Uber Bites Into Tough-Nut-To-Crack Food Delivery Market

Cab-hailing giant Uber has entered the $15-billion food delivery market in India even as multiple startups shut shop and existing ventures such as Swiggy, Zomato and Foodpanda continue to bleed.

The San Francisco-based company rolled out its UberEATS service in Mumbai on Tuesday with more than 200 restaurant partners. Launched as a delivery pilot in 2014 in Los Angeles, UberEATS is present in 78 cities across 26 countries. It works on a model similar to Uber’s ride-hailing services.

The weakest link in online food ordering business is the delivery part and that requires expertise, said Sanchit Vir Gogia, chief analyst at technology advisory Greyhound Research. The venture that understands transportation business will have an upper hand to make this business profitable over time and from that perspective it is a “perfect fit for Uber”, he said.

Yet, it won’t be an easy ride. Uber’s rival Ola too ventured into food delivery but pulled the plug a year after launching Ola Chef in Delhi, Mumbai, Bangalore and Hyderabad in 2015.

The organised food business market is worth $48 billion, of which food delivery is $15 billion, according to a report by the Indian Brand Equity Foundation, a trust established by commerce ministry. The online food delivery business grew 150 percent year-on-year with an estimated gross merchandise value of $300 million in 2016, the report said.

A Different Model

Uber says it will provide a delivery service model similar to cab aggregation. UberEATS will apply the data and learnings from ride-hailing services to provide a seamless experience to customers, restaurants and delivery partners, Bhavik Rathod, head-UberEATS India, told BloombergQuint. “We are known for our technology, data, accuracy, reliability and ease of use and all of that exactly translates into UberEATS as well," he said.

Its delivery partners will be individuals who can sign up on the app only if they own a motorbike or a scooter, a smartphone with a data plan and a valid driving licence, insurance and registration certificate for their vehicles.

For the customer, there will be a delivery fee of Rs 15, with no minimum order size.

This may spark a discount war, said Kunal Khattar, partner at early-stage venture capital fund AdvantEdge. “Since UberEATS will charge Rs 15 per delivery, while other players do not (beyond a certain order value), we will soon see Uber offering more incentives to lure customers,” he said.

Zomato follows a mix of restaurant-owned and Zomato-provided last-mile logistics and has a minimum delivery price set by restaurants. Swiggy has its own bikers’ fleet and charges a delivery fee for orders below a certain amount in select cities, with no minimum order value. Foodpanda also has a delivery team and charges delivery based on the location of restaurants.

Food delivery works on time-constraint, requires consistency and faces an operational and logistics challenge, said Mohan Kumar, partner at Norwest Venture Partners, an investor in UberEats’s rival Swiggy. “Trying to do an online taxi business and food delivery are two different things,” he said.

Multiple online food delivery startups have already burnt fingers. More than six ventures wrapped up operations in 2016. Tiny Owl, backed by Matrix Partners, Sequoia Capital and Nexus Venture Partners, was acquired by local delivery startup Roadrunnr and the merged entity was rebranded Runnr.

Those that continue operations have seen their losses mount. Swiggy, backed by Bessemer Venture Partners, Accel India, SAIF Partners, Norwest Venture Partners, among others, saw its losses rise 65-times to Rs 137.18 crore and burnt about Rs 13 crore a month in the year ended March 2016, according to its filing with the Registrar of Companies. Rocket Internet-backed Foodpanda’s losses widened nearly four-fold to Rs 142.6 crore during that period, according to data shared by the company.