Uber, a San Francisco-based American mobility service provider, has significant control over the ride-hailing and sharing service in the global market. And its food delivery derivative, UberEats, kicked off in 2014, now operates in dozens of countries. UberEats controls over 29% of the global food delivery market and has more than 66 million users.
UberEats is otherwise successful in the international food delivery market and has the backing of global venture funds but failed to gain momentum in its Indian subcontinent operations. In India, Uber sold its business to homegrown food delivery operator Zomato for $300-$350 million in an all-stock deal in early 2020.[wptb id=5633]
A Challenging Market
The food delivery business continues to choke startups with each fulfilled order. With an average order of price Rs.300, order and delivery apps charge 10% to 15% of the price and a delivery charge of around Rs.50. Thus a customer has to pay Rs.390 if he orders from a food delivery app whereas he has to pay only the food price of Rs.300 in an in-dining restaurant.
Another testament to the challenge the food delivery market provides is the case of Ola, India's top cab-hailing service, Ola ventured twice into the Indian food delivery segment but exited shortly. First, with Ola Cafe, which operated in Delhi, Mumbai, Bangalore, and Hyderabad, but soon shut down in 2016. Second time in 2018 with the acquisition of Foodpanda from its German parent organization, Delivery Hero, but it again closed operations shortly in 2019. Ola has a far more extensive penetration in India with a presence in 102 cities, as against 29 cities for Uber, still it failed to smoothly transition into the food delivery business.
An entrepreneur cited in this regard said, "The food delivery business is not profitable for anybody, and thus firms try to expand into other operations and services. Swiggy is piloting to start Swiggy Homely, grocery, and non-rush hour delivery with Swiggy stores. Whereas, Zomato has been hosting other businesses starting from ads, Zomato gold, etc.".
Similarly, Zomato has recently launched 'Zomato Wings,' a platform to connect restaurant entrepreneurs to investors. Zomato's co-founder and CEO Deepinder Goyal said in a blog, "We are excited to announce the launch of Zomato Wings, a platform to connect investors with restaurants. Just like ambitious restaurant entrepreneurs look for investors, investors also hunt for brands and teams that have the potential to become the next big chain". A strategic move to venture into other tech-related segments. In the second quarter of FY21, Zomato reported a consolidated loss of $47.5 million.
The Case of Uber Eats
UberEats generated revenue of over $4.8 billion in 2020. Besides, in 2020 when Uber riding hailing operations were barred due to COVID 19 and revenue fell by 50 percent year on year, UberEats became central to endure the business. Since Q2 2020, Uber Eats has generated more revenue from its riding hailing platform. The riding hailing platform has bucked up in the post-pandemic world and has generated $4.84 billion in Q3 2021.
According to industry watchers, Uber Eats entered the Indian market late in 2017 but with some significant advantages. Its riding services consolidated the Indian market and had a reasonably good customer base. But somehow, it was not successful in luring the Indian discount-seeking customers.
Swiggy COO Vivek Sunder said in his public statement that UberEats was a great brand and organization. But it suffered from being a global company as global companies have scale, capability, and access to significant capital. While Indian companies can customize their operations as per developments in markets within a short span of time. In case of MNCs, local changes need validation of its global HQ, which may take time and may be ultimately junked.
A food delivery business earns mainly from surcharges, revenue share, ads and promotional services. Though they generate considerable revenue, the profits are razor-thin. In India, however, the profit margins are meager compared to the global market, and the companies are not faring well and need fresh funding consistently to continue their services.
Eats had a user base of 10 million within the first three years of operation. In contrast, Zomato and Swiggy have over 40 million and 42 million users, respectively. But with the emergence of Eats and Zomato may unleash fortune for Zomato by controlling 52% of the food delivery market in the subcontinent. The acquisition led Uber to have a 10% share of Zomato.
Despite being an international giant and Eats’s otherwise successful tactics did not click in the subcontinent. Industry experts opined that the heavy discounting behind Eats undermined, which caused operational losses to $292.97 million, followed by more debts and a cutthroat market.
First-mover Advantage for Swiggy and Zomato
The largest incumbents, Zomato and Swiggy, had made their way to phones of the users and had already acquired considerable control over the food delivery market when Eats came in 2017. Moreover, most of the restaurants were already listed on Zomato and Swiggy.
Whereas, Eats had a late mover disadvantage. Eats relied on heavy discounts to acquire and retain customers; which did not pay very well. Customers kept benefiting from such strategies but operators plunged into losses. The motive to attract a high volume of app downloads and in turn settle for lesser margin did not attract merchants to get listed on the app.
The incumbents had more focus, spending power and aggressive business expansion compared to Eats. With very low profits and accumulation of losses there was added pressure from international investors on UberEats to withdraw from the food ordering and delivery business from the subcontinent.
Lack of distinct identity
Swiggy came in 2014, and Zomato came in 2008. Still, Swiggy provided a better app user experience and focused more on delivery, which differentiated Swiggy from Zomato and helped Swiggy to reach the market threshold quickly. However, Uber Eats had zero differentiation from its mates- a lack of distinct identity. Eats already was a late pitcher. It had become difficult to sustain the food delivery market with no product differentiation.
Market experts believe that Eats solely relied upon its international backing and parent company. And Uber Tech should have launched the food delivery business under a different brand. Furthermore, UberEats was launched with great fuss, and Uber did not focus on its food delivery operations as it should have.
Inconsistent Communications with the Audience
Eats also became the first food aggregator to have star ad campaigns. Alia Bhatt, an Indian celebrity, was signed as the brand ambassador of its Indian wing. Not only here, but Uber ads are also more likely to feature stars such as Elton John featured in its ads in the UK. It is not very wise to spend loads of money in a business which has cut-throat competition, as commented by a market expert.
'For your tinder moments', 'Your favorite food delivered’, ‘Eats new every day' tags were used along with the ads to market Eats. Notably, Eats ads reached to be the most viewed ads on Youtube in its first month of release. The app had a major drawback. It just shouted the brand name UberEats but failed to emphasize its core services like prompt delivery, post-delivery customer care, ease of ordering, payment options, loyalty program, promotions, etc.
"Everybody is somebody's someone" #RespectEveryDelivery. Also, Uber initiated to build better delivery ride support through its ads. The ads did not communicate much, and the variety and promises were dull.
But the incumbents had already cracked the riddle of social media promotion. They maintained regular communication with the audience, which UberEats could not.
Uber faced difficulties in making profits since the IPO
After Uber's debut stock launch in 2019, the brand value fell by almost 50%. Wall Street analysts valued Uber at $120 billion, making it the largest company to debut in the stock market. However, after its stock launch, it was valued at $69 billion, the most significant value loss in the IPO history of the States.
The company could no longer afford to continue its side services with losses, so the HQ curbed some of its operations, including India's food delivery wing.
After the acquisition, the company said it wanted to focus on its riding operations in India, and better compete with its rival Ola. It is noteworthy that Uber has a 50% market share in riding services.
Though the customers were directed to switch to Zomato, which remained largely non-beneficial for Zomato. Many users switched to Swiggy almost immediately. To sum it up, Zomato did not get the full advantage of acquiring the user-base.
Zomato has a market capitalization of $13.3 billion with investments from Alibaba. Whereas its competitor Swiggy has a market value of over $10 billion and is backed by Chinese Company Tencent. Making them the two leaders and incumbents in the Indian food delivery market but both of them are still making losses. In fact food delivery giants such as DoorDash, which has a valuation of more than $40 billion is still making losses.
With over 3 million meals delivered across the country every day, the Indian food delivery market remains one of the most challenging markets to crack. It can be safely concluded that any food delivery market across the globe is tough to crack. It is not a big surprise that UberEats was not able to sustain in the Indian market with two major players already competing neck-to- neck with each other.