Has Amazon Lost to Uber Eats on the Food Delivery Front?

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Last week, Amazon (NASDAQ: AMZN) announced that it would be shutting down its Amazon Restaurants delivery service in the U.S. by the end of this month. This follows on from the closure of the same food delivery service in London toward the end of last year, which was the only international arm of the business.

Amazon Restaurants was an addition to the Prime subscription service that allowed users to get food delivered to their door from participating restaurants, which included P.F. Chang's, Denny's, Five Guys, and Applebee's in the U.S. Prime members could order the food through Amazon's online site or through a section in the mobile shopping app.

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Though Amazon still delivers different types of foodstuff in a range of ways through its subsidiaries (Whole Foods Market, for example, delivers groceries in some U.S. locations), the closure of Amazon Restaurants means that the company now has no takeout food delivery service.

Shares of mobile food ordering company GrubHub (NYSE: GRUB) jumped more than 8% last week off the back of this news, but it will also count as a big win for Uber (NYSE: UBER).

In its S-1 filing published back in April, Uber specifically cited Amazon as a competitor to its Uber Eats service, which is rapidly becoming a vital part of its business. Indeed, in Uber's first quarterly report as a public company last month, they reported that adjusted net revenue for the Eats segment — which measures revenue after payments to the drivers and restaurants — grew 31% year-over-year to $239 million. Gross bookings, meanwhile, increased 108% to $3.07 billion, and CEO Dara Khosrowshahi mused that if Uber Eats was to overtake the ride-sharing business one day, it "would be an enormous win for us."

But this is Amazon of course, and the closure of Restaurants is by no means an admission of defeat concerning Amazon's involvement in the food delivery arena. In fact, probably the best indication of the company's future plans is the $575 million investment round Amazon led into the British food-delivery service Deliveroo in May.

Deliveroo is a delivery company that charges restaurants a commission fee for orders placed through its app which are then delivered by bicycle or motorcycle couriers. It currently operates in 14 countries — including the UK, France, Germany, Singapore, Australia, and the UAE — working with 80,000 restaurants and a fleet of over 60,000 delivery people. The investment means that Deliveroo has raised just over $1.5 billion to date.

It was reported last year that Amazon was interested in buying Deliveroo, but talks between the companies stalled over the apparent failure to reach an agreement on valuation. The companies remain very close, however, and after the closure of the most recent investment round, Deliveroo CEO and founder Will Shu said, "Amazon has been an inspiration to me personally and to the company, and we look forward to working with such a customer-obsessed organization."

So though it looks like Amazon's Restaurants business will be consigned to the scrapheap with the Fire phone and Amazon Wallet, the company seems to be focusing its energy instead on the best horse it can currently see in the race. Deliveroo is already strongly embedded in the industry of last-mile food delivery, with an estimated 45,000 daily users in the UK alone in 2018. In addition to this, according to a GlobalWebIndex survey in November 2018, Deliveroo sits just behind Uber Eats in terms of customer mind share, meaning that a deep-pocketed company like Amazon could give it just the push it needs in the right direction.

This article was first published by MyWallSt. Find more great investments in the MyWallSt app, available to download on iOS and Android now!

MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Amazon.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Grubhub and Uber Technologies. The Motley Fool has a disclosure policy.