Amazon.com is expanding its food-related operations.
The online commerce giant agreed to add Grubhub to its suite of Prime services in the U.S., in a deal aimed at expanding the food-ordering company’s reach by tapping Amazon’s membership program.
Grubhub’s parent, Netherlands-based Just Eat Takeaway.com, said Amazon has an initial option to take a 2% stake in U.S.-based Grubhub, and U.S. Prime members can have their delivery fees waived from some restaurants. Just Eat said Amazon could bump up its total stake to 15% of Grubhub based on performance terms, which are focused on adding more food orders and customers to its delivery subscription program.
The partnership brings Amazon further into food-related services through its Prime membership program. The online commerce giant has provided grocery benefits to Prime members under its Whole Foods Market division as a way to make its annual subscription program more valuable. (The Wall Street Journal, July 6)
The deal is a needed boost for Grubhub and Just Eat.
While COVID-19 drove Grubhub’s order volume and restaurant partnerships in 2020, momentum has slowed this year. Grubhub has also lost 10 percentage points of market share to DoorDash and Uber since the start of the pandemic, according to market research firm YipitData.
With that, Just Eat will continue exploring a full or partial sale of Grubhub, a $7.3 billion acquisition it closed on last year. Just Eat has seen its share price crash more than 65% this year.
Poor PR
A one-day Grubhub promotion in May offering free lunch to all New York City customers turned into chaos for both restaurants and customers.
The app was offering $15 off any order made in the New York City area between 11am and 2pm. Grubhub said that 6,000 orders were placed per minute, causing the platform to crash, leaving restaurants overwhelmed and several customers without lunch.
Last year, Grubhub and DoorDash found themselves in hot water when accusations were made that they were harming restaurants and customers through exorbitant fees and other deceptive practices.
“What happened in NYC has little to do with driving business for restaurants and more to do with trying to keep GrubHub afloat,” Bob Vergidis, founder of pointofsale.cloud, recently told The Food Institute. “It shows that, when push comes to shove, third-party delivery services will put themselves ahead of the restaurants they serve.”
U.S. market competition
Amazon’s partnership with Grubhub lowers the odds of a food-delivery duopoly for Uber and DoorDash in the U.S., Bloomberg Intelligence analyst Mandeep Singh wrote in a note.
“Amazon.com’s stake in Grubhub looks similar to its expansion in the U.K. food-delivery market with its share of Deliveroo and is undoubtedly going to pressure order-volume growth for Uber and DoorDash,” he said. (Bloomberg, July 6)
