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Meal delivery is set to become a Prime benefit.
Amazon and Grubhub announced a new partnership on Wednesday that will include the following:
- Grubhub+ on Prime: Amazon Prime members in the US will receive a free one-year trial of Grubhub+. This offers access to $0 delivery fees on unlimited orders from restaurants, as well as certain perks and rewards.
- Amazon stake in Grubhub parent: Amazon will take a stake in Just Eat Takeaway (JET), the Amsterdam-based parent company of Grubhub. Under the agreement, Amazon will take a stake of 2% in JET, with an option to take a further 13% based on how many new consumers are delivered through the commercial agreement.
- Auto-renewal: In a fitting detail for a partnership of subscription services, the deal renews automatically each year, unless one of the sides pulls out.
On the consumer level, the deal is straightforward. Prime members can now receive free meal delivery for a year, just like they receive free shipping on Amazon orders and free access to Prime video.
However, beneath the surface there are plenty of implications for both businesses, and on meal delivery as a whole. Here’s a breakdown:
What it means for Amazon
Amazon is adding meal delivery to its offerings, opening a convenient path to kitchen tables that goes beyond the groceries it currently delivers via Whole Foods. If successful, the deal could make good on a yearslong effort to add a restaurant delivery option.
Amazon has experimented with its own service. In 2015, the company launched Amazon Restaurants to provide food delivery from nearby eateries. It expanded to 20 cities before eventually being shuttered in 2019. A 2019 Geekwire article on that closure detailed other forays:
Amazon has dabbled in food delivery ever since launching grocery delivery service AmazonFresh in Seattle more than a decade ago. The company launched a takeout service in 2014 that let customers use the now-defunct Amazon Local app to order food for pick-up. Amazon then began allowing customers to order food via Amazon Local directly from restaurants, who delivered the meals.
Amazon has also invested in restaurant delivery services before. It took a 16% stake in Deliveroo as a lead investor in a 2020 round worth $575 million that ended up rescuing the UK-based company from the brink of collapse as the pandemic boosted delivery as a whole. Amazon proceeded to sell some of its stake when Deliveroo went public in 2021. Later that year, it started offering Deliveroo’s free-delivery subscription as a Prime benefit in the UK, similar to what it's doing now in the US with Grubhub.
These past examples offer a reminder that Amazon has been here before in other ways. And as Restaurants shows, despite the magnitude of the deal, it could fail.
Still, the upside of the Grubhub deal is enticing. The company already offers delivery of packages and groceries. Now Amazon Prime members can order meals from nearby restaurants within its app.
In a press statement, Amazon VP of Amazon Prime Jamil Ghani called this perk a “thank you” to members.
“The value of a Prime membership continues to grow with this offer,” Ghani said.
Along with boosting use of the service among existing members, it could also help to attract new signups.
For an example of the approach, just look at Prime Day, which also arrives next week. Amazon offers deals to Prime members for the July 12-13 event. In turn, this can inspire new signups for Prime via a 30-day free trial offered during the holiday. If customers stay signed up, they now have incentive to keep spending within Amazon's ecosystem.
Offering free delivery for a year in a service that’s sought by customers in every day life, the Grubhub deal adds an extended perk that makes Amazon relevant for anyone looking to order dinner. While Prime already has an estimated membership of more than 200 million people globally, the company is looking to get back to growth in its retail business after reporting a loss for the first time in 2015. There’s no better place to turn than Prime, which has long been the key cog in making the company’s ecommerce business sticky.
Turning to a broad-based service like meal delivery might hold the best prospect for growing a service that already has massive penetration. Grubhub pointed to a 2021 National Restaurant Association study that showed (53%) of adults – and 64% of millennials – view takeout and food delivery as “essential.” For Amazon, positioning Prime to offer a service of that importance can provide a reason to join that goes beyond shopping and entertainment.
What it means for Grubhub
For Grubhub, the benefits lie in being able to tap those existing hordes of Prime members. Extending its subscription service to those customers brings more business to Grubhub. In turn, it makes it more likely that they will get introduced to the service, and keep it past the free trial date.
“Amazon has redefined convenience with Prime and we’re confident this offering will expose many new diners to the value of Grubhub+ while driving more business to our restaurant partners and drivers, said Adam DeWitt, CEO of Grubhub, in a statement.
The company sees plenty of market space in front of it. While food delivery was one of the digital businesses that spiked with the onset of health precautions during the COVID-19 pandemic, the company pointed to an Ipsos statistic that indicated “only” 38% of Americans report using third-party delivery services at least some of the time.
It comes at a time when Grubhub is under particular pressure to grow. According to Bloomberg Second Measure, the company had 13% of market share among food delivery companies as of May 2022. Three years prior, it owned half the market. In the midst of this fall, it was sold to JET in 2021, which in April of this year then said it was exploring a strategic partnership or sale of the company.
Dewitt said at an industry event this spring that adding “channel partners” as a means to get some of its market share back was especially of interest, according to Restaurant Dive. A partnership that embeds it within the largest subscription service in ecommerce would appear to fit that bill.
Even so, JET apparently isn’t done mulling options yet. The company stated that it “continues to actively explore the partial or full sale of Grubhub.” While the milestone targets for customer growth built into the Amazon deal are not detailed, the message seems clear that Grubhub still has work to do to satisfy its own parent, and investors.
What it means for food delivery
While it remains to be seen whether the deal is a success, the announcement of its existence will send a shockwave through the market for food delivery. The signs were already present shortly after the announcement on Wednesday, as CNBC reported that Uber’s stock fell 3%, while DoorDash was down 9%.
Those companies own the top two market share spots for food delivery, having risen by making key moves that Grubhub didn’t. Amazon’s renewed entrance into the space by itself would be enough to send nerves. That it is doing so via partnership with the number three company in the market only compounds the implications.
Uber Eats and DoorDash are both increasingly delivering items beyond meals, as they’ve added availability of products from retail stores beyond restaurants. Uber is planting a flag around local commerce, while DoorDash is expanding its marketplace to include items like office supplies. Now, there may be opportunities for Grubhub to link with the leader in the delivery of general merchandise, at a time when Amazon is testing out ways to involve local retailers in its delivery network. Coming amid speculation that post-pandemic contraction of food delivery could become permanent and instant delivery companies make cuts, the deal could open the opportunity for collaboration to unlock new paths forward in the space, and even ecommerce as a whole. As the partnership evolves, it will be interesting to see whether Grubhub and Amazon end up looking more like each other in the process.
Trending in Retail Channels
The job market continues to hum.
The labor market continued to show strength to start 2023, as the monthly jobs report posted big numbers.
Key data from the U.S. Bureau of Labor Statistics’ monthly jobs report:
- Unemployment fell to 3.4%, ticking down from 3.5% in December to remain at historic lows.
- The economy added jobs to the tune of 517,000, which bested the 2022 average of 401,000.
- Average hourly wages rose by $0.10, marking year-over-year growth of 4.4%.
The Current’s view: The labor market continues to be an economic outlier. While there are signs of consumer pullback and belt-tightening among tech companies and retailers after months of high inflation, the job picture remains bright. While tech companies and some retailers are cutting back markedly, there are few signs of the widespread “pain” that economists predicted in this indicator of the economy.
What brands and retailers are thinking: Jobs are a major indicator of demand, and the labor market continues to hum along. That means the consumer pullback is tied to choices about discretionary spending and holding off on certain purchases in the face of high prices, moreso than being unable to afford items altogether.
What the Fed is thinking: Here’s more evidence that a soft landing might be possible. The Fed has been raising interest rates to bring down inflation. There is risk that this will slow down the economy, including employment. There was some slowing in job growth in December, but this report indicates labor market softening still hasn’t happened for a sustained period, even as inflation is cooling. After the central bank scaled back its latest interest rate hike to 0.25% on Wednesday, Fed Chair Jerome Powell said he sees a “path” to bringing down inflation without a significant rise in unemployment. Here’s one more piece of data to bolster that belief.
Keep in mind: The labor market is still out of balance between supply and demand. This report shows a big rise in jobs and the labor force participation rate remaining the same. Job openings actually increased in December, the Labor Department found. So there a still the case. Eventually, it will likely have to come into balance. But given the unpredictability of this economic era, it’s tough to know when, or even how.