From the Wall Street Journal, Amazon has entered into a partnership with Grubhub. Grubhub’s European parent Just Eat surged, and American rivals DoorDash and Uber (Eats) tanked. Amazon’s stock is slightly up. Is Amazon going to crush yet another vertical? The actual details suggest to me something more in line with Amazon’s video plays than world domination.
The details
Amazon has rights to a 2% stake in Grubhub and can bump that up to 15% if the deal is a major success.
Amazon Prime members can get a free 1 year trial of GrubHub Plus
Grubhub Plus members can get free delivery on order of $12 or more
This applies to some restaurants which have opted in
Prime members will be charged a monthly fee for GrubHub Plus after the first year, unless they opt out.
Grubhub should obviously love this deal (for now), as they are hurting and losing momentum quickly. Knowing that, why wouldn’t Amazon just outright buy Grubhub if they wanted to get back for another stab at delivery? The price would have to be cheap, but Amazon’s fulfillment network doesn’t really make sense here…..
I see this more as Amazon monetizing the prime audience (by extracting from Grubhub) than anything. I would expect to see more of these deals moving forward. Amazon Prime is a massive audience used to getting benefits with their membership. In a way, this costs Amazon next to nothing. Prime members benefit, the membership becomes stickier, and the Amazon flywheel continues to spin. Per the Journal article, Amazon has done many of these deals with business partners (including Rivian).
The other point I’ll raise is that this is Just Eats/Grubhub playing with fire. The Grubhub business is for sale, so it makes sense for them but not Uber/DoorDash. I mentioned Prime Video at the start. It is quite an odd offering at first glance but has ultimately become 1) Movie Rentals and 2) selling subscriptions to services like Showtime. Free videos are a nice perk, but they’ve also helped justify building a real business in video streaming. Amazon is a company that notoriously has launched its own phone, health insurance company, streaming music service, gig labor site (Mechanical Turk), and physical stores. If this deal provides evidence that Prime Members want and will pay for food delivery, I would not assume Amazon stops at a 2% equity partnership.
$GRUB $AMZN 📈