Amazon is (cautiously) returning to the food delivery market. But first...
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Amazon-Grubhub Alliance
Grubhub, the struggling American meal delivery company, is getting a second chance. The company announced Wednesday that it has entered into a partnership with retail giant Amazon.com, which will add food delivery as a feature to millions of Amazon Prime members.
With this offer, Prime customers can get fast food online with no delivery charges with a one-year Grubhub+ subscription. As part of the partnership process, Amazon will have an initial option to acquire a 2% stake in Grubhub and an additional 13% stake if the partnership goes well.
The deal comes at a critical time for Grubhub. In-person dining in restaurants has gradually returned after the pandemic shutdown, while inflation has slashed household budgets, meaning Americans' appetite for food is no longer what it used to be. At the same time, Grubhub underperformed its competitors. Chicago-based Just Eat Takeaway.com NV lost 10 percentage points of market share to DoorDash Inc. and Uber Technologies Inc. Since the pandemic began, according to market research firm YipitData.
Just Eat Takeaway has failed, too: Its share price has fallen nearly 80% since it completed its acquisition of Grubhub in June 2021. More recently, it has been looking aggressively to sell the entire unit to stop losses.
But now, with the Amazon deal, Grubhub is suddenly back in the competition. "The deal essentially creates a much more important third player after years of losing market share," said analyst Angelo Zino. (DoorDash shares fell 11% on the news.) And while Just Eat Takeaway doesn't expect the deal to boost Grubhub's cash flow and profits until 2023, it could increase its attractiveness to potential buyers, Zino said.
Of course, Amazon is not interested in a bailout. The Company has its own reasons for associating you with a third-party delivery service. For starters, the deal will give customers one more reason not to cancel their basic subscriptions, even as family budgets tighten.
Earlier this year, Amazon raised the price of its Prime by $20 to $139 for annual subscriptions. Monthly members, who make up the majority of the main member base, end up paying around $180 annually. While high supermarket checkout costs have transformed paid delivery services from affordable to luxurious, a Grubhub+ subscription (which typically costs $9.99 per month) can be a useful staple for Prime members.
Amazon also has an extensive nationwide logistics network that makes food delivery naturally convenient. Since the growth of e-commerce sales has slowed since the height of the pandemic era, taking advantage of the food delivery market can help the company reduce the cost of deliveries.
Amazon founder Jeff Bezos has historically opposed implementing his own logistics mechanism to deliver food, according to a person familiar with his thinking. It was feared that a bad meal would devalue the main membership in the minds of consumers. The company briefly shared the space with a service called Amazon Restaurants, which launched in Seattle in 2015. But it fizzled out in 2019 after expanding into select metro areas. The show never received much investment or expanded rapidly, suggesting that Amazon executives liked what they saw.
The Grubhub deal could allow Amazon to have both. The partnership is structured so that the e-commerce giant can deepen the relationship if all goes well, or back off if all goes well. Amazon will remove a portion of the food delivery market. What if something goes wrong with burgers and fries on the road? Well, that's Grubhub's fault. - Jackie Davalos with Spencer Super
 returning to the food delivery market. But first... To read today: • Bankrupt Voyager crypto company account holders…){kind=link}
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