While online food delivery was already gaining broad adoption, the pandemic kicked that into high gear. Estimates vary wildly, but the worldwide food delivery market is currently worth roughly $150 billion, more than triple its size in 2017. This large and growing opportunity has launched a host of start-ups, while simultaneously attracting the attention of some of the world's largest technology companies.
Amazon (AMZN +0.61%) is no stranger to quick delivery, which has become a crucial component of the company's e-commerce success. The tech giant has also signaled its interest in the online food delivery space, testing the waters with a strategic partnership and potential investment in the young but growing industry.
NASDAQ: AMZN
Key Data Points
Delivery titans unite
In a press release on Wednesday, Grubhub announced a partnership that allows Amazon Prime loyalty program members to sign up for a free one-year trial membership to Grubhub+. The perk grants members access to "unlimited $0 delivery fees from hundreds of thousands of restaurants on Grubhub." This latest benefit will be available in more than 4,000 cities and hundreds of thousands of restaurants across the U.S. The deal includes free delivery for meals over $12, as well as exclusive offers including rewards, free food, and order discounts. To activate the deal, Prime members visit amazon.com/grubhub to sign up.
Amazon cited research that suggested that 53% of adults and nearly two-thirds of millennials confess that takeout and delivery meals have become an "essential" part of their lives, but only 38% admit to using third-party food delivery services.
The difference suggests the potential for Amazon to spur additional market share for Grubhub and its parent Just Eat Takeaway.com (JTKWY +4.88%). Grubhub was the food delivery leader in the U.S. in 2018, but has steadily ceded market share to rivals including DoorDash which controlled more than half the market last year, and Uber Eats, which accounted for 26% of food deliveries. Grubhub came in third with roughly 12% of the market.
A small stake with the potential for much more
In a separate press release, Just Eat Takeaway.com said that its partnership with Amazon was expected to boost the membership of Grubhub+, with a neutral impact on its results in 2022, but integral to both earnings and cash flow in 2023 and beyond. The deal will renew automatically each year, unless either company terminates the agreement.
Additionally, the company said Amazon would receive warrants worth 2% of Just Eat Takeaway.com's common stock, with the potential for an additional 13% stake, subject to the number of new Grubhub+ members resulting from the partnership.
Just Eat Takeaway.com has seen its growth decline in the face of increasing competition, and continues to actively explore a full or partial sale of Grubhub. In the first quarter, the challenges were evident as Just Eat Takeaway reported orders that declined 1% year over year, led by growth in North America that declined 5%. This was offset by an increase in gross transaction value (GTV) -- or the total value of the orders placed on its platform -- which increased by 4%.
OTC: JTKWY
Key Data Points
Amazon and food delivery
This isn't the first time Amazon has tested the waters in the food delivery space. Back in 2019, Amazon invested $575 million -- roughly worth a 16% stake -- in UK food delivery service Deliveroo. The deal had to be approved by UK regulators, citing competitive concerns. Amazon reduced its ownership stake in Deliveroo to 12% when the company went public, but remains its largest shareholder.
Deliveroo pioneered the concept of the "ghost kitchen," or locations that prepare meals strictly for food delivery service. Last year, Amazon Prime members in Ireland and the UK were provided free access to Deliveroo Plus, which granted them free delivery for orders of at least £25 (roughly $34 at current exchange rates).
If Amazon is following the same template with Just Eat Takeaway.com, it suggests that its initial incursion into food delivery was at least somewhat successful, prompting the company to order up another helping.
What this could mean for Amazon
It's worth noting that Just Eat Takeaway.com has a long-term goal to grow GTV to 30 billion euros (roughly $30.55 billion), with adjusted EBITDA margins of 5%, or roughly $1.5 billion.
Based on an initial stake of 2%, this could worth about $611 million in potential revenue and profits of about $30 million for Amazon. To put this in context, Amazon generated net sales of $470 billion last year, resulting in net income of more than $33 billion, so it won't even move the needle for the e-commerce giant.
On the other hand, Just Eat Takeaway.com and Grubhub have much to gain. Amazon keeps the exact number close to the vest, but estimates suggest that Prime has roughly 142 million members in the U.S. These customers are already predisposed to online ordering and delivery, making it a ripe opportunity for Grubhub.
