Food delivery began as an experimental side project for Uber. Now, it’s the company’s biggest line of business, and one of the foundations of CEO Dara Khosrowshahi’s strategy to turn Uber into the Amazon of local commerce and transportation.
But Uber has not been the only one pursuing a market that has exploded as the COVID-19 pandemic has limited the opportunities to dine at restaurants. Food delivery has become increasingly competitive, with rivals like DoorDash and Grubhub spending aggressively to attract and retain customers.
Though Uber’s delivery revenue continues to grow, its market share in the segment has ebbed and flowed over the years. DoorDash took Uber’s lead in the food delivery market in 2019 and has been building on it ever since.
Here’s how Uber has grown its delivery business over the past seven years while taking on DoorDash and other rivals.
Uber started delivering food in 2014
According to a 2018 report from The Information, former Uber CEO Travis Kalanick hired Jason Droege in 2014 to develop a service that would complement the company’s ride-hailing business.
Droege experimented with deliveries from corner stores and other local businesses, but noticed the popularity of one-time promotions involving food. In 2014, Droege launched Uber’s food-delivery efforts in Los Angeles, offering soup and salad from the fast-casual chain Tender Greens.
A new strategy helped Eats take off
Uber’s new business, originally called Uber Instant, went through growing pains. Bill Gurley, a general partner at Benchmark, then Uber’s largest investor, even suggested Kalanick exit the food-delivery business as its losses widened, The Information reported. (Gurley denied that he opposed Uber’s food-delivery efforts.)
A new strategy helped the business take off. Kalanick’s original approach was to buy meals before customers ordered them so they could be delivered faster, but that limited the number of options available to customers while creating for Uber the added challenge of trying to predict demand.
Droege, The Information reported, believed Uber should adopt a model similar to the one DoorDash was using, where customers could choose from a wider range of options that restaurants would make after the order was placed — even if if meant longer delivery times.
Kalanick approved the new strategy in late 2015. In the following years, Instant, renamed Eats, grew quickly.
App tweaks made Eats more accessible while encouraging loyalty
As Eats became more popular, Uber made a few moves designed to make the service more accessible to ride-hailing customers and encourage frequent use. After launching a separate Eats app in 2016, the company brought Eats back into its rides app three years later to boost visibility. And in 2019, Uber launched a subscription service aimed at frequent users. Eats Pass offers discounts to subscribers and eliminates delivery fees.
DoorDash took Uber’s lead in 2019
Uber’s market share grew steadily from 2016 through 2018 as it overtook GrubHub to become the leading food-delivery service in the US. But that momentum stalled in 2019 as DoorDash took the top spot and kept it. In February, DoorDash held a commanding lead with a 55% market share. Uber placed a distant second with a 21% share.
COVID-19 accelerated Eats’ growth
While Uber is no longer the leader in the US food-delivery market, its delivery business has grown at a rapid pace in recent years. From 2018 to 2020, delivery revenue increased from $772 million to $4 billion. And beginning with the second quarter of last year, delivery revenue surpassed ride-hailing revenue for the first time as the COVID-19 pandemic cut demand for rides. That trend has continued in the months since.
“Uber Eats remains a shining star getting brighter,” WedBush Securities analyst Dan Ives wrote in November.
Uber followed its failed bid for Grubhub by acquiring Postmates
As DoorDash held its lead in 2020, Uber tried to buy Grubhub, the third most popular food-delivery service behind Uber Eats. But the companies couldn’t agree on terms and Just Eat Takeway.com ended up acquiring Grubhub instead. Uber then turned to Postmates, the fourth largest player, and struck an agreement to buy the startup in July.
Khosrowshahi said the deal would make Uber’s delivery business more competitive and efficient.
“This acquisition is going to allow us to drive continued growth, improve our operating efficiency, and accelerate our path to profitability,” Khosrowshahi said during a July conference call with Wall Street analysts.
Expanding beyond food
To Khosrowshahi, Uber’s delivery business is more than an accessory to ride-hailing; it’s a cornerstone of his long-term vision for the company to become an all-in-one provider of local transportation and goods delivery options. In recent years, Uber’s delivery service has expanded beyond food into groceries, medicine, packages, and pet supplies. As part of that effort, Uber has bought startups like the Cornershop, which focuses on groceries, and Drizly, an alcohol-delivery service.
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