July 11, 2022

12 minute read

Amazon’s deal with Grubhub is so much more than simply adding another Prime benefit.


If you look closely enough, it’s a way to understand the future as Amazon sees it. Buy with Prime, Amazon Pay, AMC, Advertising, Quick Commerce, and more all relate to this deal.


Read on for an incomplete, albeit sufficient (!) history on the JET/Grubhub acquisition (gone bad), Amazon’s similar deal with Deliveroo, why it’s a win-win for both companies, and nine ways Amazon can create value with Grubhub.


Just Eat Takeaway.com (JET) Acquires Grubhub

Amsterdam-based food delivery giant JET acquired Chicago-born Grubhub in June 2020 for $7.3 billion.


The press release at the time touted the cultural fit between the two organizations. Matt Maloney, founder of Grubhub would run the combined operations in the N. American market.


Everyone was excited: “I’ve known Jitse (founder of JET) since 2007 and his story is much like mine. Combining the companies that started it all will mean that two trailblazing start-ups have become a clear global leader. We share a focus on a hybrid model that places extra value on volume at independent restaurants, driving profitable growth. Supported by Just Eat Takeaway.com, we intend to accelerate our mission to be the fastest, best and most rewarding way to order food from your favorite local restaurants in North America and around the world. We could not be more excited.”


This was peak COVID when there was much optimism the run-up in digital commerce would remain in a post-pandemic period. It was also an intensifying competitive environment as DoorDash, UberEats, and Postmates had taken substantial share from Grubhub.

Restaurant Delivery Since

In just two years we’ve learned a great deal:

  • We now know that there is no such thing as “post-COVID”.
  • Digital commerce, while meaningfully bigger in many categories, is back to a growth rate in-line with the pandemic.
  • Investors have completely shifted their appetite for unprofitable growth businesses, decimating categories across tech, including restaurant and food delivery. Several quick commerce firms have exited the U.S. market, both DoorDash and Uber’s shares are down almost 50% YTD, and JET’s shares are down 67%.

There was inner turmoil at JET as well. Matt Maloney left his position with the company in December 2021 “to pursue other opportunities”. JET was left with a founder-less asset that was losing share to powerful rivals.


Pandemic growth spikes gave way to decelerating growth in the U.S. market as seen with sales forecasts for DoorDash and Uber Eats.



Both DoorDash and Uber Eats also began expanding their capabilities, looking to offer online grocery delivery (see both in the diagram below) and launching fledgling retail media offerings.


JET puts Grubhub Up for Sale

In response to the pandemic come down, Maloney exiting, powerful rivals in the U.S., and Grubhub’s profitability struggles, JET announced it was putting Grubhub up for sale, less than two years after acquiring it.


Much like its parent company and rivals, Grubhub is reportedly worth substantially less than the $7.3B acquisition price.


There have been rumors Matt Maloney considered buying it back for $1B and that JET has not received much interest from other buyers even at that steep discount.

Enter Amazon

Amazon has always had its eye on the restaurant delivery market, but failed in its direct efforts. It shuttered its Amazon Restaurants initiative in 2019 and has since looked to partnerships to get exposure to the market.


Deliveroo serves as a useful analogy for the Grubhub deal. Deliveroo announced Amazon would be investing 575mm pounds in May 2019.

  • After more than a year in review, UK’s competition authority allowed the investment to go through because Deliveroo was on the brink of failure.
  • Deliveroo went public in April 2021 after turning around its fortunes. Amazon reduced its stake to 12% but remains the largest shareholder.
  • Amazon announced Prime members could receive free delivery from Deliveroo in September of 2021.
  • This experience (investing and offering Prime members a new benefit) is believed to have given Amazon the confidence to partner with Grubhub, another struggling platform desperate for an infusion of, in this case, growth, and a potential buyer in the future.

Details on the Grubhub/Amazon Deal

Amazon will provide its Prime Members (~155 million in the U.S.) with free Grubhub+ membership (normally $9.99/month). Grubhub+ enables free delivery on $12+ orders at eligible restaurants (delivery fees vary without membership, but average $5) along with a few other benefits.


Amazon is covering an undisclosed portion of the cost of this offering as JET estimates the deal will be neutral to its earnings and cash flow. In exchange, Amazon receives warrants to acquire 2% of Grubhub at a de minimis price, and then depending on performance, warrants for another 13% at a formulaic price.

Analyzing the Warrants Amazon Receives

While there is no publically available valuation for Grubhub within JET, reports suggest the company would be traded for around $1 billion.  This implies Amazon’s 2% share amounts to $20 million.


Thus, Amazon gets $20 million in Grubhub ownership, can add a benefit to its Prime member list, and then has a financial obligation to cover costs associated with however many Prime members sign up.


There ends up being a lot of assumptions on assumptions needed to model the potential economics of how this might play out. But that’s never stopped me before!

  • Let’s assume the lifetime value for a Grubhub+ member is $500 (considering churn, multiple orders/month, average order value, and so on).
  • For Grubhub to break-even on the $20 million sent to Amazon today, ~40-50k new members need to be added. That seems quite reasonable considering the 155 million Prime members in the U.S., which translates to a conversion rate of 0.03%. Plus, it’s non-cash in a spiraling asset, making the “real cost” realized only if the business turns around.

Let’s then assume things go wildly well for this new offer to Amazon Prime members.

  • Let’s say Amazon signs up 1% of its members. This amounts to $750-800 million in new value at a $500 lifetime value per subscriber, helping turn around the trajectory of the business and the overall valuation. Grubhub gets a great outcome in that scenario (i.e., continues in business!), and Amazon’s option to acquire another 13% (likely at a valuation in the $1 billion range) would be worth a significant chunk given Grubhub’s value would be worth much more than it is today.

In addition, both sides will have more information on the value of the asset if future negotiations are held for Amazon to acquire total control.

Ways Amazon Can Create Value with Grubhub

Let’s assume for a minute the deal goes incredibly well, Amazon exercises warrants to reach 15% ownership, and then decides to buy the asset for total control. It would have nine meaningful ways to drive growth, both directly and indirectly.

  1. Prime Benefit: The obvious near-term benefit is that adds to the long list of Prime benefits. This is about retention as Prime members total 150mm+. Retention is more important now than in the last 15 years, given consumer demand is softening in an inflationary environment, and Amazon recently upped the price $20 to $139/year. Most Prime members won’t adopt this, but even a small percentage could change the trajectory of Grubhub’s business.
  2. Restaurant Delivery Exposure: Amazon shut down its restaurant delivery business in 2019, unable to reach sufficient scale or trajectory. Deliveroo and Grubhub provide UK and US exposure to a large, and still growing part of the digital commerce market. The warrants (vs. outright investment/acquisition) are an appropriate structure given the high risk with Grubhub. After all, a scaled restaurant delivery player is actively looking to offload it.
  1. Ghost Kitchens: Restaurant delivery today means access to ghost kitchens, a growing model at the intersection of digital-only brands, influencers, and even consumer brands. While Amazon doesn’t have to own a delivery platform to participate here, owning one shields data from competitors like DoorDash and Uber Eats. A natural question is how long until Amazon acquires Lore’s Wonder
  1. Order Density: Adding restaurant delivery means more density, at least in certain geographies, with the potential to pool orders. Gopuff recently expanded its partnership with BurgerFi where it co-locates a food truck with one of its mini-FCs, helping pair convenience orders with food orders. It could also help save money in the overall system, such as through courier recruitment. 
  1. Quick Commerce: There, I said it. Amazon wants in on quick commerce despite the total decimation of start-ups in the market. DoorDash and Loblaw’s, and Walmart and Instacart recently kicked off a q-commerce tests in Canada, signaling this market is not dead, but is re-orienting around large players that don’t need liquid VC markets to fund the efforts. Amazon has a massive lead in non-grocery when it comes to fast delivery but is lacking in a sub-hour offering. If Grubhub is saved, this could provide it an on-ramp to compete. 
  1. Conversion Tool: Amazon launched Buy with Prime for Shopify merchants earlier this year. The actual experience is a little wonky, but Amazon is testing the concept of improving conversion on non-Amazon sites via Prime brand recognition/trust. Grubhub could provide an additional platform to maximize what is essentially a conversion tool. 
  1. Amazon Payments: Amazon is building out SMB payment system aimed at competing with PayPal, Square, and Shopify. Having direct relationships with restaurants will help accelerate growth with this product offering. 
  1. Amazon Advertising: Everything’s an ad platform in the end and Amazon has the most sophisticated retail solution platform in the world that includes search, programmatic and streaming media. Adding millions of restaurant delivery users ups its available inventory significantly, changing the economic analysis that a traditional restaurant delivery operator would carry out. This means Amazon can operate the restaurant delivery piece at a loss, for longer, than rivals in the space, and still generate value. Even if restaurant delivery rivals have a retail solution, Amazon still has the advantage because 👇 
  1. Amazon Marketing Cloud (AMC): You: “You’re telling me AMC is related to this deal?” Me: “Yes.” AMC is an analytics layer that sits on top of, and informs, advertising. It’s how the smartest advertisers are uncovering completely unique insights to their consumers’ path to purchase, enabling a capability never available before. It’s how Amazon is going to unlock more advertising dollars and pull brands further into its gravitational pull. It’s different from just adding more ad inventory; it’s adding insight capability to brands. Thus, you wouldn’t need to be a restaurant to take advantage of the analytical insights. Think about a food or beverage brand uncovering what restaurants its top customers buy from, and then sharing that information with their foodservice sales team to deliver an incredible pitch to a restaurant chain. Anything Amazon can do to add more data, and unlock more insights for advertisers, is therefore gold. Adding tens of millions of restaurant delivery users and the billions of datapoints related to ordering frequency, time, location, repeat, and so on will provide advertisers with unique insights that can be applied across categories.

Amazon's Business is Evolving

Except for the top reason, we’re A LONG WAY from Amazon and Grubhub delivering on all aspects of these. In fact, you can only really see the first reason – adding another Prime benefit – right now. It’s mostly a small experiment for both sides with each taking on little risk.


But opening the aperture a bit illustrates how Amazon will grow in the future. It wants a piece of wherever commerce is happening. Its analytics layer means it can be disruptive to whatever industry it chooses. Prime brings conversion benefits, logistics is a density game, it wants to lead in delivery speed.