Ridesharing and food delivery giant Uber is reportedly in negotiations to purchase Grubhub, a rival food delivery service, in an all-stock deal. This acquisition comes amid coronavirus-related shutdowns that have all but halted Uber’s ridesharing service while aggressively bolstering demand for at-home food delivery.
The move indicates Uber’s acknowledgment that it must pivot focus to food delivery for the time being. While its flagship ridesharing operation is perhaps its most identifiable service, by 2019, Uber Eats had already become a more profitable venture. Now, with restrictions against social gatherings, workplaces closed and fears about being in confined places abounding, Uber is looking to embrace and buttress its second most popular market segment.
“If you can’t beat ’em, eat ’em.”
Right now there are three main players in the food delivery industry. As of March, DoorDash handled 42% of sales, Grubhub followed 28% and Uber Eats was last with 20%.
Uber has a double incentive to swallow up Grubhub now, before DoorDash can make the move. By acquiring the second-largest player in the food delivery game, Uber not only knocks out an opponent, but Uber Eats becomes the market leader the day the deal closes.
Jesse Reyes, the CEO of J-Curve Advisors, says of Uber’s strategy, “If you can’t beat ’em, eat ’em.”
Uber’s scramble to eat up the competition is raising some alarms among monopoly watchdogs. Rep. David Cicilline (D-RI), the chair of the House Antitrust Subcommittee, calls Uber “a notoriously predatory company that has long denied its drivers a living wage.” He continued to say that Uber’s “attempt to acquire Grubhub—which has a history of exploiting local restaurants through deceptive tactics and extortionate fees—marks a new low in pandemic profiteering.”
While Uber’s move is certainly opportunistic, is it illegal? Antitrust laws exist to protect smaller businesses from being pushed out of the market by an unbeatable Goliath. Such laws also seek to prevent collusion between large firms to fix predatory prices that would bar other companies from entering the market and eviscerate fair competition. An acquisition by Uber is likely to be held under tight scrutiny, especially by the Democratically controlled House of Representatives.
No official acquisition has been confirmed just yet, but the two companies are in discussions on how to best combine forces. One GrubHub statement confirmed that the move is at least being considered, stating “consolidation could make sense in our industry.”
Meanwhile, rumors of haggling between the two companies suggest that Uber allegedly rejected an all-stock offer and that Grubhub demanded that investors receive 2.15 Uber shares for each share of Grubhub. Uber’s board of directors will convene in coming days to review the proposal.