(Bloomberg) — Amazon.com Inc. is increasing its stake in food-delivery giant Grubhub Inc. to as much as 18% and expanding its partnership with the company to allow U.S. customers to order takeout directly on Amazon’s website or shopping app.
Amazon already owns a 4% stake in Grubhub, down from 2% when it announced its partnership with the company in 2022. Under the new five-year agreement, Amazon has the option to buy an additional 3% in Grubhub, with an option to buy another 1% a year later, Grubhub's Dutch parent company, Just Eat Takeaway.com NV, said in a statement on Thursday. Depending on the success of the partnership and order volume, Amazon will have the opportunity to increase its stake to 18%.
Just Eat Takeaway shares were up 2.4 percent at 12.2 euros as of 12:26 p.m. in Amsterdam trading on Thursday, after rising as much as 5 percent at one point.
“This will allow us to engage with and introduce Grubhub to tens of millions of Prime members,” Grubhub Chief Executive Howard Migdal said in an interview. “We expect this will be a major catalyst for bringing new customers to Grubhub.”
As part of the deal, Amazon Prime shoppers will also receive a free Grubhub+ membership.
Amazon has a habit of taking stakes in key business partners, often through warrants, to gain a greater share of the financial benefits of the alliance. In recent years, the retail and cloud-computing giant has bought stakes in the airline that flies Amazon's cargo planes, an electric-car maker, a grocery distributor and a software company.
Bloomberg Intelligence:
“Amazon's five-year deal with Just Eat Takeaway to incorporate Grubhub (GH) into Prime could be a long-term solution to reverse US user decline. But the new deal, beyond its current partnership, will replace GH's independent subscription revenue potential, making the company less likely to be sold to another party. Just Eat, which saw its US profit losses ease in 2023, is effectively a white-label food delivery service for Prime members.”
— Diana Gomez, Senior Industry Analyst, BI
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For Just Eat, the partnership could help it mitigate double-digit declines in orders and total transaction value in its North American market, even as the company struggles with weak demand for food delivery in its home market of Europe.
Just Eat executives said in April that the company was still considering selling part or all of U.S.-based Grubhub, which it bought for $7.3 billion in 2021. Just Eat announced its sale plans in April 2022 but blamed high price demands from some investors and a weak deal market for the delay.
Competition among food delivery companies is also intensifying in the U.S. According to data from Bloomberg Second Measure, Grubhub's market share in the U.S. has been steadily declining since 2021, reaching about 8% in March, behind DoorDash Inc., which holds a 67% lead, and Uber Technologies Inc., which has 23%.
The integration of Grubhub within the Amazon app will also help drive awareness of the company's ongoing Grubhub+ promotion. Grubhub membership typically costs $120 per year and comes with perks like discounts on the service and waiving delivery fees on certain orders.
“Amazon customers who have linked their Prime accounts order more frequently than the average customer,” Migdal said. “They're a really good demographic,” he added, saying the partnership also helps Amazon retain Prime members.
Amazon began offering free delivery from Grubhub to Prime members in 2022, but the company characterized it as a temporary perk. The service was extended a year later. Now, Amazon says it plans to offer free delivery via Grubhub on an ongoing basis to members who pay $139 a year in the U.S. The company says it has more than 200 million Prime members worldwide.
Amazon has rolled back some of its Prime perks in recent years, such as raising the free delivery minimum for its grocery delivery service, and Prime Video viewers who previously had no ads have been turned to streaming ads. At the same time, the company has added Grubhub memberships and drug and medical discount programs to allow customers to continue paying for what started as a speedy delivery program.
Instacart announced similar plans earlier this month to embed an Uber Eats ordering interface within the Instacart app, but unlike that partnership, Grubhub won't have to pay Amazon a referral fee or additional costs per order.
Grubhub's announcement could also be a boon to the roughly 200,000 delivery drivers in the U.S., as restaurants could potentially receive more orders and increased visibility from Amazon users. “We expect this will open up more income opportunities for our delivery drivers, as they have waiting lists in many cities,” Migdal said.
–With assistance from Cagan Koc.
(Adds Just Eat Takeaway share price reaction and analyst comment in third paragraph)
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