Just Eat Takeaway/Grubhub Deal Shows Appetite For Food Delivery Consolidation

The COVID-19 pandemic isn’t enough to stop cross-border dealmaking – specifically in the food delivery services space, where critical mass is of critical importance. Consider the news that European food delivery service Just Eat Takeaway has struck a $7.3 billion deal to acquire U.S. food delivery firm Grubhub.

The all-stock transaction will give Just Eat Takeaway entree into the United States. It also represents a shot across the bow of Uber, which had been looking to buy Grubhub itself, although antitrust concerns would likely have been a headwind to that deal. A combined Uber/Grubhub would have had about a 55 percent U.S. market share.

The Just Eat/Grubhub deal illustrates the importance of scale in the platform economy. The New York Times noted that the food delivery space has seen more than two dozen deals in the past two years, with mergers collectively worth $20 billion as estimated by the law firm Linklaters.

A Just Eat/Grubhub tie-up will have about a 24 percent share of the U.S. market to start. “Competition and pricing pressure will be fierce going forward,” Daniel Ives, managing director of equity research at Wedbush Securities, told the Times.

The latest deal also shines a spotlight on the COVID-inspired “great digital leap” that could forever change the way people do business and consume goods and services.

This pivot already has U.S. consumers spending more on ordering food online. PYMNTS’ latest survey found that 21 percent of Americans are doing so, up from 15.9 percent at April’s end. Similarly, DoorDash recently polled more than 1,000 customers and discovered that 56 percent of respondents have increased takeout consumption in the pandemic’s wake.

Just Eat Takeaway is itself the product of a merger. The company took its current form after two firms – Just Eat and Takeaway – paired up in an $11 billion deal.

One reason such consolidation is taking place across the food delivery space is that costs need to be wrung out of the equation.

Morgan Stanley said in a report earlier this year that even though the sector is growing, overall U.S. penetration rates remain relatively low. The firm estimated that online delivery penetration totaled 6 percent in 2018 and will rise to as much as 13 percent five years from now (when it will be worth about $60 billion a year).

Morgan Stanley believes aggregators like Grubhub will take the bulk of that business, with more than $53 billion of the food delivery sector’s $467 billion total addressable market. Morgan wrote that discounts and promotions are playing a huge role in aggregators gaining scale, impacting 58 percent of diners’ decision making. That’s especially true for younger diners, as a survey conducted by AlphaWise showed that 63 percent check for promotions before ordering.

Regardless of discounts, the appetite is there in the age of COVID-19 lockdowns for consumers to click their way to meals. Similarly, there is an appetite for large online delivery firms to supersize themselves.