Is This Tech Giant in Trouble?

This can´t be right.

That´s what I thought as I walked through an alleyway last Friday night.

About 30 minutes earlier I had jumped onto one of Melbourne´s popular Vietnamese restaurant’s website to order take out.

Yet, once I showed up at the half empty restaurant, they didn´t have my order.

Instead, they directed me to a different location, through the dark alleyway.

As it turns out, I was on the right path. Once I turned the corner, there it was.

Just a couple of blocks away, the Vietnamese restaurant was running a full side operation in a converted garage. The whole place was a giant kitchen, with a window. My guess is that they don´t receive too many take out requests…

The place was buzzing. An army of chefs and staff hustled back and forth as they got orders ready. As I waited, delivery drivers rushed in and out to get their orders…

…and there were UberEats bags everywhere.

UberEats promises customers a restaurant dining experience at home, yet the side operation couldn´t look more different than the half empty, albeit stylish restaurant I had first visited.

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Uber is transforming the restaurant scene

The truth is that Uber is transforming the restaurant scene.

And, as Bloomberg reports, Uber isn´t adapting to restaurants’ needs. Instead, it is turning out to be the other way around:

On Aug. 1, Brooklyn Burger Factory began selling gourmet patties in its residential neighborhood of Crown Heights. But even though the restaurant serves a steady stream of jerk burgers, salmon burgers, and veggie burgers, not a single person has shown up to eat one.

‘That’s because the restaurant exists only in the Uber Eats delivery app. Brooklyn Burger Factory is located in the kitchen of Gerizim Cafe & Ice Cream, a small establishment on Ralph Avenue. There used to be only a couple of unspectacular burgers on the menu at Gerizim Cafe, and only about one a day sold, according to co-owner Joel Farmer.

‘But the data team at Uber Eats perceived a demand for gourmet burgers in the area, and they approached Farmer about the possibility of expanding the selection. Farmer liked the idea; most of the raw ingredients were already on hand. The Brooklyn Burger Factory has been such a success—it’s now selling as many as 75 burgers a day, with revenue 28 times that of Gerizim Cafe—that Farmer is changing the name of the entire operation.

UberEats is only a small portion of Uber´s main business — about 10% — which is providing rides.

In just Australia and New Zealand, UberEats has partnered with 16,500 restaurants. 500 of these have created virtual restaurants using their current facilities.

Yet, as Tech Crunch reports, UberEats is allowing Uber to expand its customer base.

By the end of this year, Uber plans to cover more than 70 percent of the U.S. Today, Uber covers more than 50 percent of the U.S. population. Uber Eats competitor Postmates, on the other hand, recently said it covers 60 percent of U.S. households.

‘Even in places where Uber does not operate its traditional ride-hailing business or places where it has merely a small presence, Uber has been able to “successfully introduce the Uber brand to the marketplace through Eats,” Uber Head of US Cities for Uber Eats Ana Mahony told TechCrunch.

‘Uber’s calling it successful in part because 40 percent of its new Eats users are new to Uber. One of the benefits to operating Eats, Mahony said, is that there are different regulatory requirements.

‘When you compare the Eats growth data to that of the first three years of UberX gross bookings, “Eats is growing just as fast if not faster,” Mahony said.

Uber is planning for an IPO in 2019

Uber is planning for an Initial Public Offering (IPO) by next year. And to gear up for it, Uber is stepping up its game.

For drivers, it is launching Uber Pro, a program that will recognize Uber´s top drivers and offer them perks like car maintenance expenses, gas cashbacks and even paying for college tuition.

For passengers, Uber is also trailing a new subscription service, Ride Pass. For a monthly fee, customers can avoid price surges. That is, they can avoid higher fares for a same trip when there is a peak in demand.

Uber is even looking at using drones for food delivery by 2021. Getting rid of drivers could save the company a chunk of cash.

Uber may be upping their game, but can they entice investors?

The main problem is that Uber is still struggling to make a profit, as you can see below.

Uber's profits

Source: Recode

[Click to open in a new window]

How much more can the company grow without making a profit?

It is also facing an increase in competition against Lyft, Didi from China and Ola from India among others. And in terms of UberEats, while the app is growing quickly, it also charges a high fee, which could cut into the restaurant´s profits.

Ok, food is ready, gotta go…and even though I never used the app, I still get an UberEats bag to carry my take out back home.

Best,

Selva Freigedo,
Editor, Markets & Money

PS: Battle of the Titans: Who wins when bitcoin and gold head-to-head…and how can you profit? Find out more.


Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.


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