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Uber Eats turns five: What the restaurant industry has learned from the ride-share giant

(Image credit: Image Credit: Mack Male / Flickr)

This year marks the fifth anniversary of Uber Eats. It started as an ‘UberFRESH’ service in Santa Monica, California, and was later renamed and released as an app, separate from the ride-sharing service.

It’s fair to say that Uber Eats (and its most significant rival is most areas, Deliveroo) has changed the way that we eat. It allows us to enjoy restaurant-cooked food in our own homes, much to the potential chagrin of restaurant owners. It’s also done an enormous amount for its parent company, Uber. In the last quarter of 2018, the company saw $2.6 billion in gross bookings (the dollar value of all orders and taxes, but not driver tips), an increase of nearly 500 per cent from the first quarter of 2017.

But bad news for restaurants can quickly translate to bad news for Uber Eats. The company has reached many milestones and will likely reach many more, but only if it can keep up with people’s ever-evolving eating habits.

Uber Eats’ notable milestones

According to Uber’s IPO filing from earlier this year, it estimates that globally, consumers spend $795 billion on off-premise restaurant orders, 20 per cent of which is spent on delivery. That means that the company has only captured one per cent of the total market so far. So, despite the extraordinary numbers, the company firmly believes there is room for growth.

It’s also not afraid to approach global chains and strike a mutually beneficial deal. In the filing, the company stated that it charges “a lower service fee to certain of our largest chain restaurant partners on our Uber Eats offering to grow the number of Uber Eats consumers”. The strategy has worked well for all parties involved – for some McDonald’s branches (which the company has had an exclusive partnership with) Uber Eats accounts for up to 10 per cent of sales.

As mentioned, Uber Eats does a lot for its parent company in terms of revenue, but it also brings in new customers. According to the filing, half of Uber’s new customers came via Uber Eats in the last quarter of 2018. In addition, Uber Eats users average 11.5 Uber trips per month, while the non-Uber Eats user only averages 4.9.

It’s all been good news so far, but as mentioned, fluctuations and changes in the restaurant market will affect Uber Eats in the long term. And the company is aware of that fact.

Challenges for Uber Eats

In 2016, the company took four per cent in revenue per order. This went on to triple the following year but decreased back down to 10 per cent in 2018. At the time, Uber predominantly blamed the dip lower average orders (amongst other things). As a result, it increased its service charge for customers and introduced a flat rate for cheaper orders.

It also faces competition. In the UK, this is Just Eat and Deliveroo. As a result, the company was forced to cap its charges to restaurants at 30 per cent of the value of an order (compared to 35 per cent). It also introduced a “marketplace” in the UK, Ireland and the Netherlands, for restaurants that wanted to be listed but make their own deliveries. This makes it a direct rival to Just Eat, and the move worked – shares in Just Eat fell five per cent following the news.

In addition, the rise of mobile commerce has made users accustomed to a certain expectation of how third party ordering should work. For example, often, when customers buy clothing from a website, it can say what sizes and colours are running low or out of stock and even remove those items from the site entirely as they are depleted. A food delivery app should provide the same level of real time inventory control.

Ultimately, Uber Eats’ success largely depends on the success of the restaurant industry. In its filing, it said that “a significant amount of our Uber Eats gross bookings come from a limited number of restaurant chains and this concentration increases the risk of fluctuations in our operating results.” It’s certainly true that restaurants and delivery services rely on each other for success, but both must give up a certain amount of control for it to work. When working with delivery companies, restaurants have to give up a certain amount of control over the delivery and customer service, while the delivery partner has to give up control over the food quality. This might be why Uber is investing in dark kitchens, akin to shared workspaces but for restaurants. It gives the company a little more control over the restaurant environment as all of them will be under one roof. Time will tell whether this will work for both parties.

The future of delivery

Food delivery isn’t going anywhere any time soon. But as restaurants struggle to maintain steady cash flow and have worries about Brexit, Uber Eats will need to make up for it in innovation. Eating out while staying in is still popular, and as long as Uber Eats is providing the best version of the service, there’s no reason for customers to go anywhere else.

Jurgen Ketel, Managing Director, Givex