Is Menulog rushing to list before their business model is disrupted?

Date: 12-03-2015

Menulog recently purchased Eatnow for an undisclosed amount of money, but we expect that the figure would have been more than $5 million and potentially a lot more.  Could this be part of a plan to list on the ASX?

Eat Now Acquisition consolidates market position.

Eat Now Services Pty Ltd was acquired my Menulog Group Ltd.  Eat Now Services has a paid up value of over $5,000,000.  In our experience, Eat Now was number in the volume of orders and number or restaurants using it, with Delivery Hero a long way behind in third place.

The purchase of Eat Now makes a lot of sense for Menulog.  The purchase of Eat Now enables Menulog to gain economies of scale, decrease marketing costs and increase revenue ahead of a potential listing or enable the creation of a bigger war chest to fight of potential new entrants into the market.  The position of Delivery Hero in Australia is probably unsustainable, so may either withdraw or increase their team in Australia in an effort to gain market share.

One question is will there be a decrease in competition with only two Online Ordering companies.

Menulog Prospectus?

The release of a Menulog prospectus would be a significant event for the Australia Take Out industry.  It would finally cast a light on the profitability of by far Australia’s largest Take Out ordering company.  It could make excellent timing.  The valuations for overseas peers are extremely high, with Grub Hub, Eat 24 and Delivery Hero trading on huge valuations or having raised massive amounts of cash.  Delivery Hero alone has raised US$1.2 billion to date, with a recent raising in February of US$586 million, valuing the company at around $1.8 billion.  Grub Hub has a market cap of US$3.59 billion and is trading at a P/E of 144 currently.  That is quite a high value and Menulog may be looking to crystalise a profit before the market turns and some rationality returns to the valuations.

Another Theory – Is FROLO going to disrupt the Menulog business model?

The Beta of our own Free Restaurant OnLine Ordering System is continuing.  The waiting list is increasing everyday as Restaurant and Take Outs look for a way to decrease costs and to keep the contact details of their loyal customers secure.  How many Restaurants will continue to use Menulog when their is Free Alternative to Menulog?

We believe that Menulog promotes competition via discounting, which makes it increasingly unsustainable to run a Restaurant in Australia.  The recent expose on Menulog offer online ordering to people cooking illegally in their homes was a shock to us, but shows just how hard it can be to compete in the Australian Take Away market.

We think that Restaurants should always use as many channels as they can to find new customers and Menulog, which we believe is a Business to Consumer business, is a good option for finding new customers, but loyal customers and repeat customers should always come through the restaurants own marketing, website and database.  We are on the road to 1,000 Take Aways in Australia.  The feedback has been terrific and every day the waiting list gets longer.  I think this is because our online ordering system has been built for Restaurant Owners.  Many of the features we have delivered and the features we have on the roadmap are designed to help Restaurant Owners better manage their business.

We are disrupting the Menulog business model by offering online ordering to restaurants for free.

If their business model is disrupted, the cashflow and the profits will decrease, not increase as they will be hoping.  At the very least we think we can decrease the commission away from the 10% which cripples many restaurants.  Some Restaurants have told us they are spending $500 per week on commission to Menulog.  That is clearly unsustainable.

If their business model is about to be disrupted, listing now may be best way that the owners of Menulog can maximise their value.

It will be interesting to see what happens.

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  • misty58

    Word on the street is Menulog has put out an international eoi to sell and are putting their commission up to 14%. Will be interesting to see what happens to Catch of the Days share in Eatnow when they sell… $500 a week isn’t too much on commission in comparison to certain restaurants who are paying over $100k a year to menulog alone

    • Ethan

      which restaurant pays 100k commission to menulog only?

    • James Eling

      Wow Misty, that is another slant on the stoy. Makes sense though, the valuations on FoodPanda, Delivery Hero and Eat24 are sky high. I can’t see too many Restaurants going for 14% commission.