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Amazon Attacks GrubHub and Etsy Again

By Leo Sun - Oct 28, 2017 at 1:00PM

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The e-commerce giant hasn’t made much progress against these two resilient niche players.

Amazon's (AMZN -5.08%) constant expansion of its e-commerce ecosystem into adjacent markets often wreaks havoc on smaller players. We already saw this earlier this year when its acquisition of Whole Foods Market sank most supermarket stocks.

However, Amazon's entrance doesn't necessarily guarantee the death of incumbents, especially in niche markets like restaurant deliveries and handmade products. The respective leaders of those two markets, GrubHub (GRUB) and Etsy (ETSY -7.97%), continued growing even after Amazon launched rival platforms.

An Amazon delivery truck.

Image source: Amazon.

To challenge GrubHub, Amazon launched its own food delivery service in 2015. That same year, it launched Handmade at Amazon, which the media prematurely branded as an "Etsy Killer". But two years later, GrubHub and Etsy still dominate their niches, so Amazon recently circled back with two new efforts to challenge the resilient platforms.

First, Amazon announced that it would allow customers in certain markets to order local restaurant takeout directly through the Amazon app. Second, it launched a new gift shop for event-specific goods (like weddings and holidays) for its Handmade platform. But will either of these changes actually wound Grubhub and Etsy?

Why Amazon is losing against GrubHub

GrubHub's ecosystem -- which includes its namesake app, Seamless, Restaurants on the Run, DiningIn, Delivered Dish, and Eat24 -- allows diners to order from 75,000 takeout restaurants in over 1,300 cities across the US and London. Its recently closed acquisition of Eat24 from Yelp (YELP -3.46%) also lets diners directly order food from Yelp's mobile app.

GrubHub's mobile app.

GrubHub's mobile app. Image source: GrubHub.

Prior to that acquisition, GrubHub controlled 34% of the online food delivery market, versus 20% for UberEats, 16% for Eat24, and 11% for Amazon, according to a Cowen & Company survey. With the Eat24 acquisition now closed, GrubHub controls half the market -- making it tough for challengers like Amazon to gain ground. Therefore, Amazon's new in-app service might help it reach more users, but it has a long way to go before it hurts GrubHub.

GrubHub's latest earnings report confirms that its rivals aren't doing much damage. Last quarter, its revenue rose 32% annually to $163 million, active diners grew 28% to 9.8 million, "daily average Grubs" rose 14% to 304,500, and gross food sales jumped 18%. Its non-GAAP net income rose 23% to $24.5 million, and it's profitable on a GAAP basis. Wall Street expects GrubHub's revenue and earnings to respectively rise 34% and 24% this year.

Why Amazon is struggling against Etsy

When Amazon first launched Handmade, it seemed like artisans would flock to the platform for its larger customer base and faster delivery options. However, Amazon's 12% commissions and $40 monthly fees on sellers who sell over 40 items per month (waived until the end of 2017) turned off many potential sellers.

Etsy's mobile app.

Etsy's mobile app. Image source: Google Play.

Etsy charges a $0.20 listing fee, a 3.5% commission, and a 3% payment transaction fee, and doesn't charge any monthly fees. That lower fee structure, along with its first mover's advantage in the space, enabled Etsy to hold its ground against Amazon.

Moreover, Amazon's reputation as a big corporate e-tailer which tightly controls its sellers hasn't helped it win over many local artisans. Lucky Break Consulting, which recommends that artisans stay with Etsy, calls Amazon a "dictatorial platform that exerts almost total control over the sales process, stripping sellers of virtually all autonomy."

Etsy's artisans are clearly listening. Last quarter, Etsy's revenue rose 19% annually to $101.7 million and its gross merchandise sales grew 12%. Its active seller base grew 11% to 1.83 million as total active buyers rose 17% to 30.6 million. It also posted a net profit of $11.7 million, compared to a loss in the prior year quarter. Analysts expect Etsy to post 19% sales growth and a full year profit this year, so it's unlikely that Amazon's focus on specific events will suddenly lure away Etsy's vendors and customers.

The key takeaways

As I stated in a previous article, Amazon successfully disrupts lots of markets, but it often struggles against entrenched players with first mover's advantages -- especially those with online roots instead of brick-and-mortar ones. GrubHub and Etsy certainly fit that description, and Amazon will need to try much harder to beat them at their own games.

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Stocks Mentioned, Inc. Stock Quote, Inc.
$107.47 (-5.08%) $-5.75
GrubHub Inc. Stock Quote
GrubHub Inc.
Etsy, Inc. Stock Quote
Etsy, Inc.
$74.22 (-7.97%) $-6.42
Yelp Inc. Stock Quote
Yelp Inc.
$28.55 (-3.46%) $-1.02

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