The Amazon-Grubhub Partnership
Grubhub, a struggling food delivery business in the US, gets a second chance. On Wednesday, the company announced it was partnering with store behemoth Amazon Amazon Inc. which adds food delivery as a benefit to millions of Amazon Prime members.
Amazon – Grubhub Agreement:
With the agreement, big customers can get online food without having to pay for a one-year Grubhub + membership. As part of the bond, Amazon will receive a 2% share on Grubhub, and an additional 13% if the partnership goes well.
The agreement comes at an important time for Grubhub. Private restaurants are slowly recovering after the closure of the epidemic, while inflation has strained the domestic budget – meaning Americans’ appetite for food is no longer what it used to be. At the same time, Grubhub performed poorly compared to its rivals. Chicago-based company Just Eat Takeaway.com NV has lost 10 percent of its market share to DoorDash Inc. and Uber Technologies Inc. since the outbreak began, according to market research company YipitData.
Just Eat Takeaway is also a stumbling block: Its stock price has dropped by almost 80% since the Grubhub acquisition ended in June 2021. Recently, it was eager to sell the unit entirely to prevent losses.
But now, with an Amazon deal, Grubhub is suddenly back in contention. “This job creates the 3rd most qualified player after years of losing market share,” said CFRA analyst Angelo Zino. (DoorDash stock has dropped to 11% in the news.) And while Just Eat Takeaway does not expect the deal to improve Grubhub’s cash flow and earnings by 2023, it could heat up its appeal to potential buyers, Zino said.
Well, Amazon has no interest in the redemption plan. The company has its own reasons for connecting to a third-party delivery service. First, this agreement will give customers another reason not to cancel their primary membership, even if the home budget is declining.
Earlier this year, Amazon increased the price of its Master plan by $ 20 to $ 139 per year subscription. Monthly members, including most of the Prime membership base, end up paying about $ 180 a year. Although the high cost of the gas pumps in supermarkets has transformed service delivery services from the simplest to the most expensive, a Grubhub + membership (usually $ 9.99 per month) can be a reasonable subsidy for key members.
Amazon also has a nationwide transportation network that delivers food delivery naturally. As the growth of e-commerce sales has slowed since the peak of the epidemic, entry into the food delivery market could help the company reduce delivery costs.
Historically, Amazon founder Jeff Bezos was opposed to sending his truck to deliver food. According to someone familiar with his thinking. He feared that a single bad diet would reduce the importance of Prime membership to consumers’ minds. The company briefly entered the space with a service called Amazon Restaurants, launched in Seattle in 2015. But it was killed in 2019 after being expanded to select major metropolitan areas. The program has not received any major investment that could show that Amazon executives love what they see.
The Grubhub agreement could allow Amazon to have both options. Partnerships are designed in such a way that the e-commerce giant is able to deepen the relationship when things go well, or back off when things go awry. It will give Amazon a piece of the food delivery market. And what if something went wrong with your burger and fries along the way? Well, that’s Grubhub’s fault. —Jackie Davalos and Spencer Soper.