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Uber’s pursuit of Grubhub could be a sign of consolidation to come

The pandemic is driving a growing hunger for food delivery apps.

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The pandemic is driving a growing hunger for food delivery apps. It could also be sparking acquisition activity in a sector that’s currently dominated in the US by a few major names.

Uber has offered to acquire rival Grubhub, according to multiple reports Tuesday, a deal that would bring together the second- and third-largest players in the US meal delivery space. Uber’s Uber Eats arm took in 25.7% of consumer spending on food delivery in the nation during April, according to Edison Trends, while Grubhub had a 22.8% share. Rival DoorDash led the way with 46.5%.

The size of that overall market has grown in recent weeks, with a lack of ability to dine in at restaurants pushing more consumers to delivery. It’s one reason merger and acquisition activity in the space could be poised to accelerate.

“We expect to see continued consolidation in the North American online food delivery industry in the coming months, leading to an industry-wide margin uplift,” said Asad Hussain, a PitchBook analyst who focuses on mobility. “More broadly, we are seeing shared mobility companies such as Uber and Didi Chuxing increasingly lean into last-mile delivery as a means to offset ridership declines.”

Indeed, Uber Eats has buoyed Uber in recent months as the company’s flagship ridehailing unit has been hit with a steep decline in business. Last week, Uber announced an overall net loss of $2.9 billion and 3,700 layoffs in its first-quarter earnings report. But within Uber Eats, gross bookings increased 54% year-over-year.

“A higher and higher percentage of our Rides customers are using Eats,” CEO Dara Khosrowshahi said on the earnings call. “And I think that we’re generally in the early innings there.”

Many restaurants have become reliant on food delivery apps during the pandemic, but questions remain about the potential effects of merger activity in the space. Some food delivery providers, including Uber Eats and GrubHub, take significant commissions from restaurants. Consolidation could give restaurant owners fewer choices and less negotiating leverage.

Investors, though, responded optimistically to talks of a Grubhub takeover. Stock in Uber (NYSE: UBER) closed Tuesday up 2.4%, while shares in Grubhub (NYSE: GRUB) jumped around 29%.

Grubhub has been publicly traded since 2014, while Uber conducted its IPO last year. In late February, shortly before the coronavirus crisis began in the US, DoorDash confidentially filed for an IPO of its own. That same month, the company raised $340 million in convertible debt, according to The Information. Postmates, another VC-backed competitor in food delivery, reportedly filed for and then called off an IPO last year.

Investor interest in food delivery amid the pandemic extends beyond takeout. Instacart is currently in talks to raise new financing that would push the grocery-delivery company’s pre-money valuation to somewhere between $12 billion and $14 billion, representing a 50% increase over its most recent round in 2018, according to The Information.

Featured image via Cindy Ord/Getty Images

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    Written by Eliza Haverstock
    Eliza Haverstock was a PitchBook writer covering venture capital, startups, and private equity.

    A graduate of the University of Virginia where she majored in history and economics, she’s also a native of the Washington, DC, area. Previously, Eliza worked as a news editor for her college paper, The Cavalier Daily, and interned as an industrials reporter for Bloomberg in New York.
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