1 big question for DoorDash as Amazon joins the food delivery race

Grubhub and Amazon (AMZN 2.66%) recently announced a partnership that allows Prime members in the US to get one year of Grubhub Plus for free. In this Motley Fool Live segment of “3-Minute Stock Updates”, recorded on July 11Fool.com contributors Ryan Henderson and Travis Hoium examine how this deal could affect DoorDash (DASH 8.39%).

Ryan Henderson: So that’s pretty big news. Last week, Grubhub and Amazon announced a partnership that allows Prime members in the US to get one year of Grubhub Plus for free. Grubhub Plus is very similar to DashPass, where usually or traditionally you pay, I think, it’s 9.99 per month, and you get free delivery on all food orders from participating restaurants. Now, if you’re a member of Amazon Prime, which has over 150 million Amazon Prime members in the United States, you’ll get it for free for one year. Following this announcement, Grubhub became the App Store’s most downloaded app last week for the Food & Drink category. DoorDash was at number 3. DoorDash shares fell almost nine percent the day after the news. He’s since recovered, but that was pretty much every restaurant business, so Uber included, stuff like that. They all sold out on this news. So from my perspective I don’t know if there was as much brand loyalty towards food delivery companies where you now have a lot of incentive to join Grubhub because you’re not paying for the delivery of food if you are already a Prime member, except for participating restaurants. To me, this seems like a real threat to DoorDash’s growth for at least the next 12 months, since it’s only a one-year subscription. I do not know. I’m curious to hear your opinion on this. First, are you going to download the Grubhub app, and do you think it’s a threat to DoorDash’s business?

Travis Houm: I am not an Amazon Prime member. We canceled that during the pandemic and moved on to things more like pickup, but I believe I have the DoorDash subscription. That’s going to be one of the interesting things to watch with this particular deal, is the ecosystem sticky? Because if DoorDash isn’t losing business because of this, then what threat is there? What greater threat is there than a partnership with Amazon? If DoorDash can take market share at a time when Amazon is trying to prey on your business, that tells me you’re in a pretty good position. I’d tend to think that I know the short-term numbers are really high for Grubhub downloads, and so that’s a really interesting data point. But I would think your ordering habits are pretty established. I have a bunch of food ordering apps, and DoorDash is basically the only one I actually use at this point. That’s what I’m fascinated to see. It’s definitely a threat, but if Amazon and Grubhub aren’t able to take a big slice and have a real revenue impact, then I’d feel a whole lot better about DoorDash as a long-term company. term.

Ryan Henderson: That’s a good point. This will serve as a pretty good ditch test, I think, for DoorDash. But it’s interesting. For me, I tend to shop around if I get food delivered, so I’m going to check Uber Eats, I’m going to check Grubhub, I’m going to check DoorDash to try and pick the cheapest. I know for a lot of people it’s just normal. I ordered with DoorDash last time. I understand how to do it very easily. I will do this again. But at the same time, if you’re saving $10 on every order, I guess maybe it’s time for a switch. I’m looking forward, maybe not this quarter, because you probably won’t see the effect, but next quarter, to see if they see a drop in the number of orders processed by DoorDash.

Travis Houm: The other question is also whether this is of more interest to suppliers for Grubhub. Restaurants are probably in a really weird place where you don’t want to have 50 different delivery companies tied to your systems. You almost have to have DoorDash at this point. You probably almost have to Uber Eats. Grubhub was, I don’t know, third, fourth, fifth, eighth in market share. It’s not a name I hear much here anyway, but does it move them up the stack and attract more vendors into the ecosystem? This will be another one to watch.

Ryan Henderson: I guess I’m curious to see how it goes, but I know some people have complained that subscriptions aren’t worth it because not all restaurants are participating, so maybe it’s not worth it not worth it. If I had just heard that ad, I would have thought a lot about it. But hearing that it became the most downloaded app on the App Store the following week for the Food and Drink category, it gives a little more. Maybe that could be a real threat.

Travis Houm: Definitely, it’s something to watch.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Ryan Henderson has no position in the stocks mentioned. Travis Hoium has no position in the stocks mentioned. The Motley Fool holds positions and recommends Amazon and DoorDash, Inc. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.