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Uber, Grubhub Chat About Sharing A Meal Delivery Service

Uber Technologies and Grubhub have reportedly been talking for months about a deal to create the No. 1 meal delivery service in the country. 

They could reach an agreement as soon as this month, sources tell  Bloomberg’s Ed Hammond, who broke the story, but “talks could still fall through,” he reports.

“Grubhub, founded in 2004, is the oldest of the major food delivery companies in the U.S. In recent years, competition from DoorDash Inc. and Uber has squeezed Grubhub’s profit margins. The coronavirus is adding more pressure, forcing Grubhub to withdraw its 2020 financial guidance last month. Uber pulled its forecast, too, and said a plan to turn a quarterly adjusted profit this year would be delayed until 2021,” Hammond writes. 

Uber and Grubhub are haggling over the deal’s stock exchange ratio, sources tell Reuters’ Greg Roumeliotis, Akanksha Rana and Lisa Baertlein. 

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“The potential acquisition suggests that the Silicon Valley disruptor is doubling down on its fastest-growing service in a scramble to adapt to what is likely to be a long business interruption,” they write.

“An analysis of current market shares in the food delivery services market indicates Uber would end up with nearly half the marketplace, according to data from Edison Trends. The data, which is derived from Edison's nationally representative consumer panel, is based on 190,000 individual food delivery service transactions in the month of April, and indicates a combined UberEats and Grubhub would have a 48.5% share of the market, leap-frogging ahead of DoorDash's 46.5% share,” Joe Mandese reports for MediaPost’s Research Intelligencer.

“Competition in the nascent industry, which ferries takeout orders from restaurants to homes and businesses, has intensified as newcomers try to grab market share with discounts and promotions. At the same time, restaurants are pushing back against the fees delivery companies charge, squeezing Grubhub and its competitors,” writes  Cara Lombardo for The Wall Street Journal.

"Analysts have long said that the industry -- with four major players in the U.S. that also include Postmates…, all of which lose money -- is in need of consolidation. Some see room for little more than two major players,” Lombardo continues.

“The discussions are a sign of how thoroughly the coronavirus has upended everything from the way that people are eating to how businesses must shift to find new growth. While food delivery has been offered for years, use of the services has surged in the pandemic as consumers stay home and many restaurants remain shut down,” Mike Isaac and Kate Conger  write for The New York Times.

“At the same time, companies like Uber are trying to limit damage to their business from the coronavirus -- its main ride-hailing business has cratered as people have stopped traveling -- and double down on services that are growing,” they add.

Uber “recently made another huge investment into Lime, which saw Uber’s bike and scooter business, Jump, absorbed into Lime. As part of that deal, Lime scooters and bikes are now able to be rented directly in Uber’s app, and Uber has the option to buy out Lime entirely between 2022 and 2024 at a specific price,”  Chaim Gartenberg reminds us  for The Verge.

“This month, it became clear that Uber Eats wants to be the top, or at least the second-best, food-delivery service in the markets in which it operates. Earlier this month, Uber Eats pulled out of the Czech Republic, Egypt, Honduras, Romania, Saudi Arabia, Uruguay and Ukraine. In the United Arab Emirates, Uber transferred its Eats business operations to Careem, its wholly owned ride-hailing subsidiary,” Megan Rose Dickey writes  for TechCrunch.

“‘These decisions were made as part of the Company’s ongoing strategy to be in first or second position in all Eats markets by leaning into investment in some countries while exiting others,’ Uber wrote in a filing,” Dickey adds.

“The deal has strong support on Wall Street,”  Therese Poletti points out for MarketWatch. Indeed,  Grubhub’s shares closed up more than 29% Tuesday and Uber rose 2.4%. But the proposed merger could face problems in Washington D.C.

“Uber is a notoriously predatory company that has long denied its drivers a living wage. Its attempt to acquire Grubhub -- which has a history of exploiting local restaurants through deceptive tactics and extortionate fees -- marks a new low in pandemic profiteering,” Rep. David Cicilline (D-Rhode Island) says in a statement Poletti cites.

“Cicilline, who is also the House antitrust subcommittee chairman, asked lawmakers just last week to include language in the next relief package that would ban mergers that do not involve companies that are severely distressed. Neither Uber nor Grubhub, with their cash reserves and hefty market valuations, could be seen as severely distressed,” Poletti writes.

1 comment about "Uber, Grubhub Chat About Sharing A Meal Delivery Service".
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  1. Ron Kurtz from American Affluence Research Center, May 13, 2020 at 2:32 p.m.

    Would love to see a list of situations, if there are any, where substantial industry consolidation produced meaningful consumer benefits rather than problems for the consumer. There is no substitution, not even government regulation, for true competition.  

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