One surprise standout for Uber: Food delivery

For years, Bob Gordon, the owner of Footprints Cafe in Brooklyn, handled the delivery of his restaurant’s meals, like his Caribbean-inspired “Rasta Pasta,” to customers. So when he decided to work for the first time with an outside delivery service —UberEats, the delivery arm of the ride-hailing giant Uber —he was nervous.
 
Then, the orders started pouring in.
 
“We weren’t prepared for the volume that came in” through UberEats this year, Gordon, 46, said. “I myself, as an owner, had to work three weeks straight cooking on the food line just to keep up.”
 

By winning over restaurant owners like Gordon, Uber has barrelled into the crowded, cutthroat space of food delivery. As its new chief executive, Dara Khosrowshahi, assesses the strengths and weaknesses of the company with an eye toward an initial public offering in the next 18 to 36 months, top executives believe UberEats could generate enormous growth. Even as Khosrowshahi grapples with issues such as Uber’s loss of its operating licence in London, he has said UberEats has been a “wonderful surprise,” according to a person who has spoken with him.

 
UberEats stands out even from the rest of the company’s fast-growing —and unprofitable —business. The delivery service, available in more than 120 markets globally, sometimes eclipses Uber’s main ride-hailing business in markets like Tokyo; Taipei, Taiwan; and Seoul, South Korea, the company said. The number of trips taken by UberEats drivers grew by more than 24 times between March 2016 and March 2017. As of July, UberEats was profitable in 27 of the 108 cities where it operated. Uber declined to reveal the service’s revenue.
 
“There’s a global trend towards delivery,” said Jason Droege, vice president of UberEverything, the division under which UberEats operates. “As people use mobile phones more and more for everything in their lives, we’re starting to see a secular change in how people eat.”

 
Uber came late to food delivery, which is a $100 billion-plus market, or about 1 per cent of the total food market, according to a study by McKinsey. Typically, food delivery companies fall into one of two categories. The first is aggregators like Grubhub, which collect restaurant options and menus through an online portal for customers, and which usually require restaurants to handle delivery themselves.
 
The second is full delivery services like Postmates and UberEats, which take orders through an online portal and deliver the food for restaurants. The restaurants generally fork over a fixed percentage of an order as a fee, while customers also pay a fee to the delivery service.

 
The competition is stiff. Postmates, which established a foothold six years ago, has raised more than $250 million, has more than 100,000 delivery drivers (the company calls them “postmates”) and makes 2.5-million deliveries every month. Grubhub, a public company, had $3 billion in gross food sales in 2016, with an active base of 8.17 million customers.
 
There is also the threat of Amazon, which has tried food delivery in a few markets. The Seattle retail giant’s recent acquisition of Whole Foods provides hundreds of potential bases for drivers to pick up prepared food for delivery in major urban areas, where takeout orders are popular.

 
“The number-one concern for all of these delivery companies is Amazon,” said James Cakmak, an analyst at the equity research firm Monness, Crespi, Hardt & Company who follows the food delivery space. “How could Amazon use its network to crush our business? They have the logistical network and the balance sheet to be able to compete on the price side with all of these players.”
 
Matt Maloney, the founder and chief executive of Grubhub, said his company’s focus on food orders set it apart.
 
“Uber has built a great company focused on black car service and human transportation, but succeeding in food delivery is a different game,” Maloney said in a statement. “We are known for one thing only —takeout ordering —and we have engineered our entire product around this purpose.”

 
Both Amazon and Postmates declined to comment on UberEats.
 
Uber first dabbled in food delivery in Los Angeles in 2014 under the name UberFresh, offering prepackaged lunches and dinners from restaurants. Uber also tried other experiments, like UberEssentials, a way to deliver pantry and drugstore items quickly.
 
“If you can hit a button and get a car in a few minutes, what else can you get in a few minutes?” Droege said.
 
©2017 The New York Times News Service