As an investor, it's fascinating to see similar business models emerge simultaneously in different markets. Observing the parallel environments is intellectually satisfying and there is much that can be learned. One category in particular where this has played out is food delivery, both in Europe and the US.
The first era of online food ordering was really marketplace aggregators. These two-sided marketplaces acted as middlemen between restaurants and consumers and took a fee per transaction. Seamless was one of the first to pop up in the US, founded back in 1999, and GrubHub soon followed in 2004. Meanwhile, in Europe, Just-Eat found its legs in 2001 and Hungryhouse soon followed in 2003. Over the years, a wide variety of food ordering aggregators popped up in various locales, but the key focus of this post is GrubHub vs Just-Eat.
Comparing these two businesses is a fascinating case study (full disclosure: we are investors in Just-Eat). The businesses are so similar it's uncanny. They each grew for around a decade before hitting the public markets, Just-Eat on the London Stock Exchange and GrubHub on the NYSE. They even went public within a day of each other! Not only that, they had approximately the same scale, margin profile and growth! Take a look at this table I put together a few months after the IPO:
Despite operating on two entirely different continents without competing with each other at all, the businesses are strikingly similar. Both companies' market values were close to $3B, valuation multiples were almost identical, as were scale, margins and growth. However, the two companies diverged shortly after IPO. As you can see in the stock chart below, GrubHub's shares tanked while Just-Eat's swelled.
Today, GrubHub has a market cap of just $1.8B and trades at just 3.4x 2016 revenue. Just-Eat on the other hand commands almost double the market cap ($3.5B) even after a recent pullback, and trades at 7x 2016 revenue. How did these two identical businesses diverge so much? The answer lay in market dynamics.
The US and UK food delivery markets are both massive, multi-hundred billion dollar categories. The US is significantly bigger, but the UK takeaway market has higher online penetration than the US (30-35% penetration in UK vs 10% in US). In the UK, Just-Eat was able to dominate the market by capturing London and the surrounding areas and essentially forming a monopoly. Today, Just-Eat has 85-90% market share in the UK and #1 or #2 positions in a dozen other markets. The majority of Just-Eat's revenue is still UK-based, and few competitors have been able to threaten their position.
In the US, the industry played out very differently. The US market is even more massive than the UK, and since online penetration is relatively low, many food startups saw the growth opportunity to move food ordering online and leveraged a healthy VC funding environment to do so. Aggregators with models similar to GrubHub started popping up, but perhaps even more importantly, on-demand delivery companies joined the fray. Combined with the relatively low customer acquisition costs in the US, many small startups were able to quickly gain traction in different segments of the market. GrubHub (including Seamless) was certainly a major force in top US cities (which tend to look more like the UK in terms of penetration), but there was plenty of opportunity in the rest of the country. Companies such as Postmates, Caviar, DoorDash, UberEats and Amazon all started putting their own spin on local food delivery.
As a result, GrubHub saw a significant decline in market value due to negative outlook on Wall Street and earnings revisions. This was largely driven by the new competition and the subsequent alteration of Grub's business model (now essentially forced to offer delivery service in certain markets). Just-Eat has seen a little bit of pressure from logistics competition as well, namely Deliveroo, but the UK is still far less noisy than the US and the downward pressure on Just-Eat has been limited.
The food aggregator case study is just one good example of parallel market dynamics. There are of course many others. Sticking to food, another terrific case study would be the meal kit space. We tend to think that the US is where most great tech startup ideas form, but the meal kit space is a great counter-example. Pioneered by a Swedish company called Linas Matkasse about a decade ago, the meal kit model was then cloned by Blue Apron, HelloFresh and a variety of other startups and subsequently brought to other markets. I'm curious to see how the meal kit space evolves in the US versus Europe.