Uber’s success in food delivery sector is a “wonderful surprise,” CEO says

As Uber’s new CEO, Dara Khosrowshahi looks to guide the company back to stability after a flurry of corporate upheaval and operational stumbling blocks. Khosrowshahi says the success of the company’s food delivery arm, UberEats, has been a “wonderful surprise,” The New York Times reports.

According to the Times, Uber’s aid UberEats generates more revenue than its ride-hailing operations in certain markets, including Tokyo; Taipei, Taiwan; and Seoul, South Korea. Average daily deliveries grew by a factor of 24 from March 2016 to March 2017.

Uber’s first forays into the food delivery market came in 2014, when UberEats’ predecessor, UberFresh, launched in Los Angeles. Food quality issues born as a result of the way drivers transported the food, along with the limited selection of available restaurants, checked the success of that operation.

In December 2015, UberEverything, the division that handles food delivery and a number of other projects for the company, launched the UberEats app in Toronto. As the service succeeded, it expanded its sales force, partnered with more restaurants and made inroads in additional locations.

Today, UberEats is available in 120 markets. Uber declined to disclose the amount of revenue the service has generated, but the Times says top executives at the company are excited about growth potential in the food delivery sphere.

Several other companies beat Uber to that market, which is worth $100 billion today. Postmates, a delivery service that launched in 2011, employs more than 100,000 drivers, performs 2.5 million deliveries every month, and has raised over $250 million, according to the Times.

GrubHub, another giant in the food delivery sector, has been operational for 13 years, and reported over $3 billion in “gross food sales” in 2016, the Times says. The company serves 8.17 million customers.

GrubHub’s founder and CEO, Matt Maloney, said Uber has spread itself too thin to pose any real threat to his and other established companies within the food delivery sector.

“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, per the Times. “We are known for one thing only — takeout ordering — and we have engineered our entire product around this purpose.”

But Uber believes its experience in ride-hailing can translate into a competitive advantage over single-focus companies like GrubHub.

Uber already employs about two million drivers worldwide, the Times says. As UberEats continues to grow, that network will grow as well. As the Times notes, the potential labor pool from which UberEats can pull its employees is wider than that which is available to the company’s ride-hailing business.

While Uber vehicles that carry passengers must meet a laundry list of regulative criteria, guidelines governing the transport of food are more relaxed. In fact, UberEats delivery people are not required to own a car. Many make their deliveries on bikes via a service called UberBike.

Moreover, Uber has spent the last decade or so identifying the most efficient routes from point A to point B in cities all around the world. The company believes it can harness that knowledge to shorten delivery times.

“What Uber has are the last-mile logistics, and that’s crucial,” James Cakmak, an analyst at the equity research firm Monness, Crespi, Hardt & Company who follows the food delivery space, said per the Times.

UberEats has turned to partnerships to further expand its network of available restaurants. In May, the company inked a deal that allowed it to deliver food from over 1,000 McDonald’s locations, the Times says. Lucy Brady, a McDonald’s executive, said in July that the fast-food chain was pleased with the fruits of the alliance so far.

The already-crowded food delivery sector is preparing for the arrival of Amazon, which acquired Whole Foods earlier this year. Many of Whole Foods’ 460 locations already offer a cafeteria-like buffet stocked with freshly prepared food, and Amazon could hire drivers to deliver that food, the Times points out.

Cakmak adds that Amazon, whose business model is based largely on offering the lowest possible prices, has the resources to match or undercut the prices of competitors in the food delivery sphere.

“The number-one concern for all of these delivery companies is Amazon,” he said, per the Times.  “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.”

Khosrowshahi plans to take Uber public within the next 18 to 36 months.

Featured image via Flickr/Guillermo Fernandes

Blue Apron Goes Public With an IPO of $10/share

Blue Apron, the $1 billion dollar online food delivery startup that sells “meal kits” containing everything the customer needs to make a meal at home, opened on the New York Stock Exchange Thursday at $10 a share.

The company initially anticipated pricing its IPO in the range of $15-17 per share. The decision to enter the public market at just $10/share is likely a reaction to Amazon’s June 17 announcement that it will acquire Whole Foods in a $13.7 billion deal. Since 2010, only 4% of internet companies have dropped their expected IPO range.

The value of Blue Apron’s shares increased by 9% as trading opened Thursday, but fell back by noon and hovered around the opening price for the rest of the day. The stock closed at exactly $10 a share.

The flatness of the stock is somewhat disappointing, considering the success of some of Blue Apron’s fellow “unicorns,” or technology startup companies whose market values exceed $1 billion dollars, who have gone public. When Snap, Inc., owner of Snapchat and a few other social media services, rolled out its IPO on the NYSE in March, the prices of its shares rose 44% on the first day of trading.

Blue Apron CEO Matthew Salzberg is quick to point out that a single day does not make or break a company. “We’re focused on the long term, quite frankly…This wasn’t a special moment where we needed to go public right now,” he said.

Salzberg says he has always wanted Blue Apron “to be the kind of company that could be a public company. The kind of caliber of company that’s going after a big enough opportunity, with a long enough orientation, and ambitious enough business plan.”

Following the IPO, Blue Apron’s value is estimated to be $1.89 billion. When held privately, the company was worth about $2 billion. Blue Apron shares sold for about $13.33 apiece on the private market in the company’s Series D investment round.

The startup’s revenue has skyrocketed by over 1000% since 2014. That year, the company brought in $77.8 million in revenue; in 2016, it reported $795.4 million in revenue. Blue Apron generates about $300 per customer per year. Nonetheless, the company’s net losses have increased every year since 2014.

Blue Apron is selling 30 million shares and expects to bring $300 million as a result of its IPO. The proceeds will go toward enhancing automation and supply chain technology, and toward creating meal kits that accommodate specialty diets and special occasions.

The food delivery industry is changing rapidly as technology progresses. Last year, 12% of shoppers in the US purchased groceries online at least once. Many expect that percentage to continue to grow.

Still, Blue Apron is reporting losses, and many of its competitors are folding or gasping for breath. SpoonRocket, a startup that delivered prepared meals to its Bay Area customers, folded in March. Umi kitchen, an app which allowed chefs to prepare food in their homes and then sell it to people nearby, shut down its New York City operations after a mere four months.

Moreover, Amazon’s acquisition of Whole Foods probably signals the tech giant’s intention to expand not only its traditional grocery stores but its online food delivery service, Amazon Fresh, as well. Needless to say, it may prove difficult for startups like Blue Apron to carve out niches for themselves with a behemoth like Amazon throwing its weight around in the market.

Despite sharing space in the online food delivery sector, though, Amazon and Blue Apron may not be direct competitors. Blue Apron kits come with unique recipes, and contain ingredients sourced from Blue Apron’s own farms. Thus, a Blue Apron meal is proprietary in the same way a meal one might buy in a farm-to-table restaurant is proprietary.

Blue Apron’s proprietorship over its ingredients and its recipes may make it something like an “online restaurant,” whereas Amazon Fresh is an online grocery store. If Amazon and Blue Apron each take a unique corner of the online food market, the success of one company may help the other. If people get used to buying their groceries online, they may become more inclined to spend their restaurant budget online, and vise versa.

Blue Apron’s future is uncertain. Now, thousands of traders will bet on it in the New York Stock Exchange.