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Amazon expands Grubhub deal in food delivery push

Amazon (AMZN) is beefing up its food delivery perk through its Prime service, expanding a business partnership with Grubhub and bolstering its offerings as merchants and retailers increasingly compete for subscription revenue and bundled services.

Prime members will now get free access to Grubhub+, a $120-a-year subscription service that includes free deliveries on eligible orders and lower service fees. Amazon customers and Prime members can also start ordering from Grubhub directly on Amazon's website and app, the company announced late Wednesday.

The Grubhub benefit bolsters Amazon's food offerings, which operate on multiple prongs. They include Amazon’s traditional network, which delivers nonperishable foods; grocery delivery through Amazon Fresh, Whole Foods, and other retailers; and, with Grubhub, takeout. During Amazon's latest earnings call, CEO Andy Jassy said both the nonperishable and grocery businesses were growing.

The logo adorns the side of an Amazon delivery van Tuesday, May 14, 2024, in downtown Denver. AP Photo/David Zalubowski)
Amazon touts more than 300 million items available with free Prime shipping. (AP Photo/David Zalubowski) (ASSOCIATED PRESS)

"Amazon already offers a lot of value, but it needs to keep pushing the envelope as more retailers develop their own loyalty and membership programs," said Neil Saunders, a retail analyst at GlobalData. "It is also a way of making Amazon a one-stop shop for food needs."

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The Grubhub perk, which solidifies and expands on a previous trial offer, underscores Amazon's efforts to shape Prime into an all-encompassing membership program.

"Prime is all about convenience, savings, entertainment, increasingly health, and with Grubhub, we are deepening the partnership to really stand for food delivery as well, and really round out, in one simple membership, all the needs and wants of busy households across the United States," Jamil Ghani, vice president of Amazon Prime, told Yahoo Finance in an interview.

Ghani declined to comment on the possibility of Amazon acquiring Grubhub. The original partnership announcement between Amazon and Grubhub in 2022 included the option for Amazon to exercise warrants for a 2% stake in Grubhub as well as additional warrants exercisable for up to another 13%.

"I don’t think a takeover is on the cards right now, although it may be of interest in the future," Saunders said. "Amazon is currently in the mindset of driving efficiencies across the business rather than doing big deals. Amazon would also need to be convinced that it could add value to Grubhub or parent company Just Eat in order to do a deal."

Ghani said the company sees the Grubhub deal as part of Prime's progression in value. What started in 2005 as an untested free shipping service has grown into an e-commerce juggernaut. Membership benefits have expanded to streaming and music, medical services, Thursday Night Football, and takeout.

Previously, Amazon gave Prime members a one-year Grubhub+ trial that converted to a paid membership. In the new arrangement, Prime members only need to activate the ongoing Grubhub+ offer to receive the free, ongoing benefit.

For Grubhub, which is owned by Just Eat Takeaway.com (TKWY.AS), Saunders said the partnership is a way to expand memberships, which helps it earn more commissions from restaurants.

Shares of Just Eat are down almost 14% for the year, lagging competitors DoorDash (DASH) and Uber (UBER), whose stock prices are up 16% and 11%, respectively. While customers flocked to food delivery businesses during the height of the pandemic, the business model continues to face questions about sustainable profitability.

Amazon shares have gained more than 20% for the year, outpacing the Nasdaq Composite's (^IXIC) 15% rise.

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on Twitter @hshaban.

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