Amazon.com Inc.’s partnership with Grubhub Inc., a popular food delivery company, is helping the e-commerce powerhouse take a bigger share of the online food delivery market.
Amazon has acquired a 2% stake in Just Eat Takeaway.com NV, the Dutch parent company of Grubhub. The stake could eventually reach 15%, if certain performance objectives are achieved. Following the agreement, Amazon Prime subscribers can now sign up for a free one-year subscription to Grubhub+ to receive free shipping on all food orders placed through the app, Amazon said on July 6. The move is expected to put pressure on competitors like Uber Technologies Inc. and Door Dash Inc.according to analysts, and is already having an impact on share prices.
Just Eat shares, after hitting an all-time low on June 29, rose more than 17% following the announcement, while Amazon shares rose 2.4%.
However, Shares of Uber and DoorDash fell 4.3% and 7.4%, respectively, on July 6 following the Amazon-Grubhub deal. Shares of Uber and DoorDash are down nearly 50% year-to-date.
The deal is particularly important to Amazon’s subscriber retention efforts as consumer spending is expected to stagnate, 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] supply of drivers,” Nowak wrote in a research note.
According to 451 Research’s M&A knowledge base, there have been 16 deals this year in e-commerce food delivery, with a total value of $8.32 million. The majority of these deals involved delivery services like DoorDash bolstering their mobile app software, payment processing systems, or general IT support.
Just Eat Takeaway.com acquired Grubhub in a $7.3 billion deal in 2020.
In the future, Grubhub can leverage Amazon Prime’s global base of 200 million paying subscribers at 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 recorded 13% of meal delivery sales share in May, behind DoorDash’s 59% and Uber Eats’ 24%, according to Bloomberg Second Measure.
DoorDash is likely to be more impacted by a resurgence of Grubhub, due to its reliance on US markets for revenue, Zino noted. Uber’s diversification in terms of business segments – ridesharing, freight and food delivery – and its larger geographic footprint make it less susceptible to a more aggressive Grubhub, he added.
The partnership opens the door for Amazon to potentially buy a bigger stake in Just Eats, or for a rival to reach out with a competing offer, Zino said. Under the current agreement, Amazon will receive warrants for up to an additional 13% of Grubhub’s fully diluted common stock. Vesting of these warrants depends on the number of new consumers delivered under the partnership.
“It is plausible that Grubhub may be considered more attractive to interested bidders given Just Eat Takeaway’s efforts to sell the business,” Zino wrote in a research note.
This isn’t Amazon’s first venture into food delivery. The company closed its Amazon Restaurants delivery service in 2019 after four years of operation, turning to invest in UK-based Deliveroo. The difference this time, Nowak said, is that Amazon Prime members will have access to Grubhub’s base of about 320,000 restaurants in North America.
Notably, after launching its partnership with Amazon, Deliveroo doubled its subscriber base in one month.