Livemint: January 24, 2017
New Delhi: Uber Technologies Inc. will soon launch food delivery service UberEATS in India, the company said in a blog post on Monday.
Uber’s entry into the food delivery segment comes at a time when most food start-ups are struggling with poor unit economics, while some have shut shop because of a dearth of funds.
“I am incredibly excited about bringing UberEATS to India. This is a significant investment, it spans multiple cities and regions, and it has the potential to change the food industry—with the push of a button—in one of the most vibrant food cultures in the world,” Allen Penn, the Asia-Pacific head of UberEATS, said in the blog post.
UberEATS, which is a separate app, was first piloted in 2014 in Los Angeles. The service has since been expanded to 58 cities across the world, including New York, Paris, Seattle, Bangkok, Singapore, Tokyo and Hong Kong. The service works on two models. While in some of the older markets, such as Chicago, Houston and Los Angeles, consumers can choose from the entire menu of the restaurants, some of the newer markets offer consumers an instant delivery menu—essentially a list of curated items that can be ordered quickly.
The food is delivered either in a car affiliated to Uber or by individual delivery personnel. The company has invited individuals to sign up for the delivery service in cities including Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Mumbai.
Uber did not reveal a launch date for UberEATS in India or divulge more details about the operations.
The world’s most valuable start-up at $68 billion, Uber has so far raised about $11.4 billion in debt and equity from a clutch of investors including Morgan Stanley, Saudi Arabia’s Public Investment Fund, Goldman Sachs and Fidelity Investments.
The firm has branched out to food delivery, long-haul freight and a local-delivery service for businesses called UberRUSH.
Interestingly, Uber’s entry into food delivery in India comes at a time when homegrown food start-ups, barring a few, are cash starved and have put expansion on hold. Food delivery was one of the worst-affected segments following a funding slowdown since mid-2015, forcing the likes of Spoonjoy, Dazo, Eatlo and Tinyowl to shut shop.
According to industry experts, the average order value for food in the US is around $20, about four times more than the average Rs300 (about $4-5) in India. As a result, delivery firms in India, which charge clients a commission of 10-20% of the order value, end up losing money as each delivery costs more than Rs50.
Uber’s food delivery service will primarily compete with Swiggy (Bundl Technologies Pvt. Ltd), which has raised $75 million from investors, and Zomato Media Pvt. Ltd, which has raised about $224 million.
Even Swiggy is bleeding. According to documents available with the Registrar of Companies, it posted a near 65-fold increase in losses for the fiscal year ended March 2016 from a year earlier, indicating heavy cash burn and poor unit economics in food start-ups.
Swiggy’s revenue rose to Rs23.59 crore for the year ended 31 March from Rs11.59 lakh a year earlier. Losses bulged to Rs137.18 crore from Rs2.12 crore in fiscal 2015. Total expenses stood at Rs160.77 crore, implying that Swiggy burned about Rs13 crore per month in fiscal 2016.
Ola, Uber’s biggest local competition in the ride-hailing segment, had started a food and grocery delivery business early 2015. The company shut both verticals in March last year, after they failed to meet expectations.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.