addition of a coffee company to its services has the potential to draw in many new customers. Additionally, Dunkin' and Grubhub have special offers to draw in new customers, including a raffle for a bike and other prizes as well as free delivery from Monday, June 24 to Sunday, June 30, with certain exceptions.
Aside from these more temporary marketing plans, Grubhub has an optimistic outlook for both earnings and revenue. Zacks Consensus Estimates for fiscal 2019 does call for earnings to decrease by 13%, but Grubhub’s top-line is expected to grow by 35%. This top-line growth is projected to continue into fiscal 2020, with an additional 26% growth expected. Meanwhile, the company’s 2020 earnings are projected to surge 50% above our 2019 estimate. This would lead to expected EPS of $2.14 in fiscal 2020, compared to just $1.43 for fiscal 2019.
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