Uber negotiating to buy Grubhub
Uber is negotiating to buy Grubhub, according to multiple reports, in a deal that would unite two of the biggest sources of restaurant meal delivery as millions more Americans order takeout during shelterinplace orders.
Uber and Grubhub both declined to comment. CNBC reported that the two were having trouble agreeing on a price in a potential allstock deal.
For Uber, which saw its ride business plunge as consumers stayed home, its Uber Eats meal delivery service has provided what CEO Dara Khosrowshahi called a “silver lining” during a conference call last week on Uber’s firstquarter financial results. Uber Eats gross bookings rose 54% in the quarter compared to a year earlier, while Rides bookings fell 3%. The pandemic’s full effects weren’t yet felt, as most of the quarter occurred before shelterinplace orders were imposed in midMarch.
“Eats has also allowed us to maintain high engagement with our existing customers and to bring in new customers,” he said. “This positions us to have a faster recovery than ridesonly players.”
Khosrowshahi discussed consolidation in the food category during that call, saying that bigger players can provide better service more economically.
Uber, headquartered in San
Francisco, lost $2.9 billion on revenue of $3.54 billion in the first quarter. Last week it laid off 3,700 people or 14% of its staff, largely in customer service roles. It was the biggest round of layoffs at a tech company during the coronavirus epidemic.
“Clearly, this would be an aggressive move by Uber to take out a major competitor on the Uber Eats front and further consolidate its market position, especially as the COVID19 pandemic continues to shift more of a focus to deliveries vs. ride sharing in the near term,” Dan Ives, an analyst at Wedbush, wrote in a report on the proposed deal, calling it “both an offensive and defensive move for Uber.”
Grubhub, headquartered in Chicago, also owns the Seamless and Eat24 brands. It had 28% of the national market in March, while San Francisco’s DoorDash was first with 44% and Uber Eats had 20%, according to data from Second Measure that included millions of anonymized credit card, debit card and bank transactions. DoorDash dominates even more locally with 65% of the San Francisco metropolitan region market, according to a Chronicle analysis of Second Measure data.
Both Grubhub and Uber Eats, as well as rivals DoorDash and Postmates, saw significant spikes in orders and average weekly sales per customer in recent weeks.
“It makes sense for Uber to build on the part of its business that’s succeeding right now until the other part can catch back up,” said Sean Snaith, director of the Institute for Economic Forecasting at the University of Central Florida.
Khosrowshahi waxed rhapsodic about Eats during the conference call.
“The big opportunity that we thought Eats was just got bigger,” he said. “There’s a ton of new customers coming to this category.”
At the same time, Uber last week withdrew Eats from eight countries, he said, because it wants to focus on markets where it can be the No. 1 or No. 2 player.
Uber Eats has already started to deliver some grocery and convenience items, which Khosrowshahi sees as a growth area for it, along with package delivery.
Ives said he thinks Uber Eats and Grubhub combined would have 55% of the market for U.S. food delivery.
“A combined company can better batch orders and save expenses,” he wrote. “With better operating margins, the combination can also create a stronger and healthier ecosystem, which can drive growth on more sustainable fees, and driver pay/benefits,” he wrote.