In brief
Uber Eats is betting on technology, system integration, and closer restaurant partnerships to address three major hurdles: profitability, high commissions, and delivery workers’ rights. During his November 2019 Taiwan visit, Jason Droege said it had found a profitability model, but offered no guarantee that commissions would fall.
On November 5, delivery platform Uber Eatsannounced an exclusive delivery partnership with Taipei’s Ningxia Night Market, allowing consumers to browse an “online night market” simply by opening the app. This marked another milestone three years after its entry into Taiwan, following partnerships with restaurants, convenience stores, and supermarkets.
That day, Uber Eats’ global head, Droege (Jason Droege), appeared at Ningxia Night Market to film a promotional video. On his first visit to Taiwan, he told a Business Weekly reporter: “It was unexpected. The performance of Taiwan’s delivery market has been so remarkable that I simply had to come!”
At almost the same time, its US parent company, Uber, released financial results that presented a stark contrast. According to its financial report, losses in the third quarter of this year exceeded US$1 billion, approximately NT$30 billion, bringing cumulative losses for the year to more than NT$200 billion. Since going public in May this year, Uber has faced challenges including sharp falls in its share price and market capitalization, and has cut more than 1,000 jobs this year to stem losses.
As bad news continued at the parent company, Uber Eats emerged as a promising revenue engine within the group. It had the fastest revenue growth of all Uber divisions, generating approximately NT$19.2 billion in the third quarter of this year, up 64% from the same period last year. It currently accounts for approximately 16% of Uber’s total revenue.
Founded just five years ago, it has drawn on Uber’s technological advantages and a big-data repository for optimal routes that surpasses those of other delivery operators, rapidly expanding into 36 countries and more than 350 cities worldwide. It now delivers not only meals but also fresh food, everyday essentials, and other goods, making it one of the few delivery operators working across multiple categories.
While most delivery operators focus on food or expand through acquisitions, Uber, with its emphasis on technology, prioritizes deeper integration in developing its delivery business. It therefore does not follow an acquisition-led model. For example, it wants to connect with merchants’ POS systems and become their technology partner. For users, it offers a membership subscription that gives consumers access to discounts on both ride-hailing and delivery services.
This means it wants to build a delivery ecosystem and barriers to competition, which will inevitably require greater investment.
It currently faces three major hurdles: With profitability still elusive and the sharing economy seen as a bubble, will investors continue to back it?It also emphasizes close collaboration with restaurants, yet many restaurants have begun protesting the platform’s high commissions. Finally, disputes over delivery workers remain unresolved, potentially becoming an obstacle to entering new markets.
Responding to Business Weekly’s questions, Droege stressed that delivery represents a transformation in human consumption habits and that anything could be delivered in the future. “But people’s concerns about delivery are all too simplistic and extreme.”
First, is the sharing economy becoming a bubble? Uber is a pioneer of the sharing economy. Because this model involves collaboration and revenue sharing among multiple parties, platforms offer extensive subsidies to attract consumers. During this process, most operators still struggle to find a stable model for profitability, prompting outside observers to argue that the sharing economy will become a bubble.
Droege believes that because the sharing economy involves so many participants, and Uber Eats adds restaurants to the mix, balancing the interests of all parties is highly complex. For example, how can restaurants of the same type be protected from cannibalizing one another’s business? How can delivery workers all receive suitable orders? Technology is needed to solve these problems.
“We have already found a model for profitability, and our early investments and subsidies are under control.”Droege said that 18 months earlier, Uber Eats was profitable in 100 cities. At the time, it operated in approximately 220 cities, so about half were profitable. He said subsidies were only a temporary measure for Uber. Next, platforms would compete on their ability to integrate systems, further highlighting Uber’s advantages. “So I don’t have to worry that we will lose consumers when the subsidies end.”
As for high commissions charged to restaurants, Reuters reported that a growing number of small and medium-sized restaurants in the US had recently called on platforms to reduce their 30% commission. Burger chain Bareburger’s CEO, Euripides Pelekanos, went further, calling platform partnerships a “necessary evil” that reduced profits. The group planned to leave delivery platforms behind in two years and build its own delivery app.
In Taiwan, where small and medium-sized restaurants make up most of the restaurant industry, the impact is broader. Taiwan restaurant POS startup iChef conducted financial projections showing that once delivery revenue exceeds 30% of a restaurant’s total revenue, it begins to erode profits. iChef co-founder Cheng Kai-you said: “The arrival of delivery platforms will deal a severe blow to small and medium-sized restaurants. In the future, 10,000 street-front restaurants will close.”
Could platforms not lower their commissions? Droege said: “The focus should be on how restaurants respond to this transformation, rather than on the numbers.”He said everyone, including platforms and restaurant operators, was still in the early stages of this delivery business opportunity. Both sides would need time to work out their long-term collaboration. “We should not conclude at this point that platforms ought to take a smaller commission. We are not profitable yet either, are we?”
Would platform commissions therefore fall in the future? He said he could not guarantee it, “because platforms also need to survive.” He added that most restaurants on the platform were currently doing well. There were 380,000 restaurants actively using the platform each month, twice the number of partner restaurants last year. “If there really were major profitability problems, so many restaurants would not want to work with us.”
He acknowledged that the platform had previously spent more time discussing development strategies with chains. It was now also actively talking with small and medium-sized restaurant operators about issues such as adjusting their menus and developing delivery strategies. “So this is not simply a discussion about commission figures. It is about how we build a delivery business together.”
To provide restaurant operators with additional income, many delivery platforms are currently promoting “virtual kitchens”: restaurants without a physical customer-facing space that operate exclusively for delivery. Droege believes data analysis will determine who wins in the future. Compared with other operators, Uber Eats employs a large number of data analysts and is more willing to share data, such as consumer profiles and habits. This helps operators better address gaps in consumer demand as they expand their online businesses.
Finally, on the issue of delivery workers’ rights, which has recently sparked heated debate in Taiwan, the government recently determined that Uber Eats and its delivery workers had an employment relationship, meaning the workers were regarded as employees. Personnel costs would inevitably rise. Droege responded: “Working with governments in different places to develop suitable regulations is a path we can take. But the discussion must remain focused on protections for their work.”
His implication was that delivery workers’ desire for freedom and flexible work should not be overlooked. He explained that most delivery partners on the platform currently worked fewer than 10 hours a week. In other words, most used spare time to earn money on a part-time basis while also holding regular jobs. New economic platforms therefore require entirely new, suitable regulations to create a mutually beneficial outcome.
From business models to the various challenges involving partners, Droege said these were part of a transitional period in the transformation of human life. He saw unlimited possibilities in the delivery economy. Recently, the platform had partnered with Michelin chefs to open online restaurants and had also started offering courses and cooking experiences. “More new models will emerge in the future!”
Original article URL: http://bit.ly/2JSItHZ