One out of every 10 orders for a grilled cheese sandwich that Vic Corbi sees in his Federal Hill shop is placed online. And the co-founder of Grilled Cheese & Co., which has four locations in the Baltimore area, sees online ordering mushrooming in the future.
"It's popular downtown because everyone is tech-savvy," Corbi said.
Corbi doesn't yet have his own website for online ordering. Instead, he uses a couple of service providers, including EatBmore.com, which uploads his menu to a website and handles online marketing and customer orders. It's a fast-growing industry at the moment — and one that the Baltimore-based startup that runs EatBmore is hankering to take a bigger bite of in coming years.
Legions of small restaurant operators across the country don't have the time or money to implement online ordering technology on their own websites — if they even have websites. But these small restaurants are looking to use the Internet and mobile apps to lure hungry consumers to order takeout or delivery.
That's where EatBmore.com's owner, LocalUp LLC, sees a long-term opportunity. The Canton-based startup traces its roots to an online menu and ordering business launched by a group of college friends at Pennsylvania State University.
Three years ago, the company rebooted, rebranded and relocated to Baltimore, where it now employs 30 people. Consumers place an order on one of LocalUp's sites, and restaurants receive emails or faxes with the details.
The company makes money by charging restaurants a commission for each online order placed through EatBmore and its other sites across the country.
It's going up against far bigger — and deeper-pocketed — competitors, such as GrubHub and Seamless, each of which raised $50 million in venture capital last year to spread their online food-ordering networks across the country.
But LocalUp is no slouch. The company has attracted investment, most recently a $1.5 million infusion of debt and equity, to grow in small markets around the United States., while its bigger rivals focus on larger ones, such as New York City, Chicago and Los Angeles.
The company is going after small to midsize cities, from Baltimore to Santa Barbara, Calif. So far, it has signed up more than 1,000 restaurants in 30 markets, and it has 400,000 registered users who place orders on the site. Sixty restaurants in Baltimore now use EatBmore.com.
GrubHub, by comparison, is in 300 cities, offers 13,000 restaurants, and has more than 2 million registered users.
LocalUp's 30-year-old CEO, Chris Jeffery, is proud of bootstrapping his company with partners and making a profit from its inception in 2009. Annual revenue is up 55 percent over the past year, he said.
"I really wanted to build a company generating real revenues and real profits before raising debt or equity," Jeffery said. "One thing I've learned in this industry: You don't want to spread yourself too thin, because before you know it, you lose market share."
He has taken a scrappy approach in spreading his business, licensing its software to entrepreneurs who want to launch their own online portals for online food-ordering in their communities.
And now, Jeffery said, the company is exploring another idea for expanding LocalUp: digital franchising.
By franchising the business in hundreds of local markets to eager entrepreneurs, Jeffery said, he believes his company can go up against its larger competitors. In franchising, a brand such as Subway or McDonald's sells a franchise to a local owner who puts up the money to open a location while following the company's business guidelines.
Digital franchising is becoming more common, experts say.
"Online business is a challenging world," said Paul Segreto, an independent franchise consultant and digital publisher. "But if the structure is there behind it, I think it could be a lucrative business model for franchisees."
In Baltimore, LocalUp's EatBmore goes up against GrubHub and other online ordering services, including Foodler, Eat24Hours, and AllMenus (owned by GrubHub).
Grilled Cheese & Co. uses other services, Corbi said, because he wants to make it as easy as possible for a diner to find his restaurants online.
"GrubHub — you almost have to be on there," Corbi said. "EatBmore is going to generate their own level of business. You kind of want to cover all your bases."
Harry Balzer, chief industry analyst of the NPD Group, a consumer marketing research firm, said entrepreneurs and venture capitalists are salivating over the trending changes in consumer restaurant-spending habits.
In 2006, only 0.3 percent of dinner orders were made online. Last year, 2.5 percent of suppers bought at restaurants were purchased via the Internet.
"It gives you some sense of why venture capitalists are so interested," Balzer said.
Charles Lipson, a New York investor who invested in LocalUp, said he liked Jeffery's approach of going after smaller U.S. markets because he thinks the bigger competitors will need to expand there eventually and will be looking to buy smaller competitors with deep penetration in these markets.
"The big guys are going to want the little guys — how are they going to get in there?" said Lipson. "They're going to buy someone like LocalUp."
Perhaps the biggest competitive challenge facing LocalUp and other online ordering services is the increasing tech-savviness of restaurateurs, who may choose to implement their own systems and cut out the middleman. The commissions charged by third-party online services eat into restaurant's profit-per-order.
Dave Rather, owner of Mother's Federal Hill Grille, uses EatBmore.com. About 5 percent of his business comes from takeout and delivery, he estimated — a small but growing number.
Rather said he's in the process of building his own online ordering system, so his customers can order directly and not use third-party sites.
"The more people out there selling your stuff, the better," said Rather about using EatBmore.com. "We'd obviously make more if we cut out the middleman, though."
But, Jeffery said, some restaurants that have their own online ordering systems still use his service because they want to be accessible on different popular sites on the Internet. For instance, Papa John's and Domino's pizza use LocalUp sites in some markets as a way to reach online consumers, he said.
"Our take is that it's just another avenue to get an order," Jeffery said, "and we spend most of our time marketing to customers as a core function of our business, while most restaurants focus more intently on food quality and service."