GrubHub and JustEat Partner Up to Offer Free Memberships to Amazon Prime Members
On Thursday, GrubHub and JustEat announced the details of their partnership that allows Amazon Prime members to receive free GrubHub memberships.
- Amazon Prime members will get free GrubHub+ memberships as part of a new agreement with JustEat's parent company, Takeaway.com
- In return, Amazon will receive options to purchase between 2 and 15% of JustEat Takeaway.com, with the exact amount dependent on how many new users it drives to GrubHub.
- Shares in JustEat Takeaway.com have risen by 12.40% so far this week following the announcement that it had been acquired by Deliveroo.
Personal trainers across the country will be dismayed when they learn that GrubHub and Amazon have become business partners. The partnership was revealed by JustEat Takeaway.com (that's a mouthful), which is the Dutch parent company of GrubHub, and investors are optimistic about the news.
Amazon will be given stock options that represent a 2% stake in JustEat and they may increase this to 15% if the merger is successful.
And it’s not only JustEat shareholders who are the winners from this arrangement. Amazon Prime members will be getting a year's free subscription to GrubHub+, which gives customers free delivery for what is usually a monthly charge of around $10.
This is a huge boost for GrubHub and JustEat Takeaway.com, as the food delivery business has been under pressure in recent times. Let's analyze the situation and see how this deal could affect Amazon in the long run.
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Food delivery companies have struggled in the last few years
In recent years, online food delivery has seen explosive growth, but its history in the U.S. goes back to 1995 when World Wide Waiter started in California as a pioneer of the industry and is still around today as Waiter.com.
Since the early days of World Wide Waiter, the industry has come a long way. There are currently a huge number of services fighting for market share, with new startups entering the scene all the time. The market is dominated by four companies - DoorDash, Grubhub, Uber Eats and Postmates - since 2020 when it was acquired by Uber Eats.
Growth has been steady for a number of years now, but it accelerated rapidly after the onset of the Covid-19 pandemic. Prior to March 2020, food delivery sales were increasing at a
Despite huge increases in demand and revenue, food delivery services are having difficulty making money. They operate on razor thin margins, and there are limited areas to improve those based on their current operating model.
For example, restaurants tend to have profit margins of between 7 and 22%, and, yet, delivery services will often charge the restaurant a commission of between 15 to 30%. Many are prepared to run the delivery service as a loss leader in order to promote their restaurant, but as the percentage of deliveries increases the economics become complicated.
The industry is trying many different ways to solve this problem. Dark kitchens, which do not have a front of house and only deliver food, are one of the fastest-growing solutions in recent times
The innovations that have been introduced in the past few years include simple fixes, like routing and combining multiple orders, to more novel ideas, such as using delivery robots.
Investors are confident that the sector will turn profitable, and with sufficient growth it could bring in a lot of money.
The following paragraph explains the Amazon-GrubHub merger.
Amazon wants to have a share of the market. The deal will provide GrubHub+ memberships for free to all Amazon Prime members for a year, enabling them to take advantage of free delivery and other exclusive benefits.
If the partnership works as intended, Amazon will get to buy 2% of JustEat Takeaway.com, which can increase to 15% if the deal brings in new customers for GrubHub.
This is a really interesting deal for both parties. GrubHub will get a huge marketing boost with access to the 160 million plus Amazon Prime users in the U.S. They are likely to drive an increase in subscribers who are willing to try out their service, and there will be some that continue using it even after the free GrubHub+ benefit ends.
If the deal succeeds and Amazon exercises their right to purchase up to 15% of JustEat Takeaway.com, it will probably mean a long-term partnership between Amazon and GrubHub. This could result in continued growth of new users on the delivery service.
If the deal doesn't turn out to be that successful and Amazon does not exercise the rights or fail to generate sufficient growth in customers, GrubHub will have gained 12 months of increased publicity without giving up its market position.
From Amazon's point of view, this is a good move. They can market an additional benefit to Prime members without having to spend any money up front. Existing Prime members may see the added benefit of free food delivery as enough reason to continue paying for their membership, when household budgets are tight.
For example, it could help convince potential new Prime members who have been hesitant to sign up.
If the partnership fails to generate value for Amazon, they can simply walk away without having invested any capital. The structure of the deal means that Amazon has the option to buy shares in Just Eat Takeaway.com, but they don’t have to if they don't want to.
JustEat Takeaway.com has said that the acquisition will not have an impact on their financials this year, but it will positively affect them in future years.
How will this affect GrubHub’s competitors?
DoorDash and Uber Eats will have to keep an eye on GrubHub. Over the past three years, DoorDash has grown their market share significantly,
In 2018, GrubHub held around 30% of the market, but this has declined to 13% as of May 2022. The overall market has grown significantly over that time.
JustEat owns some of the biggest online food delivery services in Europe, Australia, Canada and South America. Their stock price has fallen a lot in recent years, and is down over 85% since its peak in October 2020.
With new funds and a potential stake from one of the largest businesses in the world, DoorDash and Uber Eats would have reason to feel anxious.
Amazon could enter into their position in Just Eat Takeway.com at an attractive price, which will give them room to grow the brand and challenge the current industry leaders.
Jeff Bezos isn’t afraid to sustain losses for years on end in order to achieve a long-term payoff. That's good, because the market may take a while to mature and become profitable over the long term.
What are the implications of Amazon's acquisition of GrubHub for investors?
The statement from Just Eat Takaway.com was welcome news for investors, as their shares on the Amsterdam stock exchange rose by 12.40% at the end of Wednesday 6th July when it was released.
Amazon and GrubHub's merger could potentially slow the drop in the stock price that accelerated in 2022. It also raises the likelihood of further good news for investors, if this partnership proves beneficial to both Amazon and GrubHub.
If Amazon decides to exercise their warrants and purchase a percentage of Just Eat Takeaway.com, it will likely be seen as a vote of confidence in the long term prospects of the company. It is uncertain whether this will eventually lead to actual profits, though.
It's interesting to note the bet that Amazon is taking here. They've seen the massive drawdown in JustEat Takeaway.com's share price, and there's a chance they believe it's oversold. This deal with GrubHub gives them an opportunity to back a turnaround.
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