1 Big Question for DoorDash as Amazon Joins the Food Delivery Race

Grubhub and Amazon (AMZN -1.77%) recently announced a partnership that enables Prime members in the U.S. to get one year of Grubhub Plus for free. In this Motley Fool Live segment from “3-Minute Stock Updates,” recorded on July 11, Fool.com contributors Ryan Henderson and Travis Hoium take a look at how this deal could affect DoorDash (DASH -5.36%). 

Ryan Henderson: So this is pretty big news. Last week, Grubhub and Amazon announced a partnership that enables Prime members in the United States to get one year of Grubhub Plus for free. Grubhub Plus is very similar to DashPass, where typically or traditionally you pay, I think, it’s 9.99 a month, and you get free delivery on all food orders from participating restaurants. Now if you’re an Amazon Prime member, which there are more than 150 million Amazon Prime members in the United States, you’re going to get one year of this for free. Following this announcement, Grubhub became the most downloaded app in the App Store last week for the Food and Drink category. DoorDash was at number 3. DoorDash’s stock dropped almost nine percent the day after the news. It has since recovered, but that was pretty much all food service companies, so Uber included, stuff like that. They all sold off during this news. So from my perspective, I don’t know if there was that much brand loyalty to food delivery companies where now you have a lot of incentive to join Grubhub because you’re not paying food delivery if you’re already a Prime member, at least for participating restaurants. To me, this seems like a real threat to DoorDash’s growth at least over the next 12 months since it’s only a year-long membership. I don’t know. I’m curious to get your thoughts on it. First of all, are you going to download the Grubhub app, and do you think this is a threat to DoorDash’s business?

Travis Hoium: I am not a Amazon Prime member. We canceled that during the pandemic and have moved to things more like pickup, but I do believe I have the DoorDash subscription. This is going to be one of the interesting things to watch with this deal specifically is, is the ecosystem sticky? Because if DoorDash doesn’t lose business to this, then what threat is there? What bigger threat is there than a partnership with Amazon? If DoorDash can take market share in at a time when Amazon is trying to come after your business, that tells me you’re in a really good spot. I would tend to think I know that the short-term numbers are really high for the Grubhub downloads, and so that’s a really interesting data point. But I would tend to think that your ordering habits are pretty set. I have a bunch of food ordering apps, and DoorDash is basically the only one I actually use at this point. That’s what I’m fascinated to see. It’s definitely a threat, but if Amazon and Grubhub aren’t able to take a significant share and really impact the revenue, then I would feel much better about DoorDash as a company long-term.

Ryan Henderson: That’s a good point. This will serve as a really good moat test, I think, for DoorDash. But it is interesting. For me, I tend to price compare if I’m getting food delivery, so I’ll check out Uber Eats, I’ll check out Grubhub, I’ll checkout DoorDash to try to go with the cheapest one. I know for a lot of people, it’s just habitual. I ordered with DoorDash last time. I understand how to do it really easily. I’m going to do that again. But at the same time, if you’re saving 10 bucks on every order, I imagine this might be the time to switch. I look forward, maybe not this quarter, because you probably won’t see the effect on it, but the following quarter, seeing if they see any decline in the number of orders that DoorDash processes.

Travis Hoium: The other question too is, does this get suppliers more interested in Grubhub? Restaurants are probably in a really weird spot where you don’t want to have 50 different delivery companies tying into your systems. You almost have to have DoorDash at this point. You probably almost have to Uber Eats. Grubhub was, I don’t know, third, fourth, fifth, eighth place in market share. That’s not a name I hear a lot around here anyways, but does this move them up that stack and get more suppliers in the ecosystem? That will be another one to watch.

Ryan Henderson: I guess I’m curious to see how it plays out, but I know some people have complained that the subscriptions aren’t worth it because not all the restaurants participate, so maybe it isn’t quite as worth it. If I would’ve just heard just this announcement, I would’ve thought much of it. But hearing that it became the most downloaded app on the App Store the week after for the Food and Drink category, that gives a little more. Maybe this could be a real threat.

Travis Hoium: Definitely, it’s something to watch.