Amazon raises stake in Grubhub, embeds food delivery in app
Amazon.com Inc. is increasing its stake in Grubhub to as much as 18% and expanding its partnership with the food delivery service to allow US users to order takeout directly on Amazon’s website and shopping app.
Amazon already had a 4% stake in Grubhub, up from 2% when it announced its earlier deal with Grubhub in 2022. Under the new five-year agreement, Amazon will receive options for an additional 3% stake in Grubhub and another 1% a year from now, Grubhub’s Dutch parent Just Eat Takeaway.com NV said in a statement on Thursday. It will have the opportunity to increase the holding to 18%, depending on the performance of the partnership and the number of orders.
Just Eat Takeaway’s shares rose 2.4% to €12.2 at 12:26 p.m. in Amsterdam trading on Thursday after earlier gaining as much as 5%.
“This will enable us to engage with the tens of millions of Prime members and introduce them to Grubhub,” said Grubhub Chief Executive Officer Howard Migdal in an interview. “We expect this to be a large catalyst for new customer growth for Grubhub.”
As part of the deal, Amazon Prime shoppers will also receive a free Grubhub+ membership.
Amazon has made a habit of acquiring stakes in its major business partners, often through warrants, an effort to realize more of the financial windfall of the tie-up. The retail and cloud-computing giant has in recent years scooped up stakes in the airlines that fly Amazon cargo aircraft, an electric vehicle maker, a grocery distributor and software companies, among other firms.
What Bloomberg Intelligence Says:
“Just Eat Takeaway’s five-year pact with Amazon incorporates Grubhub (GH) into Prime in what may be a longer-term solution to reverse US user losses. But the new agreement, more than the current tie-in, also replaces GH’s own-subscription revenue potential and makes a sale of the company to another party less likely. Just Eat, which saw US profit losses ease in 2023, is effectively providing a white-label food-delivery service for Prime members.”
- Diana Gomes, BI Senior Industry Analyst
For Just Eat, the partnership could help temper the double-digit declines it’s seen in orders and gross transaction value in the North American market. Meanwhile, the firm has been contending with weak demand for food deliveries in Europe, its home region.
Just Eat executives said in April that the company was still exploring the partial or full sale of US-based Grubhub, which it acquired for $7.3 billion in 2021. Just Eat announced plans to divest in April 2022 but attributed delays to high price demands from some investors and a weak market for deals.
Competition between food-delivery firms in the US has also been intense. Grubhub’s market share in the US has been on a steady decline since 2021, reaching around 8% in March, according to Bloomberg Second Measure data. It trails behind DoorDash Inc., which holds a 67% lead, and Uber Technologies Inc., which has 23%.
The embedding of Grubhub within the Amazon app will also help raise awareness of the ongoing Grubhub+ promotion. A Grubhub membership otherwise costs $120 a year in exchange for lower service charges and waived delivery fees on select orders.
“Customers we’ve gotten from Amazon, who’ve linked their Prime accounts, order more frequently than our average customers,” Migdal said. “They’re a really good cohort of customers,” he added, saying the partnership has also helped Amazon retain Prime subscribers.
Amazon started offering members of its Prime program free delivery from Grubhub in 2022, a benefit it portrayed as a temporary perk. The offer was extended a year later. Now, Amazon says it plans to offer members – who pay $139 a year in the US – free delivery through Grubhub on an ongoing basis. The company says it has more than 200 million Prime members globally.
Amazon in recent years has rolled back some Prime perks, including raising the free-delivery minimum for Amazon’s own grocery delivery services. Viewers of previously ad-free Prime Video now see streaming ads. At the same time, the company has added Grubhub memberships, along with programs for discounted drugs and medical care, to get shoppers to keep paying for a service that began as a speedy shipping program.
Instacart earlier this month announced a similar plan to embed Uber Eats’ ordering interface within the Instacart app. Unlike that partnership, however, Grubhub is not required to pay Amazon a referral fee or additional costs per order.
Grubhub’s announcement may also be a boon for its nearly 200,000 delivery drivers in the US as restaurants get more orders from Amazon users and possibly more visibility. “We do have waiting lists in many cities for more couriers so we’re hopeful this will turn into more earning opportunities for couriers, as well,” Migdal said.