With the new world that coronavirus pandemic has put us in, it was always obvious that mergers in the food delivery sector will be unavoidable. According to a news report from the Bloomberg in May, such mergers finally is about to happen with the Grubhub and Uber Eats. Citing from people close to the company, apparently Uber Technologies, the parent company of Uber Eats have made the offer to buy Grubhub Inc.
Story of the potential merger — that would build a market leader in an industry that recently saw greater traffic from restaurants pressured to shelter — triggered a leap in the stocks of both firms, with Grubhub, in particular, booming as high as 37 per cent after the report.
Uber and Grubhub each refused to comment on the speculated deal, even though Grubhub said in a statement that it’s always looking for new chances and that merger in the industry “could make perfect sense.” The food-delivery industry has been exceptionally hard economically for the four key players over the last year: Postmates, Grubhub, Uber Eats and DoorDash. The industry itself has used heavy discounting to keep pursuing a growth-at-all cost plan to gain portion, resulting in huge aggregate operational losses. This is just not viable in the long run. Even farther, shareholders and VCs are growing substantially reluctant about financing to massive losses without even a clear route to profitability just after WeWork scandal.
And it’s been a huge disaster in terms of losses. Uber last week reported that in the first quarter alone, Uber Eats suffered over $300 million in the adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda), which is an indicator of profitability. And Grubhub reported a $33 million deficit of its own for their first quarter last month. Industry experts also largely agree the private players DoorDash and Postmates have both caused substantial losses over the past year.
Those major losses cannot persist indefinitely. This is why an Uber-Grubhub combination will favor both the firms and the market as a whole. It could help justify demand by cutting out one major player and reduce the volume of promotional operation. However, because of the difference of selling and operational costs, there are expected to be hundreds of millions in yearly cost synergies in between two firms, enhancing profitability too.
The merger of Grubhub and Uber Eats in major Cities around the USA would be especially potent. As per the latest U.S. food supply projections of Second Measure, DoorDash leads with 42 percent share, followed by 28 percent share of Grubhub and 20 percent share of Uber Eats, with Postmates 4th at 9 percent. According to Gordon Haskett Research Advisors, Uber and Grubhub merged would regulate almost 80 percent of the New York City market, 60 percent of Chicago and 65 percent of Miami, considering the merged firm’s greater pricing power when a deal is finalised.
Here’s your food
A partnership of Grubhub and Uber Eats will integrate two of U.S. food delivery’s four main players
This obviously poses monopoly concerns about every future contract. But due to the large cumulative losses in the industry and the numerous big players that will exist after a prospective transaction, this may be less of a problem. And considering the significance of supplying food in a pandemic world, a viable structure of the industry could be great news for all.