Uber Technologies reportedly is in talks to acquire Chicago-based Grubhub, as the coronavirus pandemic continues to increase reliance on online food ordering.
The potential acquisition would combine two of the top three food delivery platforms in the country, and give them a leg up over their remaining top competitor, DoorDash.
"It makes sense," said Ali Mogharabi, a senior equity analyst at Morningstar. "The acquisition of Grubhub ... further strengthens the online food delivery side, UberEats."
Uber already has a competitive advantage because it can sell food through UberEats to its ride -share customers, Mogharabi said. Adding Grubhub _ and its diners and restaurants _ to Uber's repertoire would give it more of a boost.
The competition for online food orders became fierce last year. New customers and new cities had fueled Grubhub's growth, but CEO Matt Maloney said in October that was no longer enough. The company needed to retain its own customers and lure people away from competitors.
The coronavirus shutdown has helped Grubhub attract new diners and the size of the orders being placed has grown, as restaurants have become dependent on pickup or delivery. But the company also has contended with upset restaurant operators and social media backlash during the pandemic over the fees it charges.
Grubhub and its subsidiaries earned 28% of U.S. consumers' meal delivery sales in March, according to Second Measure, a Bay Area-based company that analyzes purchase data. UberEats earned 20%, while DoorDash and its subsidiaries bested both at 42%.
Together, UberEats and Grubhub could win the battle for consumers playing out on their smartphones, said Darren Tristano, CEO at Chicago-based food industry research consultancy FoodserviceResults.
"Consumers are creatures of habit. If they get comfortable with one app or another, they tend to use one app much more frequently," he said. "If those combine, it increases the chances that consumers will use that combined app."
Still, it's hard to say if a deal will be completed, Tristano said. Grubhub might not want to be taken over, and pushback might discourage Uber.
Reports that Grubhub might be sold have been circling since January. The company "unequivocally" denied that there was any process in place to sell then, and said that there were no plans to do so.
Maloney continued to shoot down rumors about a potential sale, telling investors during a February earnings call that the report "was and is not true."
Bloomberg News first reported on the potential acquisition Tuesday morning. Grubhub's share price jumped about 27% on the news before trading was temporarily halted.
