Uber Eats loses the battle over Grubhub’s courtship, but has it lost the war in the on-demand food delivery market?

Consolidation on-demand

The news that European food delivery app Just Eat Takeaway had ‘tied the knot’ with US-based Grubhub in a deal worth around $7.3bn (about €6.5bn) came as a surprise, as Uber Eats and Grubhub had been reportedly in talks over a potential merger. Both active in the US market, the merger made sense over a competitive perspective, especially for Uber Eats, that could have reportedly owned 55.0% of the food delivery market in the US if the operation was successful. Instead, almost out of the blue, it was announced that talks between Grubhub and Uber Eats had not reached a conclusion, although it is unclear whether this was due to regulatory concerns over competitive breaches or the two companies being unable to agree a final share price.

The news comes amid a surge in demand for deliveries of take-away food as people stay home and order ready-made food, unable to eat out at restaurants and pubs often shut because of the coronavirus pandemic. There is no doubt that the coronavirus has accelerated the growth of e-commerce and especially on-demand deliveries, as also highlighted in Ti’s Global e-commerce Logistics: A Covid-19 Update. However, analysts have stated that consolidation in the food delivery industry is long overdue as the market is fragmented, especially due to the low barriers to entry that the market presents, meaning that companies have to spend sky-high sums to gain and retain their customer base. The Just East Takeaway-Grubhub merger is expected to be completed in Q1 2021, and it has been estimated that the move would create the world’s biggest food delivery company outside China, with more than 70m active customers in 25 countries placing around 600m orders a year. Just Eat Takeaway itself was created by the merger of the UK’s Just Eat and Netherlands-based Takeaway.com, given the final regulatory approval in April 2020 after the UK anti-trust regulator gave the go ahead to the operation.

“Like ridesharing, the food delivery industry will need consolidation in order to reach its full potential for consumers and restaurants”, said Uber spokesperson Noah Edwardsen.

Are there any signs that, after Grubhub which had been snatched up from under its nose, Uber Eats might be looking elsewhere and also focus on the European market? Barcelona-based Glovo’s co-founder Sacha Michaud, which is particularly active in the Southern European market, is also of the opinion that the grocery on-demand market is heading towards consolidation. However, despite stating in December 2019 that he had had conversations with Uber Eats, Michaud added that these were not about investments or acquisitions.

During the week commencing June 22, 2020, it was also announced that Amazon’s acquisition of the 16.0% share of Deliveroo will have a final verdict on August 6, 2020, after the Competition and Market Authority, the UK’s anti-trust regulator, provisionally cleared the acquisition. Now, with Amazon also potentially entering this market, it could be that further mergers and acquisitions will be completed in the next few months to counteract widely knows players accessing the on-demand food delivery market. Their potential for scaling up, economic availability and reputation helping to gain a solid and faithful customer base, which is key to success in the highly fragmented market, will represent a serious threat to smaller companies.

Source: Transport Intelligence, June 30, 2020

Author: Caterina Ciccone