Amazon’s new Grubhub+ deal could unlock local ad dollars

At the height of the global pandemic in 2020, food delivery services like Grubhub and DoorDash enjoyed a significant boost to their businesses as consumers avoided restaurants and other public gatherings – and the boost was sorely needed. As CNN noted, the food delivery sector was about to “face a reckoning.” Fast forward to 2022, as more consumers dine out, and things are once again looking bleak for the food delivery market.

That’s opened the door for ecommerce giants like Amazon to take advantage. The company recently reached a deal with Grubhub to offer its Prime members one year of Grubhub+ service for free (normally $9.99 a month), which enhances the value of Amazon Prime at a time when Amazon is raising prices on its membership and Prime growth has stalled.

The terms of the agreement with Grubhub parent company Just Eat also give Amazon the option to purchase over a 2 percent stake in Grubhub “at an undisclosed but negligible price,” as outlined by The New York Times.  Moreover, Amazon will be allowed to buy another 13 percent stake in Grubhub at an unspecified “formula-based price,” which depends on Grubhub achieving performance milestones (like adding new customers). Just Eat had paid a hefty $7.3 billion only a couple years ago to acquire Grubhub but has been considering divesting given the current state of the market. Grubhub lost around $410 million last year; the new partnership with Amazon is expected to add to its earnings and cash flow starting next year.

From an advertising perspective, opening Grubhub+ to Prime members is likely to result in an increase in local ad dollars. Given that Grubhub+ eliminates delivery fees on orders over $12, Prime members may hesitate less to order from more local businesses, and as MediaPost explains, the partnership could give Amazon more opportunities to target consumers with local ads – something the company has reportedly focused on more recently to compete with Google’s “near me” ad strategy.

According to Interpret’s New Media Measure®, Amazon’s Grubhub partnership could prove to be fruitful, since Amazon shoppers tend to over index on using food delivery services compared to the general US population. Additionally, exposing the large Prime user base to Grubhub’s delivery service could help to raise its profile in the US, as Grubhub currently trails both UberEats and DoorDash.