With Grubhub reportedly looking to throw in the towel, SoftBank may finally have a winner in the food delivery market. But it may have a loser too.

• With Grubhub reportedly exploring a possible sale, SoftBank's strategy of picking winners may be paying off in the food delivery market.
• Grubhub warned in October of disappointing revenue growth and profits, as it faced growing competition from the likes of DoorDash and Uber Eats, both backed by SoftBank.
• Unlike its two big competitors, Grubhub has been profitable. But its CEO felt forced to duplicate some of the unprofitable practices of its rivals amid slowing growth.
• Unfortunately for SoftBank, both of its entrants in the market are not only losing money, and have plenty of money in the bank to sustain more losses in the future.
• Even without Grubhub, this means the industry may not become rational any time soon.
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SoftBank may finally be getting some vindication for its $100 billion Vision Fund - at least after a fashion.

Whether the tech conglomerate will profit from it, though, is still anyone's guess.

The vindication came in the form of a report Wednesday by The Wall Street Journal that food delivery service Grubhub is exploring a possible sale.

The news came in the wake of CEO Matt Maloney's announcement last fall that Grubhub needed to duplicate moves made by its chief rivals, DoorDash and Uber Eats. As a consequence of that, he warned, its revenue and profits would take a big hit.

SoftBank's strategy with the Vision Fund is to plow huge sums of money - a minimum of $100 million - into later-stage startups, in part to crown winners in particular markets and ward off competitors. It essentially uses money as a weapon, threatening potential rivals with a costly war of attrition.

Grubhub faces two money-losing SoftBank-backed companies

Unfortunately for Grubhub, it has the misfortune of facing two SoftBank-backed rivals.

Both DoorDash and Uber have been beneficiaries of the Vision Fund's largesse. And both have spent that money liberally on their food delivery operations.

DoorDash was on track to lose $450 million last year, not including taxes, amortization and depreciation, on about $1 billion in sales, according to a report in The Information.

Meanwhile, on a similar basis, Uber's Eats business lost $911 million in the first nine months of last year on $1.8 billion in sales, according to the company's latest quarterly report.

By contrast, up until last year, Grubhub had been solidly - if not spectacularly - in the black. The company has been profitable at least since 2011, according to the financial statements it filed with the Securities and Exchange Commission. In 2018, for example, it earned $78 million on $1 billion in sales.

Part of the reason for the difference was that, even though Grubhub, Uber Eats, and DoorDash were all in the same business, Grubhub had a fundamentally different model.

Since its founding in 2004, Grubhub has focused on teaming up with small and medium-sized restaurant businesses, typically ones that already had their own delivery drivers. Grubhub essentially acted as a marketplace, creating a central spot where consumers had a lot of choice, and helping its restaurant partners take online and app-based orders.

By contrast, DoorDash and Uber Eats have focused on offering food from restaurants that didn't have their own delivery service, in many cases without establishing a formal partnership with those companies. That required each to have its own stable of delivery drivers - with all the attendant costs involved in attracting and paying them.

Although Grubhub eventually started offering delivery services of its own for some restaurants, most of its business involved simply connecting consumers with restaurants, and charging a commission to the restaurants for each order. Unlike Uber and DoorDash, it intentionally wasn't trying to become a logistics company.

Grubhub is now facing direct competition from Uber and DoorDash

Grubhub was also able to succeed because it didn't face direct competition from the other players. It was generally focused on urban markets that had numerous restaurants that had delivery drivers.

DoorDash was largely focused on suburban eateries that had never offered delivery before. Uber also focused on restaurants that previously didn't offer a delivery service.

But Maloney believes the days of the three big services all thriving in their own niches is over, as he told Business Insider in an interview late last month.

Increasingly, there's overlap among the services in terms of where their offerings are available and the restaurants from which they deliver.

The result for Grubhub, as Maloney explained in his letter, is that its customers - especially its newer ones - were becoming less loyal and weren't ordering as frequently. In response, he laid out a plan for Grubhub to essentially duplicate its rivals' offerings.

It would add thousands of new restaurants to its service. Most would be ones with which it didn't have a relationship, meaning the company would need its own delivery drivers. And it would use incentives - discounts, essentially - to convince consumers to use its service rather than those of its rivals.

"The green fields are over," Maloney said in the interview with Business Insider last month. "You have three heavily capitalized firms at scale. It's going to be a street fight until something breaks."

Uber and DoorDash have plenty of money to continue the war

Assuming the Journal's report is correct - Maloney did not respond to an email seeking confirmation - it looks like Grubhub may be the one that broke first.

In the wake of Maloney's announcement in October that the company's new strategy would sink its sales and earnings, pressure has been mounting on him and Grubhub to explore a sale.

The day after his letter, Grubhub's shares fell 43%. Although they made back some of that, they still were down 17% from their pre-announcement level before the news Wednesday of a potential sale sent the shares skyrocketing.

Consolidation could be good for the remaining players. But it won't necessarily rationalize the industry right away.

Uber and DoorDash remain a long way from profitability. At the same time, they both have copious amounts of cash. At the end of September, Uber had $12.6 billion in the bank. DoorDash, meanwhile, has raised some $2 billion to date, with more than $1 billion of that coming just last year.

So, with or without Grubhub, the war of attrition could well continue, fueled in part by SoftBank cash.

The one consolation for SoftBank CEO and Vision Fund visionary Masayoshi Son? He has a good chance that one of his companies will be the eventual winner. Of course, one may also be a big loser.

Got a tip about Grubhub, DoorDash or SoftBank? Contact this reporter via email at twolverton@businessinsider.com, message him on Twitter @troywolv, or send him a secure message through Signal at 415.515.5594. You can also contact Business Insider securely via SecureDrop.

• Read more about SoftBank and DoorDash:
• DoorDash, the $12.7 billion food-delivery startup, could make or break tech IPOs in 2020. Early investors explain why they backed the company and its founder.
• SoftBank could have just walked away from WeWork and its $9 billion investment. Business experts explain why it didn't.
• SoftBank likely had the Vision Fund on its mind when it decided to rescue WeWork
• Venture investors still aren't sure what to make of SoftBank's $100 billion Vision Fund. Depending on who you ask, they're either rooting for it, or gleeful that it's struggling with WeWork and Uber.