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May 30, 2024
Will Amazon Take Over the Restaurant Delivery Industry?
Amazon has expanded its Prime membership to include a permanent Grubhub+ subscription, offering benefits like $0 delivery fees on orders over $12, lower service fees, 5% credit back on pick-up orders, and exclusive offers. This change follows a previous offer of a free year-long Grubhub subscription for Prime members. Additionally, Prime members can now order Grubhub through Amazon’s website and app.
To celebrate, Prime members can use the code “PRIME5” for $5 off a Grubhub order over $25 until June 2. This move is part of Amazon’s strategy to attract customers amid competition from Walmart and Target. Amazon also has a 2% stake in Grubhub, with the potential to increase it to 15% based on performance, such as “the new number of customers added,” according to CNBC.
Amazon’s partnership with Grubhub aims to help the retailer recover from its previous unsuccessful Amazon Restaurants venture and to diversify its revenue streams. Despite the benefits, Amazon will face competition from Target’s similar service, Project Trident, which integrates its own delivery service, Shipt. Target, however, has reported a decline in sales, emphasizing the need for retailers to keep their offerings diverse.
But this isn’t the first time Amazon has made a play in the restaurant delivery industry. In 2015, from Seattle, Amazon attempted to take on Grubhub and Uber Eats directly as a new option for Prime members. Four years later, the endeavor failed.
The closure of Amazon Restaurants marked a significant retreat for the e-commerce giant in the fiercely competitive food delivery market. Despite its initial ambitions, Amazon struggled to gain a foothold against established players.
A comprehensive analysis of the food delivery landscape revealed why Amazon likely decided to exit the market. Data showed that Amazon Restaurants was significantly outnumbered by its competitors. For example, in Los Angeles, Amazon Restaurants serviced only 126 restaurants compared to 15,733 restaurants catered by DoorDash, Uber Eats, Grubhub, and Postmates combined. Similarly, in New York, often regarded as the food delivery capital of the U.S., Amazon Restaurants supported 485 restaurants, whereas its competitors collectively served 22,062.
Nationally, the disparity was even more stark. By the end of its run, Amazon Restaurants had partnered with 6,235 restaurants across the U.S., a stark contrast to the 842,746 restaurants served by its competitors, resulting in a staggering ratio of 135:1. This overwhelming difference in service coverage underscored why Amazon’s venture into food delivery could not sustain itself against more entrenched players.
Despite this setback, it was premature to assume that Amazon had permanently exited the food delivery business. Amazon demonstrated its continued interest in the sector by leading a $575 million investment in Deliveroo, a leading European food delivery service. Deliveroo, which dominated the U.K. and European markets, operated in a manner akin to Grubhub’s extensive reach in the U.S.
Then, in 2022, Amazon acquired the rights to purchase a 2% stake in Grubhub. Now, it’s been revealed that Amazon has received warrants representing 4% of Grubhub’s equity, with the potential to acquire an additional 10% based on certain conditions. This move comes after Just Eat Takeaway’s acquisition of Grubhub in 2020 in an all-stock deal valued at $7.3 billion.
Amazon’s interest in Grubhub aligns with its strategy to tap into the lucrative food delivery market, especially with the growing number of Amazon Prime members in the U.S., which stood at around 180 million as of March 2024, according to Consumer Intelligence Research Partners.
Just Eat acknowledged its endeavor toward either a partial or complete divestiture of Grubhub. Amazon has the opportunity to elevate its stake in Grubhub to 15%. The arrangement between Amazon and Just Eat will undergo renewal annually unless either entity opts to cease it.
Grubhub, however, has faced challenges in the U.S. restaurant delivery market, capturing only 8% of all U.S. meal delivery sales as of March. In contrast, DoorDash leads the market with 67% of meal delivery sales, followed by Uber with an estimated 25%, according to Bloomberg Second Measure.
Discussion Questions
How might Amazon’s latest partnership with Grubhub reshape the landscape of food delivery services, particularly in light of its previous setbacks with Amazon Restaurants?
With Amazon’s increasing stake in Grubhub, what implications might this have for the competition among major retailers such as Walmart and Target who are also venturing into the meal delivery market?
Considering the challenges Grubhub has faced in the U.S. restaurant delivery market, what strategies could it employ to regain its competitive edge against industry leaders like DoorDash and Uber Eats?
Poll
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Patricia Vekich Waldron
Contributing Editor, RetailWire; Founder and CEO, Vision First
Michael Zakkour
Founder - 5 New Digital &International Marketing Lead at UNILEVER
Ashish Chaturvedi
Practice Leader, HFS Research
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For Amazon, this is about adding another benefit to its Prime program. Amazon already offers a lot of value, but it needs to keep pushing the envelope as more retailers develop their own loyalty and membership programs. It is also a way of making Amazon a one-stop shop for food needs whether online ordering from Whole Foods, buying consumables on Amazon, or getting takeout. Takeout food delivery is not an area Amazon really plays in, hence the partnership with GrubHub rounds out the offer without the need for Amazon to play directly in the market itself.
Overall, Amazon wants consumers to think about it more when they need food – though there is some work to do to accomplish this. But it will be aided by using this partnership to create purchasing opportunities via the Tune In and Takeout program which suggests food and has special promotional takeout meals tied to its shows on Prime.
Good observations here Neil and I agree. It is about more value for Prime members and given Amazon’s continued desire to do food, whether themselves or in partnership with others. It also provides them another opportunity to learn and evaluate through the partnership with GrubHub.
To me the only meaningful definition of “reshape” is ‘will it become profitable?’ And in that regard, it’s not clear to me what amazon brings to the plate (no pun intended). Yes they have a popular website, so that could integrate w/ restaurant ordering; but that’s hardly the problem w/ restaurant delivery. The problem is that it’s an enormously labour-intensive service – read: expensive – that people want to use…but not pay for. I’m unconvinced that amazon, and it’s cloud sharing data capabilities, or its gazillion-and-one lane-blocking delivery vehicles can do much about that mismatch.
Time, patience, and profitability will tell if they can make a big dent in the restaurant delivery business.
Brilliant. Amazon can play in the food delivery business without worrying about an unprofitable business model.
Amazon had a restaurant delivery business in Miami as well. The selection was too narrow and I never could find anything I liked. One thing I like about using Uber Eats or alternatives is I can work with local restaurants. The only thing Amazon could do to attract them is charge them less than the incumbents. But to be honest, I don’t think Amazon needs another money losing business.
so, no
Amazon simply cannot be all things to all people. It is immensely interesting to watch Amazon branch out, but food delivery is a relatively mature market and customers have loyalties.
Amazon is the king of getting to our doorsteps. Why not bring our meals, too? Leveraging local logistics networks for fast, convenient and reliable delivery can help Amazon shape our dining habits and deepen our loyalty.
This is just another service to add to Amazon Prime, which some subscribers may try and/or value, but converting DoorDash and UberEats customer to switch is a tough task.
Amazon is coming from behind trying to compete with highly entrenched competitors.
It’s premature to predict if Amazon will own the restaurant delivery industry, however, Amazon has many built-in systemic advantages. Db
While I never underestimate Amazon, its reach in the food delivery business hinges on its partnership with GrubHub. (In contrast, both DoorDash and Uber Eats have developed a far bigger network of drivers, restaurants and other retailers.) Amazon is used to controlling its own destiny, so this ship may have sailed a few years ago.
At first glance I thought this was a great idea. Amazon is the king of “the last mile” business, so why not…??? I thought it leveraged Amazon’s existing delivery structure and would add efficiency to the whole process. But in thinking about it, I’m not so sure. Prepared food delivery is more time sensitive than grocery or packaged food delivery. And way more time sensitive than a lot of packages delivered by Amazon. So sure, Amazon has a whole delivery infrastructure they can leverage, but time sensitive food deliveries may or may not be as easy as it wants to sound. And if it’s just bolting Grubhub onto Prime membership, then it sounds like a profit drain…another profit drain. Man, this last mile stuff is complicated.
This unusual effort three positives for Amazon.
The first is it another service to add value to Prime membership.
The second, which I find more interesting, is free money. Per the discussion, if Amazon brings on X number of new customers, their statke increases to 15%.
The third, they don’t have to be involved in the operations of a business with a very weak business model.
The incumbent food delivery players all charge fairly steep fees. It’s why I mostly avoid them. If i can get the same coverage, for “free” as a Prime Member, I am all in.
Right…exactly. But then that has to mean that it’s a money loser for Amazon. Eyes open from the word go. Soooooo…???
Could be Jeff. But then again, Amazon relies on Advertising, Cloud Services, and Logistics to make money. Prime is the glue that keeps us stuck to them.
The standalone restaurant delivery business model struggles to find a sustained profitable path. Strategic partnerships such as the one with Amazon and Grubhub help the combination to bring more affordable convenience to a large swath of households while enhancing the value of Prime membership. Amazon is a technology company driven by data and generated insights. Adding food deliveries to the vast vault of personal data will give the company more insights into our food consumption and when combined with other Amazon data sources, on emerging social and buying trends.
The real question here is a market question. As in, how much are people REALLY willing to pay for food delivery, especially in a inflationary market? If anyone can get that right, it is Amazon, however I do not see this as a branding issue or a assortment issue. It is a pricing issue linked to a marketplace issue. Additionally we are 2+ years past lockdowns, so what impact has that had on consumer behavior–these delivery services flourished when no one could go anywhere, so I believe the relevance of the business model is in question. Maybe this investment in Grubhub leads us to a fast track for drone delivery, who knows.
My money is on fail with this one, we will see.
Amazon’s integration of Grubhub+ for Prime members will significantly increase its presence and mindshare in the restaurant delivery market. This move aligns with Amazon’s strategy to offer more value to its Prime subscription and attract more customers. However, it might not be a significant revenue generator immediately. The food delivery market is fiercely competitive, and Amazon will face strong opposition from established players like DoorDash and Uber Eats. Therefore, while this partnership enhances customer engagement and broadens Amazon’s ecosystem, it may not result in substantial immediate financial gains.
I really believe this is less about potential dominance in the meal delivery business & more about enhancing the value of the lucrative Prime business. That being said, this is a more reasonable entree into the foodservice business. Albeit, a significantly smaller market share owned by Grubhub compared to Door Dash & Uber, but still a recognized bona fide restaurant delivery alternative.
The upside for GrubHub here is they get badly needed access to a high volume of customers immediately to lift sales. This is key given their low penetration compared to DoorDash and Uber.
For Amazon, the additive of another benefit on Prime is good, along with investment options to boost ownership stake in GrubHub. But this can’t be the end of the story. Maybe at minimum Amazon simply learning from the data trove to enhance customer experience and merchandising strategy at Whole Foods, Amazon Fresh or Amazon.com is the goal. It definitely opens up the door for Amazon to pursue other options down the road. One key to watch will be how Amazon and GrubHub use this partnership to go after DoorDash and Uber.
Amazon continues to find ways to add value to its members/customers. In addition, if there is anyone who knows how to deliver door-to-door, it is Amazon. Yes, Amazon is a great retailer, but many also recognize them as a great logistics company.