Amazon's $13.7 billion acquisition of Whole Foods sent shock waves through the business world last month, but grocery is far from the only industry that has retailers worried. Dozens, if not hundreds, of companies today now nervously wonder: What if Amazon enters my industry?
Amazon has already expressed plans to dive further into furniture, and some analysts predict the company could even one day tackle retail pharmacies. As companies wait and see which industries Amazon targets next, the tech giant has officially announced plans that could have two well-known Chicago tech companies on their heels.
Will Amazon Order Grubhub Next?
The first is Grubhub, who is the leader in US food delivery but has faced competition in recent years from players like Uber and Amazon. Amazon's nearly $14 billion investment in Whole Foods signals that the company is ready to go all in on food delivery, and Grubhub's stock has been up and down as investors grapple with how Amazon's Whole Foods deal will disrupt Grubhub's business, or if Amazon will decide to purchase the Chicago-based meal delivery company outright.
Grubhub's shares jumped last month when Wedbush analyst Aaron Turner outlined the case for Amazon to buy Grubhub. Amazon could use Grubhub's delivery network for takeout, groceries, or other Amazon deliveries, the analyst said, and Grubhub could benefit from Amazon's Prime members as a source for new customers.
The analyst estimated that Amazon could be willing to pay $55 a share for Grubhub, which would come out to about $4.5 billion.
But Grubhub's stock dipped 10% last week as investors saw reason to worry about Amazon's looming food delivery presence. A Morgan Stanley report noted that “competition is on the rise” and Grubhub will need to spend more to get new customers as Amazon's food delivery aspirations heat up. Amazon, which has dabbled in on-demand food delivery for two years, is gaining in brand awareness, the report said. In a Morgan Stanley consumer survey, 14% of people said they tried Amazon's delivery service last year, compared to 12% for Grubhub.
But another analysts, Brad Erickson of Pacific Crest, believes those concerns are overblown. He noted that Amazon's pace of adding new delivery restaurants has slowed, and it even dropped a couple dozen partnering restaurants in New York.
Despite some recent volatility in its stock price, Grubhub has had a nice start to 2017 and is trading 15% higher than it was at the start of the year. At the end of the day, Amazon's Whole Foods deal could be more of a threat to companies like Blue Apron, Home Chef and Peapod, who offer grocery delivery and meal prep rather than restaurant takeout. Blue Apron slashed its IPO value following the Whole Foods news.
Is Trunk Club the Next to Get Amazon'd?
While the Whole Foods deal captured most of the headlines, a different Amazon move could have another Chicago tech company on the ropes: Trunk Club.
Last month Amazon announced a new service, Amazon Wardrobe, that lets Prime members get clothes shipped to their house, try on what they like, and send back what they don't--only paying for the things they keep. It's a move that could be a hit to traditional retail shops, and also cuts into the business model of tech upstarts like Stitch Fix and Chicago's Trunk Club, who have already been hitting brick-and-mortar stores hard with their subscription box services.
Trunk Club, which was acquired by Nordstrom for $350 million, now faces another direct competitor in Amazon, whose new service allows customers to try on three or more items and return unwanted clothes within seven days. There's no "styling fee" like at Trunk Club or Stitch Fix, which charges $25 and $20 per box respectively, and Amazon customers can get 20% off their items when they keep five or more.
The increased competition comes as Trunk Club saw a rocky 2016 where it cut 250 jobs and closed a Goose Island facility. Nordstrom also revealed last year that it was taking a $197-million write-down on Trunk Club, dropping its value to around $150 million. Trunk Club did however announce in April that it plans to hire 80 new employees at its Chicago headquarters.
