The negotiations between Uber Technologies and Grubhub by which Uber would acquire its competitor in a share transaction worth $6 billion, has focused attention on food delivery in a COVID-19 environment.

Grubhub, Uber, Doordash and Postmates, the U.S. market leaders compete for expanded restaurant delivery.  Notwithstanding increased volume, margins are slim, and it is estimated that Uber Eats is generating revenue but losing money.  Uber has withdrawn from some international markets where its penetration fell below a point at which their business was viable.  Recently there have been mergers among EU food delivery companies suggesting that consolidation may reduce operating cost.  Each of the major U.S. companies is spending an unacceptably large proportion of revenue on promotion and advertising. In past months drivers and delivery personnel have demanded and received bonuses and PPE at considerable cost.

Restaurants are less than happy with delivery companies based on high cost and occasionally poor service that reflects adversely on the food preparer.  Some companies have initiated their own local delivery to regular customers with benefits to both parties. 

A critical question is whether customers will continue to use delivery services when the U.S. emerges from COVID restrictions. Even under present circumstances, many consumers prefer curbside collection as it ensures quality and reduces cost. 

It is inconceivable how Uber can value Grubhub at $16 billion given that the company anticipates earnings to only be in the region of $5 million for the current quarter.  Uber must see some immense measure of synergy from the acquisition that is not readily apparent to analysts and investors.