What Amazon and Grubhub Get From a Partnership

The Amazon-Grubhub alliance

Grubhub, the struggling US meal-delivery business, is getting a second chance. On Wednesday, the company announced that it was teaming up with retail behemoth Amazon.com Inc., which is adding food delivery as a perk for millions of Amazon Prime members.

With the deal, Prime customers can get online food takeout with no delivery fees through a one-year Grubhub+ membership. As part of the tie-up, Amazon will get an initial option to take a 2% stake in Grubhub, and an additional 13% stake if the partnership goes well. 

The agreement comes at a crucial time for Grubhub. In-person restaurant dining has gradually returned after pandemic lockdowns, while inflation has squeezed household budgets—meaning Americans’ appetite for takeout isn’t what it used to be. At the same time, Grubhub has fared poorly compared with its rivals. The Chicago-based subsidiary of Just Eat Takeaway.com NV has lost 10 percentage points of market share to DoorDash Inc. and Uber Technologies Inc. since the start of the pandemic, according to market research firm YipitData.

Just Eat Takeaway has stumbled, too: Its stock price plummeted almost 80% since it completed its acquisition of Grubhub in June 2021. More recently, it’s been desperate to sell the unit altogether to stem the losses.

But now, with the Amazon deal, Grubhub is suddenly back in contention. “The transaction essentially creates a more relevant No. 3 player after years of market share loss,” said CFRA analyst Angelo Zino. (DoorDash’s stock fell as much as 11% on the news.) And while Just Eat Takeaway doesn’t expect the deal to boost Grubhub’s cash flow and earnings until 2023, it could burnish its appeal to prospective buyers, Zino said.

Of course, Amazon isn’t interested in a rescue plan. The company has its own reasons for linking up with a third-party delivery service. For starters, the deal will offer customers one more reason not to cancel their Prime memberships, even as household budgets shrink.

Earlier this year, Amazon raised the price of its Prime program by $20 to $139 for annual subscriptions. Monthly members, which comprise the majority of Prime’s membership base, end up paying almost $180 a year. While higher costs from the gas pump to the supermarket have turned fee-laden delivery services from a handy convenience to a pricey luxury, the Grubhub+ membership (that normally cost $9.99 a month) could be a meaningful subsidy for Prime members.

Amazon also has a sprawling nationwide logistics network that makes food delivery a natural fit. As e-commerce sales growth has slowed from its pandemic-era highs, tapping into the food-delivery market could help the company lower the cost of deliveries. 

Historically, Amazon founder Jeff Bezos was against deploying his logistics machine for food delivery, according to a person familiar with his thinking. He feared that one bad meal would diminish the value of Prime membership in the minds of consumers. The company briefly dabbled in the space with a service called Amazon Restaurants, launched in Seattle in 2015. But it was killed in 2019 after expanding to select metropolitan areas. The program never got the big investment or rapid expansion that would indicate Amazon executives liked what they saw.

The Grubhub deal could allow Amazon to have it both ways. The partnership is structured so that the e-commerce giant can deepen the relationship if things go well, or back out if it goes poorly. It will give Amazon a piece of the food delivery market. And if something goes wrong with your burger and fries along the way? Well, that’s Grubhub’s fault. 

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