UberEats is a Game Changer for Uber's Bottom Line

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(Bick Bhangoo) #1

What UberEats is Uber's weapon for success? It operates in over 250 cities and is constantly growing. With four years of success under its belt, UberEats has an advantage over its competition. CB Insights analyst Natan Reddy told the media that "Uber already has the advantage of their own delivery fleet as part of the rest of their business to rely upon, which most other food delivery businesses don't have. That's a major advantage in my opinion, and it will be interesting to see how that shakes out against as competitors expand abroad."

Uber's advantage is apparent when observing competitor Caviar, GrubHub, and DoorDash. These food delivery services have to build new infrastructure in every city they enter, while Uber just needs to adapt an existing infrastructure and build on it in every city they operate UberX rideshare service.

This is the strategy that Uber has already put in place, and they plan on expanding UberEats to another 100 new cities, which will bring their coverage to around 350 cities. Uber operates in over 600 cities, so there is still a lot of ground for UberEats to gain.

For the last 12 months, UberEats has proven to be one of Uber’s best developments. While Uber ridesharing has taken a constant beating and the company has undergone so many upheavals, at least one operation is providing some comfort.

The New York Times claims that UberEats is profitable in at least 25 cities and generates around $1.1 billion a year, which is 10% of all the company's revenues. UberEats expansion is also astronomic, but that is mainly due to the infrastructure that Uber has already in place.

The food delivery market is a very hard one to operate in, and there are two battles that need to be fought to succeed:

Pricing

Food delivery is a cheap business, whatever income is generated from deliveries has to be split up between the company and the courier. What makes Uber so successful is that they have a large base to work from, which is our next point. However, back to pricing, as Reddy say's "Consumers are extremely sensitive to the price that you charge, and a lot of these services are sort of caught between a rock and a hard place where you pay the people that are delivering the food, but you can't charge too high a price to the customers because they won't buy the food, to begin with."

Size

Uber has a great advantage over most of its competitors when it comes to size. Add to the natural infrastructure the deals that Uber has in place with food giants McDonald's, and you have the backbone for a very serious number of deliveries per day. McDonald's has over 7,000 sites in over 20 countries and represents around 9% of all UberEats deliveries.

Another issue that food delivery has to contend with in investment and cash fluidity. The current state of the market makes it much harder for new gig economies to emerge in this sector. CB Insights states that there were around 87 food delivery startups in 2017 that managed to raise a combined $2.6 billion in venture capital, which is impressive, but much less than the 137 startups that raised $4.2 billion. In most cases, VC's are becoming much more conservative with their investment in this sector. This is mainly due to the size issue. The smaller the company, the harder it is to take off, and competing with the giants is now virtually impossible. There is no real leeway or gimmick that can be used to leverage success. The cost of food delivery and the business models are in a very tight place.

Ask PostMates; they will show you their various attempts at creating new pricing schemes to leverage consumer satisfaction. In most cases they were successful, but that was mainly due to the $278milion they raised in cash for further financing of their business operations.

As Reddy concludes are article with saying "The overall pattern we see in meal delivery is that the companies that are able to operate in the long run are the ones that reach scale, and if you don't have that scale, it just becomes extremely difficult to operate the logistics necessary to offer that service and operate that type of business. If you don't reach that level of scale, I think it's difficult to guard your unit economics."


(Steve Mann) #2

Uber Eats is great, I use this service a lot, not as a courier, as a customer. You would think that driving around would give me a chance to pick up food whenever I wanted, but no. I end up concentrating on work so much I nearly forget to eat. I do order out to help my wife, she works long shifts too, and we are both too tired to cook sometimes. I guess we use UberEats at least 3 times a week. We only cook on weekends, my wife doesn’t work over the weekend and I always take Sundays off for family day. There is no point in working to death without enjoying life at the same time, balance is the key to a happy life!


(Andrew Martin) #3

I quite agree with you Steve, UberEats is amazing, and I am just waiting to see it expand exponentially. It can also go into markets where Uber was and is no more, such as China and Russia, if they strike a deal with Didi and Yandex.