Citing unnamed sources, the Wall Street Journal has reported that Uber has been in talks with Grubhub since February to purchase the veteran delivery company, and it looks like they’ll either seal the deal or give it up by June.
If and when Uber and Grubhub make this merger happen, Uber will hold a substantial share of the food delivery business. Varying reports say Uber could control as much as 48% of the U.S. food delivery business, with DoorDash holding another 42%, and just 10% being left for other competing delivery services.
Reporting from Motley Fool also provides details of the hypothetical Uber/Grubhub hybrid’s hold over major city deliveries:
Given the magnitude of such a deal, we have to ask, what would a Uber/Grubhub merger mean for drivers? And is the consolidation of the food delivery market good for drivers?
In this article, we’re going to explore how a Grubhub acquisition by Uber could affect drivers by analyzing the following questions
- Why is Uber looking to buy GrubHub and consolidate the food delivery market?
- What obstacles could Uber face as it tries to consolidate the food delivery market?
- When can we expect Uber to buy Grubhub and begin to consolidate the food delivery market?
- What are the pros and cons of consolidating the food delivery market for drivers?
- What should drivers do to protect themselves?
First, let’s look at why this merger might be happening.
Why is Uber looking to buy Grubhub?
Uber wants to buy Grubhub to help the company achieve its biggest goal for 2020 and 2021: Become profitable.
There’s little doubt that the food delivery business has been on the upswing, for both Uber Eats and Grubhub, yet the same is not true for profits. Uber Eats’ first quarter 2020 earnings were up by more than 50%, largely due to the pandemic; but adjusted profits showed a loss of $313 million.
Because the food delivery business is expensive. Last year, for every dollar earned by Uber Eats, the company spent $1.55 to keep the business going. Remember, the delivery company only gets a percentage of that food order, and the drivers must be paid out of that cut. As pressure to reduce or even waive delivery fees continues to grow, Uber needs to find other ways to cut costs.
On Uber’s earnings call earlier this month, Uber CEO Dara Khosrowshahi hinted that Uber may purchase other delivery players. “There is a bunch of consolidation happening on a global basis where bigger players can not only provide better service for restaurants and consumers, but can provide a better service kind of on an economic basis that is sustainable,” the New York Times quotes him as saying.
With an acquisition of GrubHub or another food delivery company, Uber can eliminate duplicate roles and processes to cut expenses while keeping the combined revenues of Uber Eats and Grubhub to drive more profits.
Sounds like plan, but how easily will the acquisition come?
Let’s look at the hurdles an acquisition of this size will face.
What obstacles could a Uber and Grubhub acquisition face?
A Uber/Grubhub acquisition would certainly face its fair share of hurdles, with regulatory agencies being one of the biggest.
The huge fees companies like Uber Eats and Grubhub take from restaurants (as much as 30%) have come under more and more scrutiny over the past few months as restaurants struggle to remain solvent amid COVID-19.
These fees cut into the profits of eateries that are already hard-pressed because they’re in takeout-only mode or are only allowed to fill to limited capacity.
Many local authorities have used the pandemic as a catalyst for regulating delivery companies’ fees. Some cities, including New York, have passed measures to limit the amount they can charge while the national emergency is still going on. New York will set a 20% limit; other locations are capping their fees at 10% and 15%.
This is where the fear of Uber potentially owning 48% of the food delivery market comes in. Mergers often have the spectre of antitrust accusations hanging over them, and this one between Uber and Grubhub is no exception. And it’s looking like the knives are out for Uber. Check out this statement from David Cicilline, a congressional representative from Rhode Island who who heads the House antitrust subcommittee:
“Uber is a notoriously predatory company that has long denied its drivers a living wage. Its 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.”
That comment is harsh, no doubt about it, but probably not undeserved. Still, do we want regulators to stop Uber from ultimately turning a profit in order to stay in business?
As drivers, we certainly want Uber to continue operating so we can keep working in rideshare, now and once the pandemic panic is over.
What’s Uber supposed to do, as rideshare revenue continues to slide and it’s tough to get the delivery business operating in the black? Neither the company nor its employees and drivers wants to sit around wondering when things will be normal again. After all, there’s some chance things won’t ever be normal.
When can we expect Uber to buy Grubhub?
Uber and Grubhub have been in talks since February, and sources say that a deal could be reached as early as the week of May 25th, 2020. Sources also say that if a deal is not reached in June, then one might not be reached at all.
However, even if a deal is reached in June, drivers will likely not see any changes on the platform for quite awhile, perhaps not until 2021.
Will Uber buying Grubhub and consolidating the food delivery market help drivers?
Let’s take a look at the pros and cons of Uber buying Grubhub and consolidating the food delivery market. We’ll start with the pros.
Pros of Uber consolidating the food delivery market
Uber Eats and Grubhub remain viable businesses
The biggest pro for drivers of a Uber/Grubhub merger would be that Uber Eats and Grubhub remain viable businesses. Even with all of the issues we drivers have with Uber, for the most part we want the company to stick around for the long haul.
Sure, we want all of the transportation and delivery companies to do better by its drivers, but we also want the company to actually be there and exist so we can continue to have the flexibility to do the gigs that we want to do.
With that in mind, any move that helps Uber become profitable could potentially help drivers, IF that move includes those profits being handed down to the drivers as well.
For Grubhub, a move could be crucial to the company as it continues to struggle mightily in the face of competition from DoorDash, Postmates, and Uber Eats.
While Grubhub has been one of the only delivery companies to show a profit, the company has not been able to expand its revenue as quickly as its competitors, which is hurting it’s profitability.
More demand and more deliveries
By merging together, Uber and Grubhub drivers can expect to start to see more demand as Grubhub drivers will fulfill Uber Eats orders and vice versa. This additional demand could potentially help drivers stay busy, but this would also mean there is more competition among drivers.
Cons of Uber consolidating the food delivery market
There are a few potential cons of Uber consolidating the food delivery market.
Diversifying your income stream becomes more difficult
Most drivers won’t see an immediate impact on their own earnings if Uber buys Grubhub next week. I
The smartest thing that rideshare and delivery drivers can do is to diversify their income streams.
The time when a driver could just do Uber, or only work for Lyft has long passed.
Now, drivers need to be thinking about working for all of the platforms they can so they have the option to work for the platform that is earning them the most money.
By consolidating the delivery market, Uber would be giving many drivers less options for delivery platforms to work on, which could mean drivers have a harder time diversifying their income streams as the two companies unify.
Grubhub drivers have to follow Uber’s rules
With an acquisition by Uber, Grubhub drivers, who have enjoyed relatively few rules and regulations, will need to abide by Uber’s rules and start receiving Uber’s bonuses.
This means that Grubhub drivers could need to submit car registration and insurance information that they never had to do before.
More driver competition
If Uber buys Grubhub and the companies merge their driver supply, you will all of a sudden have Grubhub drivers competing with Uber Eats drivers for deliveries. This new level of competition could be jarring for Grubhub drivers and potentially have a negative impact on earnings.
On the other hand, Grubhub drivers will have significantly more demand as well, so we’ll have to see how the supply and demand changes play, but many drivers in New York City report making as much as $30 an hour on Grubhub while making as little as $15 per hour for Uber Eats.
Uber would have more leverage over drivers
By consolidating the food delivery market and giving drivers fewer options, Uber also would have greater leverage over drivers.
With just a handful of delivery companies to work for, Uber could decide to slowly increase its take rate by cutting driver rates, again.
With fewer options available, many drivers would be forced to simply take the pay cuts, similar to how rideshare drivers have had to in the past.
Currently cutting rates is more difficult because the food delivery market has more than two significant players. However, a market consolidation could put drivers at greater risk.
What should drivers do to protect themselves?
As drivers, we don’t have much control over big macroeconomic changes like Uber buying Grubhub or even pandemics. However, drivers can protect themselves by giving themselves options.
No one knows how the rest of 2020 will unfold.
No one knows if rideshare demand will go completely back to normal, if food delivery will sustain, and if demand for grocery delivery will continue to skyrocket. But drivers can be ready for whatever comes next by being on every platform they can, learning how to be successful on every platform, and learning which platforms are making them the most money.
This means getting yourself signed up for as many rideshare and delivery services as possible.
For grocery delivery this includes:
For food delivery, this includes:
For rideshare, this includes
Giving yourself options as a driver gives you leverage and the ability to make money no matter what happens outside of your control.
Also, remember to use Gridwise to track your earnings across all of these services. Drivers can track their mileage and earnings across all gig-services using Gridwise.
Tracking your earnings makes it easy to understand which apps are making you the most money and which ones you should be spending your time working for.
What do you think… Is Uber buying Grubhub a good thing?
We’ve given you our thoughts, but what do you think?
Let us know what you think about Uber acquiring Grubhub. Post below and show us what’s on your mind.