The potential Uber Eats-GrubHub marriage is only the latest example of the mad dash for monopoly power in #fooddelivery. Uber Eats’ stated goal is to only operate in markets where it is the #1 or #2 player. Its Indian subsidiary is now part of its bigger local rival, Zomato. Similar consolidation has taken place all over the world. GrubHub + Seamless in 2013. Delivery Hero + Foodora in 2015. DoorDash + Caviar and Takeaway.com + Just Eat in 2020.

So, what gives? Why do monopolies seem to be so necessary in this space (vs. merely desirable in others)? I think it’s because of the terrible unit economics, which makes monopoly power the last best option to maximize rent extraction out of restaurants (who will have no alternative), and “gig workers” (the recent phenomenon that allows companies to operate vast labor forces without the burden of basic employment protections). Plenty of reporting before and during the COVID19 pandemic has brought to light questionable practices on both fronts.

And I’m willing to bet the unit economics still won’t work. Synergies may lower back-office costs, but I’m not sure how the increased scale fundamentally changes the unit economics of last-mile delivery, which are incredibly challenging in low-margin businesses like prepared meals and grocery. All that this merger is likely to do is draw more scrutiny, more lawsuits, and, eventually, more regulation. In the long run, unit profitability is what matters, and no amount of consolidation can fix that.