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If it wasn’t already clear, Uber’s blockbuster acquisition bid for Grubhub, revealed this week, made it abundantly so: Delivering burgers, lasagna, and Kung Pao chicken has become a huge business—and the focus of a big battle for dominance.

Uber’s proposed takeover of Grubhub for an undisclosed price, reported by Bloomberg on Thursday, would catapult Uber into being the largest U.S. food delivery service. A combined Uber-Grubhub would control nearly half of the food delivery market, according to research firm Edison Trends, versus 45% for rival DoorDash.

Restaurant delivery had been growing quickly for some time. But with the coronavirus pandemic, that growth has accelerated because of the tens of millions of hungry people stuck at home, making it a rare bright spot amid the broader economic devastation.

In an effort to capitalize, restaurant delivery companies are fighting for customers by offering steep discounts, taking a financial hit in hopes of gaining customer loyalty later. Longer term, the big players are using their size to gain an advantage.

Before the proposed Uber-Grubhub deal came to light, DoorDash had confidentially filed for an initial public offering in February. If the IPO happens—a big if, considering the market downturn—it would give DoorDash a huge amount of cash that it could use to expand.

“At stake is a leading position in the $260 billion domestic food delivery markets that we believe is seeing accelerating demand,” Ronald Josey, an analyst at investment banking firm JMP Securities, wrote in a note referring to the food delivery and takeout market.

Uber CEO Dara Khosrowshahi recently acknowledged that his food delivery service, Uber Eats, had become a much bigger business than the company had expected. And as a result, the company is trying to accelerate its growth.

His plan is to expand Uber Eats into delivering groceries and items from convenience stores, which the service already started to do during the outbreak. Uber also plans to close the acquisition of Latin American grocery delivery company Cornershop in upcoming months.

A Grubhub acquisition could ultimately help Uber survive the slowdown in its rides business. Uber’s gross bookings for rides dropped 80% in April alone.

Uber declined to comment about the potential deal to buy Grubhub, and negotiations may not pan out.

“Clearly this would be an aggressive move by Uber to take out a major competitor on the Uber Eats front … especially as the COVID-19 pandemic continues to shift more of a focus to deliveries vs. ride sharing in the near-term,” Dan Ives, an analyst at Wedbush Securities, said in a recent note to investors. “We would view this as both an offensive and defensive move.”

In the first quarter, both Grubhub and Uber’s food delivery arms grew. But while Uber continues to grow at a rapid rate, Grubhub’s growth has slowed.

Uber Eats’ revenue grew to $819 million, a 53% jump from the same period last year. Meanwhile, Grubhub reported $363 million in revenue, representing a 12% rise. That gain by Grubhub, however, represents a big slowdown from last year and a troubling sign of why the company is in play. In the first quarter of 2019, its revenue popped 39%.

DoorDash, a privately-owned company and the current food-delivery king, doesn’t release any financial information. In addition to its food delivery service, it has a growing business of licensing delivery software to restaurants and grocery stores.

Since the pandemic started, DoorDash has expanded from just delivering for restaurants to also delivering products from 1,800 convenience stores. Originally, it had planned to start that service later this year.

Delivery services have had trouble keeping customers loyal. Since the services are largely interchangeable, diners often chase discounts, which dig into the services’ and restaurants’ profits.

Analysts expect more consolidation until the U.S. market ends up with two dominant players. That consolidation isn’t confined to the U.S. In the U.K., for example, authorities recently approved Amazon’s $575 million investment in London-based Deliveroo as well as a merger between the U.K.’s JustEat and the Netherlands’ Takeaway.com.

The continued growth in food delivery depends partly on restaurants playing along by signing on with the various services. That’s more likely now as restaurants grapple with lost business during the pandemic. And even after cities start allowing restaurants to reopen, limits on how many people they’re allowed to seat will be a huge financial hurdle.

Brent Thill, analyst at investment banking firm Jefferies, said in a recent note: “Restaurants need delivery to survive in the current environment (with no end in sight).”

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  • Tesla’s lockdown lawsuit is about much more than Tesla
  • WATCH: Zoom’s ups and downs since the coronavirus crisis



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