Amazon, Grubhub aim to take bite out of food delivery market

Amazon.com Inc.’s partnership with Grubhub Inc., a popular food delivery company, has the e-commerce powerhouse poised to take a larger slice of the online food delivery market.

Amazon acquired a 2% equity stake in Just Eat Takeaway.com NV, the Dutch-based parent company of Grubhub. The stake could ultimately be as high as 15%, if certain performance targets are met. Following the deal, Amazon Prime subscribers can now sign up for a free one-year Grubhub+ membership to receive free delivery on all food orders placed through the app, Amazon said July 6. The move is expected to squeeze competitors like Uber Technologies Inc. and DoorDash Inc., analysts said, and is already having an impact on stock prices.

Just Eat shares, having reached an all-time low June 29, rose by more than 17% following the announcement, while Amazon shares ticked up 2.4%.

By contrast, Uber and DoorDash shares tumbled 4.3% and 7.4%, respectively, July 6 in wake of the Amazon-Grubhub deal. Shares of Uber and DoorDash are down nearly 50% year-to-date.

The transaction is especially important for Amazon’s subscriber retention efforts as consumer spending is expected to stall, said Brian Nowak, managing director and analyst at Morgan Stanley Research.

“The agreement provides [Amazon] with a way to give its Prime members access to a still rapidly growing food delivery category without significant investment in sales teams, customer incentives [or] driver supply,” Nowak wrote in a research note.

There have been 16 deals this year in the e-commerce food delivery space with an aggregate value of $8.32 million, according to 451 Research’s M&A KnowledgeBase. The majority of those deals involved delivery services like DoorDash bolstering their mobile application software, payment processing systems or general IT support.

Just Eat Takeaway.com acquired Grubhub in a $7.3 billion deal in 2020.

Looking forward, Grubhub can leverage Amazon Prime’s worldwide base of 200 million paid subscribers to become a more relevant player in the food delivery space after years of losing market share, said Angelo Zino, senior industry analyst at CFRA Research.

Grubhub logged 13% of the share of meal delivery sales in May, trailing DoorDash’s 59% and Uber Eats’ 24%, according to Bloomberg Second Measure.

DoorDash is likely to be more impacted by a Grubhub resurgence, due to its reliance on U.S. markets for its revenue, Zino noted. Uber’s diversification in terms of its business segments — ridesharing, freight and food delivery — and its wider geographic footprint make it less susceptible to a more aggressive Grubhub, he added.

The partnership opens the door for Amazon to eventually purchase a larger stake in Just Eats, or for a rival to reach out with a competing bid, Zino said. Under the current agreement, Amazon will receive warrants up to a further 13% of Grubhub’s fully diluted common equity. The vesting of these warrants is contingent on how many new consumers are delivered through the partnership.

“It is plausible that Grubhub could be viewed more attractively to interested bidders given Just Eat Takeaway’s efforts to sell the business,” Zino wrote in a research note.

This is not Amazon’s first venture into food delivery. The company shuttered its Amazon Restaurants delivery service in 2019 after four years of operation, pivoting to invest in U.K.-based Deliveroo. The difference this time, Nowak said, is that Amazon Prime members will have access to Grubhub’s base of approximately 320,000 restaurants in North America.

Notably, after the launch of its partnership with Amazon, Deliveroo doubled its subscriber base in a month.

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