Amazon plans to shutter its four-year-old Amazon Restaurants delivery service in the US this month, GeekWire reported June 10.
The service, which launched in Seattle in 2015, had expanded to roughly two dozen US cities and London. Amazon closed Amazon Restaurants in the UK in December 2018, after two years of operation.
Amazon started the food-delivery service as on-demand meals were becoming big business for tech startups, with companies like Postmates, DoorDash, Caviar, and Uber Eats competing to deliver food from restaurants to consumers. Others, like Sprig and Maple, went further, vying to both prepare and deliver freshly cooked meals. In the US, Amazon Restaurants was available for free to customers with a $119-a-year Prime account.
Restaurants aren’t the first delivery-based business to evade Amazon, which is otherwise a master of logistics. The company has famously struggled to make online grocery-delivery work, with Amazon Fresh still a niche player more than 10 years after its launch. Amazon bought upscale US grocer Whole Foods for $13.7 billion in 2017 partly to jumpstart its grocery-delivery efforts. The deal gave Amazon hundreds of established physical stores from which it could process and deliver orders.
Amazon hasn’t necessarily given up on restaurant delivery—just last month it led a $575 million funding round in Deliveroo, a London-based food-delivery startup, at an undisclosed valuation. Deliveroo said at the time it would use the money to expand internationally and grow its delivery-only kitchens business (sometimes called “dark kitchens,” because they are often built in shipping containers with no windows).
While the Deliveroo stake puts Amazon in direct competition with Uber Eats in Europe, it doesn’t give it a US footprint after Restaurants shuts down. For that, Amazon would need to buy or invest in a company like Postmates (which filed confidentially in February to go public) or DoorDash (which recently raised $600 million at a $12.6 billion valuation).
Another possible target is Grubhub, the leader in US food delivery. Grubhub’s share price was up nearly 7% in midday trading today, after the news broke that Amazon would shut down its Restaurants unit.
The food-delivery sector is booming, thanks to generous funding from venture capitalists who have pumped billions of dollars into these companies. The businesses are using those billions to hire contract workers and pay for coupons and promotions to gain market share and disguise the true, often quite high prices of their services. Amazon itself offered promotional deals, like $10 off a first order from Amazon Restaurants.
Food delivery is a tough business with complex logistics, labor practices that are often poor, and notoriously thin margins. Many of the hottest delivery companies in Silicon Valley just a few years ago have since gone out of business.