How Will the Amazon-GrubHub Deal Disrupt the Restaurant Industry?
As restaurants continue to grapple with the cost-benefit of third party delivery services, the Amazon-GrubHub partnership announced on July 6 only serves as a further disruption.
In a new deal, Amazon will offer its Prime members free access to GrubHub+, a membership service that for $9.99 per month cancels delivery fees for most orders over $12.
Our initial reaction to the deal is a range of questions.
How will the partnership negatively impact restaurants, making it harder to avoid third-party marketplaces?
How will Amazon muscle enhance GrubHub, including voice, drones, and scale?
And, of course, is this deal just a “test drive” before Amazon makes a full-blown acquisition of GrubHub? (The current deal, after all, will renew in a year unless either party opts out.)
“This news comes at an interesting time, with inflation looming, higher gas prices, and service fees being added to delivery charges, challenges in finding drivers, and intense competition among delivery service companies,” observes Daniel J. Connolly, Ph.D., College of Business and Public Administration, Drake University. “This could be a real game changer, depending on GrubHub’s ability to leverage Amazon’s technology, financial resources, customer base, and delivery infrastructure. It could very well be another inflection point in the on-demand economy.”
Insights From the Industry
We checked in with top industry experts for their hot takes.
"This is the first step in Amazon’s re-entry into the US restaurant delivery market,” says Christopher Sebes, Partner, Results Thru Strategy. “They have the appetite and the ability to change the landscape and make it much harder for restaurants to drive first-party ordering."
“The partnership immediately propels GrubHub forward as millions of Amazon Prime members connect their accounts for free premium GrubHub+ membership,” says Joe Tenczar, CIO at Sonny’s BBQ and Co-Founder of Restaurant CIOs. “This also allows Amazon to get a foothold in the food delivery service arena, after they failed to gain traction with their own offering. A win-win for both companies and a potential game changer for the competitive DSPs.”
Never shy about blasting his opinions on third-party delivery, Nabeel Alamgir, CEO and Co-Founder of Lunchbox, chimed in with his always-lively commentary, "Free for Amazon customers, not for restaurants. They're still doing what they do best: ripping profits away from restaurants. Feels all too similar to their lunch promo. I miss Jeff Bezos. He would never work with them.” The Amazon-GrubHub news comes on the heels of what anyone in the restaurant industry would deem a massive splash (and spend!), as Lunchbox blanketed Times Square just a couple of weeks ago with an aggressive campaign, foodnotfees.com, to show restaurants how to ditch delivery fees and get customers to order direct on its platform.
"There is no doubt Amazon has been looking to get into the restaurant delivery game for a long time, but most of their direct efforts have proven to be unsuccessful,” notes Alex Canter, CEO, Nextbite. “I think they are attempting to replicate their success that they had linking up with Deliveroo, but with GrubHub’s diminishing market share in the US, this may not work as well as they’d like."
“Restaurants waking up to the shocker that Amazon Prime customers get free delivery via Grubhub for an entire year are probably not celebrating this partnership,” says Angela Diffly, co-founder of the Restaurant Technology Network (RTN). RTN restaurant and supplier members recently discussed this hot topic on a workgroup call, where industry news always sparks smart insights from the group: “That’s about 160 million potential people ordering Grubhub for free for an entire year from restaurants already struggling to promote ordering via their own channels and win back customer data. What about the restaurants that don’t have a partnership with Grubhub? Will Amazon buy Grubhub or maybe use the partnership as a testing ground for whatever future food delivery looks like for Prime members? Will drone delivery or autonomous delivery or voice ordering become accelerated?"
As the RTN workgroup began pondering Amazon's potential acquisition of Grubhub, David Gosman, Global Hospitality Segment Manager at HP, made an astute observation. "Maybe they're not looking to buy, but to build."
“It should scare you,” commented Phil Crawford, CTO of CKE, on the workgroup call. “GrubHub is gaining access to 160M Prime members as part of the deal, since Prime members get access to free delivery and members-only benefits.”
"One thing is clear: this is a huge deal for the restaurant industry," notes Diffly, who contributed interviews and reporting for this article. When powerhouse players come together to scale something that’s already somewhat broken, the pain points will escalate. To try out a positive spin, perhaps this levels the large lead DoorDash has enjoyed for some time now. With more evenly-stacked competitors in the arena, maybe the cuts from any one sword won’t be as life-threatening. But only time will tell.”