Amazon agrees to invest in Grubhub and offer a one-year subscription to Grubhub+ for U.S. Prime users.
Amazon.com Inc. has announced its collaboration with Just Eat Takeaway.com NV’s Grubhub food-delivery service. As part of this partnership, Amazon will become a stakeholder in Grubhub and provide a one-year subscription to Grubhub+ for its U.S. Prime members. This exciting news was shared by both companies on Wednesday.
According to Amazon, Prime members across over 4,000 cities can now take advantage of this new benefit. The Grubhub+ membership, which typically costs $9.99 per month, offers unlimited free delivery on orders totaling more than $12. Additionally, subscribers can enjoy other perks like earning free food and accessing order discounts.
Amazon’s stake in Grubhub will be in the form of warrants, granting them the option to purchase a 2% stake initially, with the possibility of increasing it to 15% in the future, as stated by Just Eat. Warrants provide the holder with the right to buy or sell stock at a predetermined price before a specific date, though they are not obligated to do so. The value of these warrants hinges on the success of this partnership and its ability to attract new customers.
The membership agreement will automatically renew each year, unless terminated by Amazon or Grubhub.
Analysts are optimistic about the partnership
Steven Fox, CEO of equity research firm Fox Advisors, does not anticipate immediate major changes in the meal-delivery industry due to the Amazon and Grubhub collaboration. He points out that Grubhub’s main competitors, DoorDash and Uber Eats, have a much larger market presence.
“I don’t think DoorDash and Uber Eats should be too concerned at the moment,” Fox affirms. However, he believes that the partnership with Amazon will greatly aid Grubhub in gaining new members, which is crucial for their success. Customers who subscribe to a delivery service membership tend to order significantly more from that specific service compared to non-members.
In a note to investors, Jefferies analyst Giles Thorne describes the Amazon partnership as “both significant and positive.” According to Thorne, Grubhub has not only secured a powerful partner but also gained an effective channel for acquisition. This is considered positive news for Just Eat Takeaway’s equity, which has struggled in the past.
Data from Bloomberg Second Measure reveals that overall U.S. meal delivery service sales grew by 8% year over year in May 2022. Among the market leaders, DoorDash claims a 59% market share, followed by Uber Eats with 24%. Grubhub occupies a 13% market share for that same period. Bloomberg Second Measure, a division of Bloomberg Finance L.P., provides analytics and consumer transaction data insights.
Grubhub’s parent company seeks investors
In April, Just Eat, based in the Netherlands, expressed its plans to find strategic partners for either a partial or full sale of Grubhub. This decision came less than two years after Just Eat acquired Grubhub for $7.3 billion. Bloomberg reported in June that private equity firms, including Apollo Global Management Inc., expressed initial interest in acquiring Grubhub.
Just Eat states that it will continue to explore options for either a complete or partial sale of its U.S. business.
During a conference call with analysts on March 2, Just Eat CEO Jitse Groen remained tight-lipped about Grubhub’s future but indicated ongoing discussions with strategic investors, investors, and private equity firms regarding its future. Groen emphasized that the timeline for any action is reliant upon the offers received.
Groen faces the challenge of reviving Grubhub’s growth following increased competition and the reopening of restaurants post-COVID-19 lockdowns. In October, Groen presented a growth strategy for the U.S. market, focusing on suburban areas in key markets and experimental mini-warehouses in New York to facilitate faster order fulfillment.
Just Eat expects their partnership with Amazon to expand Grubhub+ membership, while having a neutral impact on Grubhub’s 2022 earnings and cash flow. The statement goes on to clarify that any financial benefits resulting from this collaboration will be realized from 2023 onwards.
Internal issues have also plagued Just Eat, with an investigation launched into the personal conduct of its chief operating officer and the resignation of its chairman in May.
Grubhub currently delivers approximately 715,000 daily orders and partners with 320,000 restaurants across the United States.
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