Packaged Facts: addresses Uber-GrubHub rumors

Rockville / MD. (pf) On May 12, Bloomberg News first reported that Uber Technologies Incorporated (San Francisco, California) was in negotiations to acquire Grubhub Incorporated (Chicago, Illinois). This deal, if completed, would combine the first and second largest online foodservice delivery firms. However, negotiations could still fall through or any agreed-upon deal could fail to pass likely regulatory hurdles

Uber’s UberEats unit has been the bright spot for the company recently as stay-at-home orders and sharp reductions in travel for business and pleasure have led to steep declines for the company’s flagship ride-hailing unit. Uber CEO Dara Khosrowshahi noted on a recent earnings call that «a higher and higher percentage of our Rides customers are using Eats.»

According to Packaged Facts analyst Cara Rasch, «Even before dine-in services at restaurants were widely shuttered in response to the Covid-19 outbreak, restaurants and retailers of all types were attempting to expand convenience food options by making more items available for carryout and delivery. Over the last few years, the advent of apps and web portals allowing users to order from local restaurants and stores via the internet or a mobile application has caused carryout, and especially delivery, of prepared food to expand rapidly.»

Furthermore, she notes, «Online order services can be offered by third parties or proprietary, in-house applications. However, third-party apps have a number of advantages, including consumer convenience of being able to order from a variety of restaurants using one app. While some restaurants consider the commissions that third-party online delivery companies charge to be a burden, they allow a restaurant to participate in delivery without investing in their own app or delivery staff.»

Rasch adds, «While using a third-party delivery app has high costs, the potential rewards are expanding customer base and appealing to consumer needs. Many restaurants have begun to use these services to remain competitive during the covid-19 pandemic.»

She continues, «Some of the third-party delivery apps have offered independent restaurants a temporary suspension of commissions or reduced commissions during this time when dine-in service is closed. The question remains if this just buys the restaurants time to develop their own processes or if they will stick with the third-party apps when the high commission rates return.»

However, Rasch notes, «Profitability difficulties and labor issues have challenged the third-party delivery industry, which is still in its infancy. In the longer run, third-party digital delivery operators will be faced with more foodservice operators developing their own delivery services. Foodservice companies may also combine with other local foodservice providers to offer the service at a lower fee level and to have more control of the delivery process.»

Nonetheless: Grubhub Statement 2020-05-12

Chicago / IL. (grub) «While our policy remains to not comment on specific market rumors, we want to reiterate our views with respect to M+A-related matters given the current level of recent speculation. We remain squarely focused on delivering shareholder value. 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,» Grubhub Inc., a leading online and mobile food-ordering and delivery marketplace, said in its statement on 12 May, 2020.