Uber Eats Needs to Deliver More Than Ever
(Bloomberg Opinion) -- Uber Technologies Inc. is many things: a ride-hailing company, a gig economy beneficiary, a symbol of Silicon Valley’s venture capital largess (and excesses), to name just a few. But Uber has yet another less-discussed identity that, in these early days after its public market debut, should figure significantly in your perception of its prospects.
Through its Uber Eats food delivery business, Uber is now a business-to-business services company for the restaurant industry. And maintaining its lofty valuation will depend in part on how well it does catering to their needs and adding value to their businesses.
Uber Eats generally is becoming more important to the company’s ecosystem. It is growing explosively at a time when its largest business, ride hailing, isn’t. It’s not entirely clear why ride bookings have dipped recently, but as my colleague Shira Ovide has noted, it raises questions about whether the market for on-demand taxis is as massive as the industry’s bulls believe.
Forecasts for the restaurant industry, however, make clear that digital-powered delivery is going to be a lucrative growth area for years to come. And it’s important to understand what a different task it will be for Uber to score in that business than it has been to win in on-demand rides. With ride-hailing, Uber’s primary responsibility is to nurture and maintain a sprawling network of drivers — a bunch of people who, alone, have very little power and, in isolation, are pretty dispensable.
With Uber Eats, though, there’s another layer. Yes, it still has to have a massive fleet of drivers and cyclists who are incentivized to be on the road often and to get your pizza or burger to you piping hot. But it also has to make itself indispensable to huge, incumbent companies like McDonald’s Corp. and Starbucks Corp. – and to mid-size and regional restaurant businesses, too.
The company has ways to do that: It has built software for receiving Uber Eats orders that integrates with existing point-of-sale systems and provides restaurants with an analytics tool to help them make decisions about their menus or other aspects of the business.
Uber has also worked with local eateries on the idea of “virtual restaurants,” or concepts that exist only in its digital dining hall. For example, in a certain neighborhood, if it notices lots of customers searching for poke, but no restaurants are offering the Hawaiian fish dish, it might reach out to local sushi joints encouraging them to offer poke.
This facet of the business requires Uber to think less like a Silicon Valley renegade and more like a traditional B2B company with corporate clients. And it’s just too early to know if it is very good at that. You can take some comfort, at least, in the fact that this might be an area in which CEO Dara Khosrowshahi’s Expedia Group Inc. experience comes in handy. Being a platform on which McDonald’s sells hamburgers has much in common with being a platform on which Marriott International Inc. sells hotel rooms.
It is especially important that Uber get this right, because there is more competition in food delivery than in ride-hailing, given the proliferation of services from DoorDash and Grubhub Inc. to Postmates and even Amazon.com Inc.
Market leader Grubhub, for one, takes seriously this idea of treating restaurants as real partners. That’s why, in addition to featuring them on the Grubhub app, it helps them build and power their own branded apps and customer loyalty programs. Yum Brands Inc., corporate parent of KFC and Taco Bell, has taken a stake in Grubhub and works with it extremely closely, a relationship that informs how it teams with other restaurants.
You might be tempted to think Uber can be completely mercenary in its work with chain restaurants, given its huge roster of mom-and-pop eateries and its loyal user base. But think again. Uber said in its IPO filing, “a significant amount of our Uber Eats Gross Bookings come from a limited number of restaurant chains.” It needs to make these guys happy.
And we are starting to see hints that industry heavyweights know their power. Bloomberg News has reported McDonald’s is renegotiating its contract with Uber to secure more favorable commissions.
Uber Eats has plenty of potential as a powerful growth engine for Uber, which is exactly what it needs at a time when its main business may be hitting a wall. Its success will depend on its ability to help restaurants solve their own growth problems.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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