Uber Eats’ Strategy, 6 Things to Consider
Food delivery, like masks and social distancing, is one of the many things that became common place during the COVID-19 pandemic. If you hadn’t used a food delivery app before 2020 you might have found yourself leaning into food delivery even more than you thought you would over the past two years. Uber Eats is one of many food delivery apps that has benefited immensely from the pandemic. Who would have thought you would turn to Uber more for food than for hailing a ride, but that is exactly what has happened. In the fourth quarter of 2021 Uber’s mobility (rides) business brought in revenues of $2.3 billion while its delivery business (Eats) brought in $2.4 billion which shows how much this business has grown over time.
With the rapid growth of Uber Eats over the past two years Uber, is not backing down, it sees delivery as a core part of its business. If you are curious about what Uber is doing to grow this business even as the pandemic resides then consider these six elements of its strategy.
1. Uber, the super app. Uber’s vision for the future is to have a super app where users can order almost anything, from a car ride to a meal to groceries. That makes Uber look more and more like an eCommerce platform or an online marketplace where you can satisfy a lot of your needs. “Our goal is to make Uber a destination that customers can rely on to get whatever they need when they need it,” said Raj Beri, Uber’s global head of grocery and new verticals.
2. Grocery delivery. Uber sees grocery delivery as its “next pillar of growth.” With that in mind in 2020 Uber launched its grocery delivery business after purchasing grocery delivery startup Postmates for $2.7 billion. Uber then began offering grocery delivery service in Canada, Latin America and the United States. Following up on that acquisition last year Uber paid $1.4 billion for its remaining interest in Latin grocery delivery startup Cornershop.
One of Uber’s key partnerships in the grocery space is with Tesco, the UK’s largest grocer. Under that deal Uber delivers groceries to Tesco’s customers in as little as one hour. Fulfilling grocery orders is believed to be more profitable since Uber doesn’t have to conduct marketing activities to generate a flow of orders, instead the grocery retailer provides the supply. Delivery companies also believe if a driver is managing several grocery delivery orders at the same time that will lower the cost of delivery helping to improve profit margins.
3. New verticals. In addition to grocery Uber is playing in several verticals outside of its food delivery businesses. These include:
Prescription drugs. Last year Uber began a partnership with NimbleRx to offer delivery of prescription drugs in the United States.
Alcoholic beverages. Last year Uber purchased Drizly an alcohol delivery service based out of Boston for $1.1 billion that allows users to order alcohol on Uber’s app. “Grocery and Drizly are very, very close to our delivery business in terms of use cases. They cover the fast and frequent. People want their liquor fast, they want grocery fast, and they're also frequent use cases as well,” said Dara Khosrowshahi, Uber’s CEO.
Cannabis. In Canada Uber has partnered with a cannabis retailer, Tokyo Smoke, to offer pick up of online orders for cannabis. “By combining a streamlined ordering process through the Uber Eats app with Tokyo Smoke’s in-person pickup service, we’re creating a new end-to-end experience for responsible cannabis ordering across the province [of Ontario],” said Lola Kassim, general manager of Uber Eats Canada.
Baby and kids. Last year Uber added a babies and kids vertical on Ubers Eats so parents in immediate need of diapers and thermometers can get them delivered quickly. “There is often in parenting an immediate need for a product. If your baby is running a fever, you need that thermometer,” said Beryl Sanders, head of partnerships for new verticals at Uber Eats. “We see grocery, convenience, and alcohol delivery as core to our new verticals. Baby and kids is a surprise product.” “We’re trying to listen to the need of consumers. We’re planning more surprises, focused on internal excitement and how many searches we see in the app. So you can get anything in 2022.”
Speaking about Uber’s expansion outside of its core food delivery business Beri said: “this past year has been one of incredible growth for grocery delivery.” “Since launching in 2020, today nearly 3 million consumers order groceries and other essentials each month through Uber—and we’re just getting started. All told, Uber’s expanded offerings into grocery and other new verticals has reached a $3 billion annual run rate [projected revenue] in 2021.”
One of reasons Uber is aggressively pushing into new verticals is because the food delivery market isn’t growing as fast as it was at the height of the pandemic. In-person dining in the United States reached its highest level since the pandemic began in the first quarter of 2022 while the share of deliveries made via food delivery apps has sunk to its lowest level since the last three months of 2020. “The share shift toward off-premise ordering seems to have plateaued," said Rich Shank, vice president of research and insights at Technomic, a consulting company. "The odds of it slipping a bit further are pretty good given the inflationary pressures consumers face and the higher fees they incur via third-party apps."
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4. Cross platform synergies. Uber believes it has the largest audience in the local delivery market when you combine users from its ride hailing and Eats businesses. There are synergies between these businesses with 25% of the people who use Uber Eats for the first time coming from Uber’s ride hailing business and a fifth of first time users of Uber’s ride hailing business coming from Uber Eats. “Cars are to us are what books were to Amazon,” said Khosrowshahi. “Just like Amazon was able to build this extraordinary infrastructure on the back of books and go into additional categories, you are going to see the same from Uber.” Beri has also said that: “Amazon powers next-day delivery. We’re going to power next-hour commerce,”
5. Ultra fast delivery. One of the key trends in eCommerce is ultra fast delivery. Companies like Go Puff offer delivery of convenience items in as little as 30 minutes. Some of the most popular items purchased using GoPuff’s delivery service include: toilet paper, Tylenol Extra Strength, White Claw hard seltzer, and Slim Jim snacks. “We buy the inventory. We sell it for more than we buy it, which is what has made the unit economics of our business much stronger than a number of third-party delivery services, because we’re actually making our money on the product margin, not on the people who deliver it,” said Daniel Folkman, senior vice president of business at Gopuff.
To tap into this market Uber has a partnership with Go Puff where customers can make orders from Gopuff’s inventory of convenience items on Uber Eats and then the order is fulfilled by Gopuff. “With this partnership, we are able to leapfrog the competition in using Gopuff’s network of micro-fulfillment centers to instantly meet consumer demand for thousands of products,” said Beri, Uber’s head of grocery and new verticals delivery.
6. Advertising. Like many retailers with an online business Uber sees advertising as a strong revenue driver. In 2020 Uber’s advertising business only brought in $11 million but Uber’s advertising revenues jumped to $141 million last year and Uber is planning to bring in more than a billion in advertising dollars by 2024. Uber is following in the footsteps of retailers who have realized that their online traffic creates fertile ground for a large and profitable advertising business. Amazon reported advertising sales of $31 billion last year leaving many retailers and food delivery companies trying to get a piece of the pie.