In a previous article, we discussed the challenging environment for gig-powered startups. These startups were conceived in the early part of the decade with high levels of underemployment and unemployment. Their business model is predicated on the availability of cheap, fungible workers.

Now that the economy is entering late-cycle mode with lower amounts of labor slack, they are facing the challenge of recruiting and retaining workers or having to pay them more. Of course, this threatens their bottom line and even the viability of their businesses.

GrubHub Earnings

Additionally, as the recent GrubHub (GRUB  ) earnings show, it also makes these businesses less attractive to investors. GrubHub was down more than 40% following its third-quarter results when the company missed on revenue, earnings, and decreased guidance for the fourth quarter. Over the last year, the stock is down nearly 80%.

It's common knowledge by now that food delivery is not a great business. Investors were hoping that GrubHub would be able to leverage their existing customers into ordering higher-priced items. However, these results indicate that customers have no loyalty to food-delivery apps as GrubHub has lost nearly half of its market share over the past year.

The Competition

The company blamed competition from its competitors including Postmates, Uber Eats, and DoorDash. This highlights another challenge for GrubHub, as it competes with companies with deeper pockets or more patient investors. Uber Eats is owned by Uber (UBER  ) which has a market cap over $50 billion, putting the company in a good place to survive a war of attrition to be the last surviving delivery app.

The other food delivery companies remain in the private markets, where they don't have to make public investors happy every quarter. In fact, prior to its IPO, GrubHub notoriously ran aggressive promotions to gain market share, even if it were losing money on its new customers. These companies are now following the same playbook which is no longer available to GrubHub.

For investors, this is a valuable lesson in the dangers of being in an industry with no barriers to entry. GrubHub's quick success early on led it to attract competitors who are now plundering the company's margins and customers. Restaurants also took advantage of the situation by constantly hopping between apps to take advantage of the latest promotion just like customers and drivers.