Uber’s Secret Gold Mine: How Uber Eats Is Turning Into A Billion-Dollar Business To Rival Grubhub

February 11, 2019

 

When early investors were pitched on Uber’s original plan for a car-service app in 2008, it wasn’t until the second-to-last slide that they heard delivery could be another moneymaker for the business. Ten years later, delivery is no longer an afterthought. According to projections from its CEO, Dara

 

Khosrowshahi, Uber Eats is on track to deliver some $10 billion worth of food worldwide this year, up from an estimated $6 billion-plus last year. Uber takes a 30% cut and a delivery fee, then pays drivers, suggesting that Uber Eats could generate at least $1 billion in revenue this year, or an estimated 7% to 10% of the total. That means Uber Eats is already among the planet’s largest food-delivery services and ranks second in the U.S. behind rival Grubhub (likely $1 billion in 2018 revenue) and ahead of competition like Caviar, Postmates and DoorDash. 

 

Uber could certainly use the extra calories. The money-losing San Francisco-based company was valued at some $76 billion when it last raised money, in August 2018, and bankers hope its IPO, slated for later this year, could boost that to $120 billion. The problem is, there is no way Uber’s core ride-hailing business is worth that much. Its explosive growth is showing signs of slowing, and internationally the taxi service has struggled, selling its China operations to local rival Didi Chuxing in August 2016, as well as its stakes in Southeast Asia.

 

Uber’s self-driving-car business, once considered the answer to rising driver costs, suspended testing and fired workers after an autonomous Uber killed a pedestrian in March 2018. Now, as Uber prepares to tell investors why they should buy its stock instead of rival Lyft’s, Uber Eats looks like a distinguishing factor.

 

“When I first joined Uber, I think Uber was much more associated with ride-hailing and Eats was this interesting part-time endeavor,” says ­Khosrowshahi, who took over as CEO in August 2017. “It has since exploded, in a good way, into a truly significant business.”

 

Making money on delivery isn’t easy. Sure, Uber Eats gets a hefty chunk of a restaurant’s bill and charges a delivery fee, generally between $2 to $8. But Uber has to pay the driver to pick up and drop off the food, plus market the service. Uber’s share of the bill is lower, on average, than in the ride-hailing business. Restaurants are, at best, semi-willing partners that can ill afford a 30% blow to their bottom lines. And since Uber isn’t (yet) willing to have your meal share a ride with a paying customer, there are fewer network efficiencies to capitalize on.

 

Its largest competitor, publicly traded Grubhub, has proved you can make a profit in this business. That success has made it a formidable rival, and it’s not the only one: Just in the U.S., Uber competes against Square subsidiary Caviar, well-capitalized startups DoorDash and Postmates, and the potential giant in the wings, Amazon.  

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