Uber Eats preps to expand into grocery, cloud kitchens in light of IPO
- Uber Eats' revenue surpassed $1.4 billion in 2018, just three years after it began operations, according to an SEC filing. Comparatively, its revenue was $103 million in 2016. The increased revenue was attributed to a 164% increase in gross bookings. However, Uber Eats' revenue as a percentage of gross bookings decreased from 20% in 2017 to 18% last year due to a higher restaurant mix and lower basket sizes and service fees.
- The third-party delivery provider plans to expand from 500 cities to 700 cities globally where it already offers ride-sharing, while also investing in its existing cities to expand the number of restaurants, drivers and consumers. The company is also looking into entering grocery and different types of food providers, such as cloud kitchens.
- Uber Eats currently partners with 220,000 restaurants around the world, including large chains like McDonald's, Starbucks, Subway and Popeye's. Delivery has been particularly successful for McDonald's, which offers the service to 13,000 units globally, and delivery now makes up about 10% of sales at some McDonald's restaurants, according to the filing.
Now that Uber has filed for an IPO and seeks a potential valuation of $100 billion, details about 3-year-old Uber Eats have revealed how much of an impact competition is having on the food delivery arm. While the company has more of a global reach than its top U.S. competitors, it's been dealing with tough competition in the countries where it exists, including India and within the U.K. It previously adjusted its fees in the U.K. to better compete, a move that it also made in the U.S.
The company isn't the first in the delivery space to go after an IPO — Grubhub and Waitr are already public and DoorDash is likely not too far behind, meaning a competitive advantage of new capital is already available to some of its top U.S. competitors.
Uber Eats does have some serious competitive advantages, such as access to logistics data that can better anticipate an impact from weather or sports events that could impact delivery routes.
Data from its current ride-sharing cities can also make it easier for the food service to expand into new markets since there are already people on the ground who understand local demographics. The company also rolled out a new redesigned platform that includes a five-point delivery tracker, a feature that other U.S. competitors don't have.
But despite its advantages and its growing total revenue, competition around the world has been taking its toll on the company. Its take rate, or its share of transactions, declined to 10% last year compared to 12% in 2017 due to an increase in restaurants having lower average basket sizes on its platform, an expansion into new regions and increased incentives for drivers, according to the SEC filing.
Adjusted net revenue has started to shrink each quarter, falling 14% during the last quarter of 2018, compared to 37% growth during Q4 2017. The company has also been charging lower fees for some of its big partnerships, although the filing didn't specify which ones. That means it's occasionally paying more to a driver than it receives in fees, according to The Wall Street Journal, which brings into question how profitable these relationships really are for the service.
Uber Eats will need to continue to push up profits and revenues to maintain its market share, so it will be interesting to see if the IPO, new fee structures and offerings will better position it in an increasingly competitive delivery segment.
- The Wall Street Journal Behind Uber’s Slowing Growth: Onslaught of Global Competition Takes a Toll
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