The Major Deal Amazon Made With Grubhub
Food delivery companies aren't doing well, but a new deal between Grubhub and Amazon just might breathe new life into one.
This article is more than 2 years old
Food delivery companies have had a tumultuous couple of months. Following a boom in sales and usage during the height of the pandemic, many are now finding themselves with sagging profits and lackluster user retention. Grubhub is among those hurting the worst. In an effort to recoup some lost profits and safeguard its business, the company is now entering into a unique partnership with none other than e-commerce giant Amazon.
The New York Times reported that the deal between Amazon and Grubhub will benefit prime members. Amazon prime members who use Grubhub won’t be subject to any fees that Grubhub normally applies if they order from certain participating restaurants. Another stipulation of the deal gives Amazon the opportunity to acquire a 2% stake in Grubhub for a steeply discounted price. Adding to that, Amazon can also choose to purchase an additional 13% share at a price closer to the food delivery platform’s current per-share price.
The goal of this new Amazon partnership is twofold. The first goal is to breathe new life into Grubhub. However, the second goal is part of a larger maneuver from Grubhub’s parent company Just Eat. In 2021, the company lost an immense amount of profits totaling $410 million dollars. Consequently, Grubhub’s performance has become deeply concerning to the owners of Just Eat. As such, Just Eat is now looking for viable avenues to shed Grubhub from its portfolio as expeditiously as possible. And it’s easy to discern why they would want to. Just Eat is Europe’s largest food delivery platform. By contrast, Grubhub only makes up 13% of the food delivery market share in the US. Grubhub is dwarfed by the presence of both DoorDash and Uber Eats who enjoy 60% and 24% market shares, respectively.
Speculatively, Amazon could be just the right company to help Grubhub rise from the shadowy gallows of failure. At present, Amazon has nearly 180 million prime subscribers. That is a huge amount of market reach. If Amazon does acquire its expected 15% stake and then theoretically puts a lot of effort into bolstering the perks the prime members get for using Grubhub, then that could position Grubhub to eventually overtake its two mighty competitors. And honestly, just the simple exposure alone would probably do well just to put Grubhub back in the center of the public purview.
The ultimate fate of Grubhub is still one that is largely uncertain. In fact, the ultimate fate of delivery platforms like it is still largely uncertain. Shares for DoorDash and Uber Eats have fallen just as dramatically over the past year, despite their bigger market presence. What is clear, however, is that these companies need to reassess their sustainability and come up with new ways to stabilize and recoup profits going forward. Essentially, what worked exceptionally well for them during the height of the pandemic is no longer working as well as society largely shifts back towards some semblance of normal. Overall, the fate of Grubhub and others is hinging on all of their next moves.
