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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