Would an Uber/Grubhub merger be good for restaurant meal delivery?
Uber is reportedly in talks to acquire Grubhub in what promises to reshape the restaurant meal delivery space.
Among the potential benefits of a combination:
- Market leader: A combination of Uber Eats and Grubhub would have about 55 percent share of food delivery in the U.S., according to Wedbush Securities. DoorDash would be second at 35 percent, with Postmates the fourth major player.
- Food delivery growth: Uber’s main ride-hailing business has essentially dried up amid shelter-at-home calls while food delivery has surged as consumers stay home and many restaurants remain shut down.
- Profitability: All four major food delivery players lose money. To some analysts, the costs of building out delivery and luring customers leaves room for only two major delivery players. Dara Khosrowshahi, Uber’s CEO, told investors on May 7, “There is a bunch of consolidation happening on a global basis where bigger players can not only provide better service for restaurants and consumers, but can provide a better service kind of on an economic basis that is sustainable.”
Grubhub had retained advisers in January to consider a possible sale well before the pandemic threat was fully realized, reported The Wall Street Journal.
The deal could fall apart over valuation and significant antitrust concerns, particularly as many local restaurants fight for survival in the face of the pandemic.
The pandemic crisis could present opportunities with Olive Garden and Waffle House using third-party delivery for the first time, although Cheesecake Factory, Chipotle and Applebee’s have built their own carryout operations to avoid middlemen costs.
Gig-economy companies may face more costs going forward as legislators are pushing for improved working conditions.
The crisis has also exacerbated tensions over the fees charged to restaurants for delivery. A number of cities are imposing or debating caps on such fees during the pandemic. Grubhub CEO Matt Maloney told investors on May 6, “We are doing everything we can imagine to help restaurants because, at the end of the day, the restaurants’ business is our business.”
- Uber Technologies Makes Takeover Approach to Grubhub – The Wall Street Journal
- Uber Said to Be in Talks to Acquire Grubhub – The New York Times
- Uber offers to buy Grubhub, plans to sell $900 million in bonds – CNBC
- Uber Announces Results for First Quarter 2020 – Uber
- Grubhub Reports First Quarter 2020 Results – Grubhub
- America Is Stuck at Home, but Food-Delivery Companies Still Struggle to Profit – The Wall Street Journal
DISCUSSION QUESTIONS: Would an Uber and Grubhub merger be a positive development for restaurants and consumers? In what ways do you expect the pandemic to impact the restaurant delivery space?