Together, Uber and Grubhub would together control more than 50% of the US food delivery market.
Uber’s plan to take over Grubhub makes it dramatically clear that the appetite for consolidation in the meal-delivery market remains strong despite a slowdown in mergers and acquisitions amid the Covid-19 pandemic.
As restaurants have closed their doors, competitiveness has accelerated in a sector dominated by DoorDash, Uber Eats and Grubhub, observes Ygal Arounian, equity research analysist at Wedbush Securities. Third-party delivery apps, whose user growth is driven by discounting, have seen profitability drop as they offer bigger price cuts to attract diners stuck at home and cap fees for struggling restaurants.
“Consolidation between Uber and Grubhub would likely position them as the market leader and should go a long way to helping improve the opportunity for profitability as a combined entity,” Arounian says.
Together, Uber and Grubhub would together control more than 50% of the US food delivery market, according to Wedbush, which estimates savings for Uber between $300 million and $400 million in the first year. Too many similar players are depressing industry profitability via a cutthroat battle, argues analyst Tom White, a research analyst who covers Uber for D.A. Davidson. “Consolidation in online food delivery is inevitable.”
As Global Finance went to press, negotiations continued as politicians considered the antitrust implications—and possibly barring the merger altogether. Nevertheless, observers see M&A activity in the food delivery sector continuing. Arounian expects both companies to continue working toward a deal, adding that further consolidation is likely to involve market leader DoorDash and a smaller player, Postmates.
