Uber Eats Offers to Take Over Grubhub. What Would That Mean for Contractors?

News broke within the past hour that Uber Eats is negotiating a take over of Grubhub. (As I write this it's about 10 AM MST).

There aren't many details right now. I'm not sure there are any details, to be honest. Sources have confirmed to several news outlets that talks are taking place, and that a deal could be reached by the end of the month.

Remember, these are talks. There is no agreement. There may not be an agreement. That's always a possibility.

Will it happen?

My gut is telling me it is very likely.

But you gotta remember, you're reading that from a blogger who pays the bills by delivering food. I'm sure there are plenty who are better qualified to tell you.

But I don't think talks are likely to break off. For one simple reason:

We're hearing about it now, not after the fact.

Do you remember the news breaking in January that Doordash and Uber were in merger talks. The news broke after the talks broke off. There was no leak to the media while it was happening.

This tells me a couple of things. It tells me that there's the ability to control leaks if they want to control them. It makes me think that the leak of this news was intentional. And seeing how much stocks are shooting up for both companies because of this news, I'm thinking that a break in the talks could be a huge disaster for one or both of these companies.

I know, it's possible for someone to go rogue, leak the information so the stocks could take off, and then sell. Grubhub stocks have been hurting for a long time. That's always possible. I'm totally uninformed about how these things usually happen, but I'll just say that my gut tells me we wouldn't know about it unless it were getting close to a done deal.

And hey, my gut is way too big to ignore. Believe me, I try, every day.

Grubhub didn't want to do delivery once upon a time.

It wasn't long ago that Grubhub was the king of the mountain.

But you also have to remember that Grubhub never started out as a delivery company.

Grubhub started out as a marketing company. It was all about helping restaurants advertise their business online. The idea was originally to help with takeout orders. They provided a platform that restaurants could use to put their menus online, without all the risk and expense of doing it themselves.

I wish I could find links to back this up now, but I've read in the past that Grubhub really didn't want to get into delivery. They seemed to understand that getting into the logistics was a losing proposition. However, once they decided to go all in, through a series of mergers and acquisitions they quickly became the dominant player.

Grubhub has struggled to compete.

Grubhub achieved their market dominance by buying out delivery companies, both nationally and locally. They bought out companies like Seamless and Eat24. Part of that dominance was they were just in so many more markets than anyone else. It also gave them the ability to set their prices for delivery, and that allowed greater profitability.

And then Uber moved into delivery. Doordash began spending money like crazy. Once there were three or four major delivery options in every market, Grubhub's profitability began to nosedive. Along with that drop in profits, their stocks had tanked from a high of $146.73 in September 2018 to a low of $29.35 less than two months ago.

More recently, Grubhub has been getting the brunt of the bad PR in the past few weeks over the high prices they are charging struggling restaurants during this pandemic. As I talk to restaurant owners and managers, Grubhub is getting more complaints over their prices (and even price increases) during this time.

I have to wonder how they'll survive all this in the long term. I've stated earlier that I think one or more of these companies may not make it afterwards. Is it possible that Grubhub is the one to fall (or get absorbed)?

Meanwhile, Uber Eats has been investing in their delivery operations

Of all the articles that I saw pop up right after the news came out, I felt like this one from Graham Rapier at Business Insider did the best of delving a little into the background, providing more information than just that the word was out.

In his article, Rapier mentioned that Dara Khosrowshahi, Uber's CEO, had told a recent shareholder meeting that they were always looking at acquisitions. The article also pointed out Uber's acquisition in October of Cornershop, a grocery delivery startup in Latin America. Uber's goal is to be number one or number two in every market.

As a driver, I can see the investment taking place in the steady improvement in their driver app. Uber Eats has slowly but consistently been introducing improvements in the information they are providing for drivers. In six months, Uber Eats has morphed from being the very worst to possibly the very best in the kind of information they are providing when offering deliveries.

You don't do that kind of thing without a commitment that is all in on growing the delivery side of your business.

What will happen if Uber does take over Grubhub?

As far as we are concerned as contractors, not much. Not for awhile.

I could be wrong.

I say that based on my years of experience in Telecom and even watching things happen in the delivery world. Our family business sold phone systems, local and long distance phone service and internet/data services. Companies were always merging. Even recently, T-Mobile just completed their purchase of Sprint. There was a pattern that seemed to happen with these mergers that I've seen so far with Caviar since they were taken over by Doordash. I expect things will be about the same with Grubhub if Uber Eats takes them over.

When there's a lot of tech involved, these things don't just happen over night. It won't be a matter where Uber Eats and Grubhub close on the take over deal on June 1 and all of us who are delivering for Grubhub are now on Uber Eats on June 2. It just doesn't happen that way. These companies are too big for it to happen that quickly.

Here's how I expect things to happen.

First, it'll take time to close the deal. When you have the number two and number three delivery companies merging and making up possibly 60% of the delivery market, it's not going to happen without getting some challenges on the anti-trust side of things. There is always the possibility that this gets shot down from outside.

Once the deal is done

If and when the Uber Eats take over of Grubhub gets through all those hurdles, I expect we won't see any difference on the delivery side for awhile. You can't just merge two totally different operations and two totally different ways of doing things overnight.

Last summer, Doordash purchased Caviar. As of today, they are still operating as individual entities with their own platforms and their own sets of drivers. That may or may not continue to be the case, considering that Caviar served a higher end niche. I would expect that they'll eventually morph into one company.

I've seen this in telecom also, over and over. A case in point was when Sprint acquired Nextel. The two ran almost completely separate from one another for a long time. Eventually, support and internal functions merged. It took several years before the Nextel brand more or less went away. Telecom manufacturer NEC bought out a company called Nitsuko, and it was pretty much the same type of thing. Eventually the Nitsuko products were re-labeled as NEC, but the product lines were still different than those offered by NEC. Again, it took several years before the two were ever completely and indistinguishably one company.

The pattern I usually see happening is as follows:

• As far as customer facing, operations, and branding, the two companies tend to operate individually and independently of one another for awhile.
• The first thing to happen in the merger is a consolidation of a lot of the front office and administrative functions. The Grubhub employees will become Uber employees but likely will operate in their own division. Caviar front office employees went through a transition already where HR switched them to the Doordash benefits and payroll.
• Customers (the restaurants) will continue to deal with each brand individually. They'll continue to pay differently for awhile for Uber Eats deliveries than they do when things are delivered by Grubhub. Eventually I expect some of the back end of their relationship with the brands will merge. Some of the time involved in making this change probably has to do with various terms of agreements.
• For drivers, I expect that initially the driver care will be separate for Grubhub for a few months. Most of the policies and programs like Partner/Pro/Premier driver levels will be in place for awhile. Eventually the driver management team will consolidate into one and there will be a universal set of policies.
• I would expect that the pay models will remain independent of each other as long as the brands remain independent. This could be for months, it could be a year or longer. There's just such a fundamental difference between the way Grubhub does things (where you know the total amount ahead of time) and Uber Eats (where the tip amount is unknown) that I think the pay model will be one of the last things to change.
• On the app side, I expect that eventually it will all migrate to one app over the other. I'm sure there's going to be some time deciding which features of each to keep. Ultimately, I expect that this is one aspect of Grubhub that will survive the merge. Eventually the Uber Eats deliveries will move over to the Grubhub app and not the other way around. I think this is because I think Uber Eats has been somewhat hindered by the fact that they're running on an app that was designed for rideshare. This merger gives them the opportunity (or excuse) to move to a delivery-specific app.
• At some point, it will no longer make sense to keep operating two brands. At that point the Grubhub brand will go away completely. Whether it all falls under Uber Eats or they create an independent delivery brand is anyone's guess.

Which would be better for drivers? If it were all Uber Eats or all Grubhub after the take over?

What do you think? Comment below, let me know what you think is good about this and what is bad. For those of you who do or have delivered for both, which aspects do you prefer? If I let you know my thoughts, will you let me know yours?

I could easily make this a really long article if I wanted to dive into that. I'll keep it short for now.

If I had to choose completely between the two, I think I'm one of the few that would actually say Uber Eats. I think Uber Eats does a better job of respecting the independent contractor relationship. I like the freedom of going out whenever and not worrying about schedule blocks. I'm actually getting to where I prefer the Uber Eats structure where you don't know the total amount until well after you're done. I like having my service matter a little more in the pay.

If I had to choose between the two, all or nothing, and I knew that Uber Eats would be just as busy in my market as Grubhub, I'd lean slightly towards Uber Eats. If the time ever came where the market wasn't so saturated with rideshare drivers doing deliveries, I'd be leaning even more towards UE.

Is this a good thing or a bad thing if it happens?

I think it's going to be a bit of both.

I'm not sure if this is a good thing for Uber or not. On the one hand, there is the food marketing side of Grubhub that is in and of itself very profitable. On that end, it's not a money loser.

The flip side is, Uber is taking on an additional aspect to the market that is outside their core business. Will this stretch them too thin?

I'm concerned what the impact on competition will do. Eliminating competition usually means an increase in prices. Will that kill off some of the delivery business? I think having a fairly even three-way competition between Uber Eats, Grubhub, and Doordash is good for drivers, because they have to be somewhat competitive in how they offer compensation. This is especially true during peak times when they are competing with incentives and bonuses. I worry that eliminating one of those players could have a negative impact.

Maybe the lack of competition and its impact on pricing can be a good thing. The fierce competition has forced delivery companies into a race to zero on delivery fees. In the end, the delivery companies have less funds for their pay models, and we've seen steady decreases from all the players. If customers have to pay a fee that's more suitable for the time and effort it takes to get food delivered to them, could it possibly allow an increase again in payouts to the drivers?

What do you think?

What would be good about Uber taking over Grubhub? How about the bad? What's the best and the worst each has to offer?