Yahoo Finance Amazon needs to provide 'value' for Grubhub customers and merchants, analyst says
Amazon (AMZN) Prime Members are now eligible to receive one year of free Grubhub Plus or unlimited free food delivery.
Once the free year is up, subscribers will be charged the current rate of $9.99 per month for unlimited delivery on orders of $12 or more from restaurants in the Grubhub Plus network. Already-paying Grubhub Plus subscribers can gain access to the free year, but if at any point subscribers cancel their Prime, they will lose access to the freebie.
Along with this announcement, Amazon, known for its fast, free delivery and as the owner the of Whole Foods, will acquire a 2% percent stake in Grubhub (TKWY.AS), with the potential to ramp up to 15%, according to Fox Advisors Founder and CEO Steven Fox (video above).
In the release, Adam DeWitt, CEO of Grubhub, noted that he is "confident this offering will expose many new diners to the value of Grubhub+ while driving more business to our restaurant partners and drivers.”
In order to maintain both customers and companies, Fox says Grubhub needs to leverage and provide "value" for both customers and merchants amid growing competition for market share from Uber (UBER) and DoorDash (DASH).
"Re-introducing them to Grubhub is important. There's been branding issues that have hurt them as we've seen in market share data over the last year and then providing value for that subscription," Fox told Yahoo Finance Live.
Fox said DoorDash, on the other hand, has made a "good case of how to provide value for subscribers, especially in inflationary times." He says Grubhub "doing the same, especially as part of Amazon, will be critical." He said adding on new categories, such as groceries, could help, especially with opportunity to create synergies with the Whole Foods brand, which Whole Foods acquired back in 2017.
An opportunity to work with merchants
The Grubhub partnership could also provide Amazon with an opportunity to alter the narrative of "bulldozing" smaller companies, he said.
"It's important to keep in mind that what DoorDash, especially DoorDash and Uber has done well, is create value for merchants in a big way, including small merchants, where sometimes Amazon sort of bulldozes those types of companies," Fox explained.
Grubhub currently features more than 320,000 restaurant partners in over 4,000 U.S. cities, but Fox said there's a lot of room of growth, with the online food delivery space expected to reach $343.80 billion in 2022 and "penetration of the total category" still being "relatively small."
Fox believes Grubhub can benefit from services around analytics, web services and white-label delivery to "expand beyond its four walls," with the possibility to expand into convenience store offerings beyond its partnership with 7-11.
"That type of technology investment is probably something that Amazon would have to ramp up and also have the frame of mind to do that for their merchants in a bigger way."
Brooke DiPalma is a producer and reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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