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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
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.