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Amazon.com, GrubHub Under Fire From Uber Restaurant Delivery

Ride-booking firm Uber announced in a blog post Tuesday that it was expanding its restaurant delivery service and spinning it off from the main Uber mobile app. Called UberEats, the food delivery app will add competitive pressure to Amazon.com ( AMZN ) and GrubHub ( GRUB ), both of which have competing restaurant delivery offerings. GrubHub stock was down 5% in early afternoon trading in the stock market today , while Amazon stock was flat. UberEats is an expansion of the company’s “instant delivery” service, which offers a fixed menu and deliveries in “as little as 10 minutes.” UberEats is partnering with “hundreds” of restaurants to make food delivery available seven days a week, according to the company’s blog. Cowen analyst Kevin Kopelman conducted tests of UberEats in Santa Monica, Calif., and found that the app’s estimates — 30 minutes or less, with a midpoint around 11 minutes — beat Amazon Prime Now Restaurants’ nationwide average of 39 minutes. GrubHub does not provide precise timing information because it doesn’t make the delivery itself, Kopelman pointed out in a research note Monday. Amazon offers estimates “within the hour.” Kopelman says that UberEats has changed to curbside delivery only, which means that drivers will not meet customers at the door, as is the norm in food delivery. Kopelman says that changing to curbside lets the company more easily integrate existing drivers for UberX — its taxi-like service, where drivers use personal cars to ferry passengers — which the firm is using as a primary source for delivery recruitment. An Uber spokeswoman told IBD that the company’s “instant delivery” is curbside, but she added that its regular restaurant delivery “in most cases” is door-to-door. Unlike Amazon and GrubHub, UberEats does not allow tipping within the app — though customers can give the driver a cash tip — and its fees are among the lowest among its competitors, according to Kopelman. Amazon does not charge a delivery fee, at least for now. “Our initial impressions of UberEats in Los Angeles make us incrementally more cautious on the competitive environment for GrubHub,” Kopelman wrote. The UberEats app and curbside restaurant delivery are set to roll out in Chicago, Houston, Los Angeles, San Francisco and Toronto, according to the company’s blog. Seven other major markets are set to open “around the corner” — including Melbourne, New York and Paris. Troubled Market But if startups are any indication, then UberEats, Amazon and GrubHub are vying for a market that is looking at a troubled future. Tuesday, TechCrunch reported that SpoonRocket, a food delivery app, is shutting down amid the “on-demand apocalypse,” referring to the big challenges of the food deliveries business. And Monday, the Wall Street Journal published a report  saying that grocery delivery app Instacart, valued at over $2 billion, is slashing its driver pay 63% in a bid for profitability. The WSJ also pointed out that such on-demand delivery companies are attempting to avoid repeating history. In the dot-com bust, heralded grocery delivery startup Webvan Group burned through $800 million before shutting down in 2001.

Prime Now Seen Helping Amazon Gain Vs. Retailers Wal-Mart, Target

With the Amazon.com ( AMZN ) one-hour delivery app Prime Now , it’s possible to order a big-screen television on New Year’s day from a mobile phone and still catch that day’s football bowl games. This capability is going to help Amazon destroy the advantage that Wal-Mart ( WMT ), Target ( TGT ) and others hope to gain by offering online orders, in-store pickup and stores as warehouses for online deliveries, according to a Wells Fargo analyst. Though ordering a TV from a smartphone and having it delivered immediately is not a typical use of Prime Now, Amazon’s app has caught on with consumers. The Seattle-based giant has brought the service to 26 markets in just over a year. It’s part of the company’s move to dominate “Need It Now” shopping, Wells Fargo analyst Matt Nemer wrote in a research note late Monday. Prime Now members must be members of the company’s Amazon Prime loyalty program, which costs $99 a year. Amazon Prime includes free two-day shipping, free video streaming and a host of other perks. Those perks include Prime Now, which offers free two-hour shipping of roughly 30,000 products in markets where it’s available, and one-hour shipping for $7.99 per delivery. Amazon’s push may eliminate a key advantage of physical retailers — the last-mile convenience of being able to get something immediately. As that advantage disappears, so do other advantages touted by brick-and-mortar stores, such as the ability to pick up an online order quickly at your local store. Prime Now is gaining even in food delivery, Nemer says. He says that Prime Now has a better app for Apple ( AAPL ) iOS users than Google Express, the Alphabet ( GOOGL ) food delivery service. Wal-Mart, Target and other retailers have struggled to compete with Amazon’s growth rate and innovation — especially around customer loyalty programs. Target recently launched its Red Card loyalty program. Amazon stock was up nearly 1%, near 567, in afternoon trading on the stock market today. In the research note, Nemer says that Prime Now, though not currently profitable, helps Amazon retain Prime member loyalty and will, with scale, become profitable. Prime also gives the company opportunities to experiment — for example, selling products in smaller pack sizes or offering high-turnaround fresh groceries that would be impossible to sell on Amazon.com. Nemer says that Amazon’s delivery of local food items “suggests” that it may compete with food-delivery platforms like GrubHub ( GRUB ) and privately held Uber’s UberEats. It’s also possible, Nemer says, that Amazon could begin to eat into convenience store market share. If Amazon can deliver small-pack sizes for lower prices with free delivery, convenience stores could have trouble competing, he says.

Amazon.com, Uber Threaten GrubHub In Food Delivery, Analyst Says

Analysts are cautious about food-delivery firm GrubHub ( GRUB ) and its outlook in 2016, saying the sector has become intensely competitive as startups and publicly traded companies vie for diner dollars. Despite strong Q4 earnings  posted early Thursday, GrubHub was downgraded by  Oppenheimer analyst Jason Helfstein to perform from outperform due to concerns over growing competition. In a research note Friday, he specifically cited e-commerce juggernaut Amazon.com ( AMZN ) and ride-booking app Uber. Helfstein says that both firms will cut into GrubHub’s revenue and profitability in the next 12 to 18 months. “As Amazon and Uber aggressively pursue food delivery, we believe GrubHub will see margin compression on reduced order rates, more expensive customer-acquisition costs and lower commission rates,” he wrote. He noted that the number of Amazon shoppers dwarfs GrubHub’s customer base of about 6.7 million active diners — Amazon’s customer loyalty program Amazon Prime alone has more than 50 million members, according to estimates. Meanwhile, Uber is growing rapidly, Helfstein noted, and now is valued at over $60 billion. Online review website Yelp ( YELP ) also entered the food delivery market last year with its acquisition of Eat24 for about $134 million. And payments processor Square ( SQ ), which recently had its IPO , owns food delivery app Caviar. GrubHub stock was down 2% in late-afternoon trading in the stock market today , near 21.  The company has an IBD Composite rating of 68, where 99 is the highest. GrubHub stock rose 13% Thursday after its Q4 beat. It held its IPO in April 2014, pricing shares at 26 and raising $192 million. RBC Capital Markets analyst Rohit Kulkarni, in a research note Friday, called GrubHub’s Q4 “solid” and said its 2016 guidance was better than expected. But Kulkarni wrote that he’d “prefer to remain on the sidelines” because of unfavorable trends. The analyst lowered his price target on GrubHub stock to 26 from 27, saying he sees no clear route to acquiring more diners and finds a lack of evidence of “stable delivery economics.” “We don’t believe GrubHub shares can fundamentally outperform,” Kulkarni wrote.