Amazon Ends Restaurant Delivery in Face of Fierce Competition -- Update
June 11 2019 - 02:14PM
Dow Jones News
By Sebastian Herrera
Amazon.com Inc. is shutting its restaurant delivery service
Amazon Restaurants in the U.S., putting an end to a four-year
experiment that sought to compete with the likes of Grubhub and
Uber Eats but failed to gain much traction.
Amazon said it would discontinue the service on June 24 and that
the small number of employees who made up the division have found
new roles within the company or will be provided assistance with
finding new positions. Website GeekWire earlier reported the
move.
Investors in some food-delivery companies welcomed news that a
giant had retreated from the market. On Tuesday, Grubhub Inc.
shares rose about 7% in afternoon trading, while shares in Waitr
Holdings Inc. jumped 6%. Amazon shares, meanwhile, rose
slightly.
Seattle-based Amazon started offering restaurant delivery for
Amazon Prime members in certain ZIP Codes throughout its hometown
in 2015. The next year, it opened a similar business in the U.K.
When Amazon first announced Amazon Restaurants, it said Prime
customers would see their food delivered within an hour or less
without paying a delivery fee. It also said it would place a "high
bar" on which restaurants it chose to participate with.
But the project failed to show significant growth, and Amazon
didn't aggressively promote it. The company closed its U.K. service
late last year, and as of May, it serviced only about 25 cities in
the U.S., according to its website.
The demise of Amazon Restaurants is a rare logistical misstep by
a company that is a dominant force in e-commerce and prides its
delivery prowess. It also adds to a list of failed projects for the
online behemoth that includes its Amazon Fire smartphone blunder, a
travel site named Destinations and Amazon Local, an extinct online
hub to find local deals.
The rough-and-tumble food-delivery business is swarming with
competitors and is largely unprofitable.
"It's very labor intensive to pick up food from a restaurant one
or two meals at a time and financially is a disaster," food
industry analyst Phil Lempert said. "No one really knew about
[Amazon Restaurants], and they did not do a great job of marketing
the service."
Amazon faced fierce competition from specialists that are
raising vast sums of money to gain market share. San
Francisco-based DoorDash Inc. raised $1 billion alone across two
funding rounds this year, while Uber Technologies Inc. collected $8
billion in its IPO last month. Postmates Inc., another San
Francisco-based delivery service, has raised almost $700 million in
private capital and filed to go public in the coming months.
The cutthroat market has eaten away at any possible profits.
Chicago-based Grubhub, a food-delivery pioneer that went public in
2014, reported a 78% drop in profit in its latest quarter to $6.9
million. Its shares have fallen more than 50% from their all-time
high last year.
Uber's delivery arm, Uber Eats, has grown to service more than
300 markets in the U.S. and serves dozens of cities around the
world. Revenue from Uber Eats surged 89% to $536 million in the
first quarter, but the "take rate" -- its share of the transactions
-- fell to 7.8% from 12.4% in the year-ago period. Uber's overall
first-quarter loss totaled $1 billion.
Between DoorDash, Grubhub and Uber Eats, about 80% of the U.S.
restaurant delivery sector has been gobbled up, according to
research firm Edison Trends.
Amazon Restaurants may have also had to take a back seat to
Amazon's other food delivery initiatives. Amazon's Prime Now
division, which ran the Restaurants arm, has become the company's
focus for grocery delivery, including for Whole Foods Market
products. As of May, Amazon said its delivery of Whole Foods Market
groceries was available in 88 cities.
The company is also investing in other food delivery services.
In May, British food-delivery company Deliveroo said it had raised
$575 million in a round led by Amazon. Including its latest round,
Deliveroo said it has raised a total of $1.53 billion.
Write to Sebastian Herrera at sebastian.herrera@wsj.com
(END) Dow Jones Newswires
June 11, 2019 13:59 ET (17:59 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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