Amazon tried but then ultimately stepped away from building its own cost-intensive Grubhub and DoorDash competitor in the U.S. back in 2019. Now three years on, it’s taking a different approach to tackling the space to build in one more sweetener to encourage more sign-ups to its Prime subscription service. Today, the e-commerce giant and Just Eat Takeaway — which owns Grubhub in the U.S. — announced an investment and partnership in which Amazon will offer free membership to Grubhub+ for one year to Prime members in the country, and take equity in Grubhub potentially worth hundreds of millions of dollars.
Grubhub+, when it launched in 2020, was described as the “Amazon Prime of food delivery”: like other loyalty programs run by other delivery services, it’s a subscription service where members get free delivery on orders and potentially other bonuses. It’s normally charged at $9.99 per month.
The commercial terms of the agreement looks like it will give Amazon a stake in JET (as Just Eat Takeaway abbreviates its name).
Specifically, it will include a provision to renew the deal annually (just like a Prime subscription!), and that ” a subsidiary of Amazon will receive warrants (exercisable at a de minimis price) over 2% of Grubhub’s fully-diluted common equity.”
It also notes that “Amazon will also receive warrants (exercisable at a formula-based price) over up to a further 13% of Grubhub’s fully-diluted common equity, the vesting of which is subject to the satisfaction of certain performance conditions, principally the number of new consumers delivered through the commercial agreement.”
Those actual values will change, but as of December 31, JET said that the gross assets of Grubhub were €6,521 million ($6.7 billion, down from the $7.3 billion it paid in 2020) and the loss before tax for the 12 months ending in that period was €403 million. Doing the math, that works out at the first set of warrants being valued at about a $134 million, with the performance-based warrants valued at $870 million.
Just Eat Takeaway — a massive food delivery conglomerate that includes both of those international brands, plus Grubhub in the U.S., among other interests — has been under some pressure in its U.S. business in recent times, where it competes against the likes of Uber Eats and Doordash and many other outfits in what its a highly competitive, and often low margin, space. In a trading update from April (its most recent figures) it noted that Q1 orders in North America were at 89.6 million, a decline of 5% over the same period a year ago (when pandemic buying lifted many delivery boats). Revenues on paper looked like they grew 3% but in constant currency also declined by 5%.
At the same time, the company has been reassessing its ownership of Grubhub. It hotly contested buying the operation back in 2020 for $7.3 billion, but by May of this year it was weighing options for the business. It confirmed today that this remains the case: “The Company, together with its advisors, continues to actively explore the partial or full sale of Grubhub,” it said in a statement.
JET noted that the deal is expected to expand Grubhub+ membership, although it doesn’t disclose current membership numbers; and that it will have a “neutral impact” on Grubhub’s 2022 earnings and cash flow, with accretive impact from 2023 onwards.
This is not the first time the two companies have danced together. About a year ago, Amazon started offering Grubhub+ subscriptions free for a year to Amazon Prime Student members. It’s not clear how well that partnership has gone, although today’s news feels like an expansion of that, so chances are it’s been positive overall.
Sometimes those dances are not so harmonious, though. In the U.K., where Amazon pulled out of its original Restaurants service as it did in the U.S., it also stepped back into the restaurant delivery biz in a similar partnership, but this time with JET competitor Deliveroo, offering a free year of Deliveroo Plus to its Prime members in the country. Deliveroo Plus is — you guessed it — Deliveroo’s take on the membership subscription/free delivery model.
Amazon deal came in part because it is an investor, and thus part-owner, of Deliveroo. Given JET’s bigger picture of the state of its business in the U.S., and the fact that Amazon clearly still sees a lot of opportunity in building more strands for its delivery and subscription beast, it’s interesting to consider how and where these three companies will continue to compete, where they will cooperate, and possibly where they might potentially swap assets?
The deal today does certainly seem to point to at least some more ties in that regard.
“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 Adam DeWitt, CEO of Grubhub. “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.”
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