Amazon Takes Bite Out Of Grubhub, Offers Prime Members Free Perks

Amazon has acquired a 2% stake in Grubhub, the North America-based subsidiary of European food delivery giant Just Eat Takeaway, the Amsterdam-based company announced Wednesday. 

Shares of Just Eat JTKWY were trading up nearly 20% on the news Wednesday morning, while rival DoorDash's stock DASH was down about 10%.

Amazon's AMZN stake in Grubhub could rise to 13% if it can deliver a certain amount of new customers to the business, though the announcement did not specify an exact number.

As part of the deal, Amazon will offer Prime customers a free one-year membership to Grubhub Plus, the platform's premium subscription option. That includes perks like free delivery and members-only rewards in more than 4,000 cities.

"I am incredibly excited to announce this collaboration with Amazon that will help Grubhub continue to deliver on our long-standing mission to connect more diners with local restaurants," said Grubhub CEO Adam DeWitt. "Amazon has redefined convenience with Prime and we're confident this offering will expose many new diners to the value of Grubhub Plus while driving more business to our restaurant partners and drivers."

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Just Eat asserted that the deal will have a neutral impact on Grubhub's earnings and cash flow for the year, adding that it will be "earnings and cash flow accretive" for the company from 2023 onward. However, the company noted that it is continuing to explore the partial or full sale of Grubhub.

The European firm first publicized its desire to sell Grubhub this past April after acquiring the U.S.-based company the previous summer for about $7.3 billion. Between then and April, Just Eat stock lost nearly 70% of its value, which attracted criticism from investors.

"As one of Just Eat Takeaway.com's largest and longest-standing shareholders, we shared our view last month that JET should refocus its business on Europe and unlock the significant value of Grubhub through consolidation with a U.S.-focused company," activist investor Alex Captain of Cat Rock Capital Management said in a statement last November.

But if a sale does happen, it won't do much to recoup Just Eat's losses. According to a recent report, it lowered its asking price for Grubhub to as little as $1.26 billion. That would represent a markdown of more than 80%, or $6 billion — if it can find a buyer.

"I'd be amazed if this does get done now because I don't know how management can credibly stand up and go, ‘You know, we've paid billions of dollars for this asset and now we're going to take a massive bath on it,'" one source told the U.K.'s Sunday Times.

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Among the top three U.S. food delivery platforms, Grubhub holds a 10% market share. DoorDash, meanwhile, dominates more than half (58%) of the market, and Uber Eats controls another one-third (32%).

This isn't Amazon's first foray into food delivery. It attempted to launch its own third-party platform, Amazon Restaurants, in 2015, but that service fizzled out by 2019. Reportedly, the firm is looking to launch a new version of the service, known within the company as Amazon Fresh Marketplace, this year.

Amazon has also invested in food delivery services outside the U.S. In 2019, it led a $575 million investment in U.K.-based startup Deliveroo, and it has since deepened that relationship with agreements for perks like free delivery for Prime members.

Then, of course, there's Amazon's partnership with Whole Foods, which launched in the U.S. the year before. Prime members could order free two-hour delivery from Whole Foods under a long-standing offer that the company removed last month. It reinstated a $9.99 service fee on Whole Foods orders, which triggered a pair of class action suits from Prime customers.

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