Uber wants to buy Grubhub, and Grubhub is apparently listening.
According to multiple reports, the ride-hailing company with a substantial presence in the third-party delivery market through Uber Eats has made overtures to acquire the major online ordering company and delivery provider in what would apparently be an all-stock deal.
Grubhub, for its part, released a statement Tuesday that didn’t exactly deny the reports.
“We remain squarely focused on delivering shareholder value,” the company said. “As we have consistently said, consolidation could make sense in our industry and, like any responsible company, we are always looking at value-enhancing opportunities. That said, we remain confident in our current strategy and our recent initiatives to support restaurants in this challenging environment.”
An Uber-Grubhub merger would completely reshape the market for third-party delivery, of course, but it’s also an inevitability of a market that has struggled to generate profit even as it has grown in popularity.
A delivery merger has seemed likely for some time, especially since October, when Grubhub itself acknowledged the sector’s challenges in a now-infamous letter to shareholders.
In that letter, the company said growth was slowing and that competition in the business would take a hit on profits.
The key sentence, referring to its 2015 decision to enter into the delivery market, was this: “We didn’t then, and still don’t believe now, that a company can generate significant profits on just the logistics component of the business.”
Not long afterwards, the Journal said Grubhub was considering strategic options, suggesting it was exploring a potential sale. One of the other big delivery companies, DoorDash, was seen as a potential acquirer.
But then the coronavirus pandemic hit, closing dining rooms across the country and seemingly giving delivery providers the jolt they’d been hoping for. All of a sudden, restaurants needed delivery providers to generate business.
Just as worries about the pandemic grew in late February, in fact, DoorDash filed for an initial public offering. That was viewed as a sign of faith in its future business as well as its own finances, given that up until that point Wall Street had been increasingly skeptical about such companies.
Yet the pandemic has only intensified the love-hate relationship the industry has had with third-party delivery in the years since it emerged as a viable service option. Whether restaurants love or hate them has largely depended on their location and whether they’re part of a chain or built with delivery in mind.
Chains have largely embraced delivery, and third-party providers have used big chains such as Chipotle Mexican Grill and Taco Bell as loss leaders, giving them better commissions and deal terms. Many restaurant chains have reported remarkably strong growth in delivery sales, though that growth has been dwarfed by drive-thru and curbside pickup business.
Many independents, meanwhile, have complained bitterly about the providers, and they’ve had the ears of government officials in cities across the country. While many of these caps are temporary, they demonstrate the concern many have with the prices providers charge to restaurants.
Delivery has long had its profitability challenges, but the downward push of commissions to help restaurants, along with the intense competition among the largest players, is only likely to make matters worse. That on its own makes a merger even more inevitable now than it was before all of this started.
What’s more, the fundamental challenges facing the industry haven’t gone away. A delivery order remains expensive for the customer—and will be more expensive once providers have to shift more costs onto consumers.
More than 33 million Americans just lost their jobs. While they have extra unemployment benefits and stimulus checks to get them through the next few weeks, a recession of any type is unlikely to make them more likely to eat costly delivery food.