The competition in the food delivery space had already started heating up before the global health pandemic turned the vast majority of restaurants into digitally enabled dining options overnight. Practically as soon as 2019 had ticked over into 2020, rumors began circulating that Grubhub was looking for a buyer as it saw its market share erode in a field crowded with other marquee players. At the time, DoorDash, Uber Eats and Postmates were all considered to be leading contenders to buy the company.
GrubHub officially denied those rumors – without quite closing the door on a future merger or acquisition as a potential option.
“We felt it was important to clarify that there is unequivocally no process in place to sell the company, and there are currently no plans to do so,” a Grubhub spokesperson said in a statement. “We have always consulted advisers about a broad range of issues, including potential acquisition opportunities – that has not changed.”
That was the first week of February 2020 – and, of course, a good deal has changed since then, particularly for Grubhub. After reporting wider-than-expected losses with its first earnings report of the year, Grubhub came roaring back last week. Its earnings release showed a 24 percent year-over-year increase in active diners and an 8 percent year-over-year increase in gross food sales in the first quarter of 2020, compared to the same period in 2019.
The firm further reported that it added approximately the same number of new partner eateries in March and April of this year as it added in all of the second half of last year.
“For now, COVID-19 is a net tailwind for our growth metrics,” said Grubhub Founder and CEO Matt Maloney in a statement.
And with those tailwinds, it seems, rumors are once again circulating about a possible Grubhub purchase, this time with a specific buyer named. Citing sources “familiar with the matter,” CNBC is reporting that Uber has made an offer to buy the company. Much about the deal remains unknown, such as what amount Uber offered – though Grubhub’s market cap is roughly $5.4 billion since its jump in price after its earnings release last week. And the resurgence of the acquisition rumor has pushed that price up by nearly 40 percent after the reports broke on Tuesday (May 12).
Uber’s market cap, by comparison, currently comes in at $58.7 billion. Uber has been pushing hard into the delivery sector of late, particularly as its core ridesharing business has been largely decimated by the COVID-19 pandemic, though it has seen rapid growth in its Uber Eats business. Although that growth wasn’t enough to offset the ridesharing losses, it has been promising to see Uber redirect much of its focus toward expanding its share in the expanding market.
And though Uber and Grubhub have not yet offered any official comments on a potential merger, there are plenty of reasons to believe both parties could benefit from the arrangement. Uber is a much larger-scaled platform with a well-developed legion of drivers that has been actively moving toward delivery driving, and Grubhub is a veteran in the food delivery game with a large listing of restaurants already on its platform. And while both firms have been moving into the growing world of ghost kitchens, Uber has been testing and actively building takeout-only restaurant facilities for over a year, while Grubhub only launched its first test pilot in late 2019.
It is unclear how many of the restaurants that are currently on both of these platforms will fare by the end of the COVID-19 epidemic. Optimistic estimates are for 10 percent, while pessimistic estimates are in the 50 percent range. But having a supply of in-house, delivery-only establishments seems like it would be a competitive advantage for a food delivery service – and Grubhub would greatly benefit by joining forces with Uber’s more advanced efforts.
But there are many qualifiers to consider about the mergers. The first is that there is no official confirmation of the deal, and unnamed sources are not always correct. Second, without knowing what the offer is, it is hard to know how tempting it might be to Grubhub – if Uber is attempting a “bargain basement buy” on the heels of a very successful earnings report, it is hard to imagine they will be successful.
And even if the deal is appealing and priced right for all parties involved, there is the question of whether regulators will allow it to go through, amid antitrust concerns regarding the merger of two of the largest food delivery players into a single, massive entity with a lot of scalability.
In some states, regulators have already begun investigating the commission fees that firms like Uber and Grubhub charge restaurant owners for deliveries. New York restaurateurs have already filed a class-action lawsuit in Manhattan federal court that alleges price gouging during the coronavirus pandemic, as well as price-fixing practices that violate antitrust law. Grubhub, DoorDash, Postmates and Uber Eats were all named in the suit.
It’s easy to imagine that antitrust regulators would take a dim view of the amount of price-setting power that a single entity would have in any market, particularly when it comes to already contentious commission fees. And we imagine that restaurateurs would make their worries heard.
Still, it seems some consolidation will have to come to the market one way or the other sometime soon, because there likely isn’t enough room for the number of players currently crowding the space. As of the last PYMNTS consumer survey, the share of consumers using digital dining options is continuing to rise – but the massive growth observed in the early weeks of March is showing signs of leveling out. Our March 6 survey showed that 4.7 percent of those who purchased food from restaurants ordered it online, but that increased to 16.5 percent as of April 27. But two weeks prior to that, it had already hit 16.3 percent, demonstrating that while the conversion to digital is still happening, many more consumers are opting to eat “out” less frequently.
Unless the exponential growth starts happening again, it seems likely the space won’t be able to support a half-dozen or so variations of the same offering, and consolidation is in the cards.
Whether Uber and Grubhub will end up being the first big dynamic duo to voluntarily come together with the blessing of regulators remains to be seen. We imagine that if the acquisition is a real one, it may just be the most interesting thing either firm serves up all year. Stay tuned.