Under the deal, Amazon gets the option to buy a 2% stake in Grubhub and the opportunity to increase its holding to 15%.

Amazon.com Inc. agreed to take a stake in Just Eat Takeaway.com NV’s Grubhub food-delivery business. It also agreed to offer U.S. Prime users a one-year Grubhub+, the food delivery service’s paid membership program, the two companies announced on Wednesday.

In a statement, Amazon said Prime members can use this new benefit in more than 4,000 cities.

The Grubhub+ membership, which usually costs $9.99 per month, includes unlimited free delivery on orders over $12 and other benefits, like the ability to earn free food and order discounts.

Amazon’s stake in Grubhub is in the form of warrants. Under the deal, Amazon receives the option to buy a 2% stake in Grubhub and will have the opportunity to increase its holding to 15%, Just Eat said.

A warrant gives the holder the right to buy or sell stock at a specified price before a specified date. But warrant holders are not obligated to buy or sell the underlying shares. The value of the warrants will depend on how well the partnership performs and how many new customers it attracts.

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The membership agreement will renew every year unless Amazon or Grubhub terminates it.

Analysts are upbeat

Steven Fox, CEO of equity research firm Fox Advisors, doesn’t think the Amazon and Grubhub deal will quickly reshape the meal-delivery business. One reason is that DoorDash and Uber Eats — Grubhub’s main rivals — are much larger.

“I don’t think DoorDash and Uber Eats should be panicking right now,” Fox says. But he says the Amazon deal should help Grubhub gain members, which is vital. Customers who pay for a delivery service membership order far more from that service than those who don’t, he added.

In a note to investors, Jefferies analyst Giles Thorne called the Amazon partnership “both material and welcome.”

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“Grubhub has secured not just a very powerful partner, but also a very efficient acquisition channel. For a hitherto stranded asset and dead-weight to the [Just Eat Takeaway] equity, this is positive news,” Thorne wrote.

According to Bloomberg Second Measure data, overall U.S. meal delivery service sales grew 8% year over year in May 2022. DoorDash, with a 59% market share, was the clear leader, followed by Uber Eats, which had a 24% share. Grubhub’s market share that month was 13%.

Bloomberg Second Measure, part of Bloomberg Finance L.P., provides analytics and insights from consumer transaction data.

GrubHub’s parent looks for an investor

In April, Netherlands-based Just Eat said it planned to find “a strategic partner into and/or the partial or full sale of Grubhub.” That was less than two years after buying Grubhub for $7.3 billion. Grubhub also attracted preliminary interest from private equity firms, including Apollo Global Management Inc., Bloomberg reported in June.

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Just Eat will continue to explore a full or partial sale of the U.S. business, the company said.

During a March 2 earnings conference call with analysts, CEO Jitse Groen said he could not disclose much about the future of Grubhub. But he added that the parent company was talking to strategic investors and investors and private equity firms.

“It’s difficult, of course, to give you a horizon on that because it depends on what people are offering,” Groen told investors.

Groen is under pressure to find a way to reignite growth after a slew of competitors took market share and restaurants that had been closed during the COVID-19 lockdowns reopened to diners. In an October presentation to analysts and investors, Groen laid out a strategy to grow in the U.S., targeting suburbs in key markets and testing miniature warehouses in New York for faster order fulfillment.

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In its statement, Just Eat said it expects the deal with Amazon to “expand membership to Grubhub+, while having a neutral impact on Grubhub’s 2022 earnings and cash flow.” Any earnings and cash flow benefits would accrue from 2023 onwards, the statement said.

Just Eat faces internal turmoil after it launched an investigation into its chief operating officer’s personal conduct and its chairman stepped down in May.

Grubhub says it delivers about 715,000 daily orders and works with 320,000 restaurants in the U.S.

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