Amazon could take up to a 15% stake in Grubhub under a new partnership that gives Amazon Prime members free access to Grubhub’s subscription service. The deal allows Amazon to buy a 2% stake in Grubhub and also allows them to purchase an additional 13% of shares at a “formula-based price” depending on how many new customers the partnership delivers to Grubhub.
DoorDash and Uber together control over 80% food delivery in the United States. In May of 2022, third-party analysts estimated that DoorDash had a 59% market share of monthly sales and Uber had 27% (combining Uber Eats and Postmates). These market shares have grown over the past few years at the expense of Grubhub, which only had an estimated 13% market share in May. The COVID-19 pandemic, combined with an aggressive expansion strategy, helped DoorDash to grow rapidly and to dominate the market.
Grughub, on the other hand, has struggled and remains a distant third in the U.S. delivery race. It was purchased in 2021 by Europe’s biggest meal delivery company Just Eat Takeaway.com. The new owners are looking to sell less than a year after buying it. The 2021 transaction can only be viewed as a major strategic error. In June 2022 the U.K.’s Sunday Times reported that the asking price for Grubhub has been slashed to $1.26 billion – a far cry from the $7.3 billion purchase price just a year earlier.
While the Amazon deal should help struggling Grubhub, many analysts caution investors not to be too optimistic. It’s certainly possible that Amazon could increase its stake in Grubhub over time but it’s also important to remember that Amazon is not entirely new to the food delivery space. In 2015 Amazon launched Amazon Restaurants only to shutter the service in 2019. There are a few reasons why Amazon Restaurants may have failed. One reason may be that Amazon underestimated the difficulty of the food delivery business. Delivery is a complex and costly process, and it can be difficult to make a profit from food delivery. Another reason may be that Amazon was unable to compete with app based food delivery services which had a large customer bases, and offer aggressive discounts and incentives to attract new customers.
As of July 2022 we can only speculate as to whether Amazon will take a controlling interest in Grubhub. Given it’s previous attempt to compete in the space, it’s possible that they are using the Grubhub partnership to re-enter the competitive market. However that does not mean that Amazon will necessarily rely on Grubhub. Amazon has a storied history in learning from it’s partners and vendors only to turn around and compete against them. There’s no guaranteeing that Amazon won’t indeed re-enter the food delivery business and bypass Grubhub altogether.