Uber Eats feeds hopes for ‘Amazon of transportation'

For Uber, the route to new customers may be through their stomachs.

Uber's food delivery service is attracting an increasing share of customers who have never used the ride-hailing app, as the fastgrowing unit expands beyond Uber's core markets.

Forty per cent of people ordering food through the app for the first time are new to Uber, compared to a third earlier this year, Jason Droege, head of Uber Eats, told the Financial Times this week. In India, where Eats has launched in several cities, more than twothirds of Uber Eats customers have never used another Uber service.

When Uber Eats launched as a standalone app in December 2015, the company focused on adding food delivery in places where it offered rides. This allowed it to tap its existing base of customers and drivers and its technology to route vehicles around a city to quickly build the service.

But Mr. Droege said the recent step-up in growth had shown Uber Eats was not limited by the footprint of ride-hailing.

“It turned out that there was such a demand for the product that we didn't necessarily always need the rides business and all of the riders to convert to eaters,” he said. “That was an insight that still surprises me just because the rides business is so big.”

Uber Eats has added nearly 100 new cities in Europe, the Middle East and Africa this year, and expanded to suburban areas in North America.

“As you move outside of urban centers, a large percentage of the restaurants are national or regional chains,” Mr. Droege said. “So Halifax in Nova Scotia is an example where we don't have a rides business but Eats is quite popular, and 60% of the demand is actually for chains.”

The strategy has also allowed Uber to make inroads in countries such as Japan and Italy, where taxi markets are highly regulated and its main ride-hailing business is not available.

Mr. Droege said it was still “early days” for the company to determine how food delivery customers could be converted into passengers for the main ride-hailing business. In cities where Uber offers both delivery and rides, its ride-hailing and Eats apps can interact so that a passenger in an Uber car can order a meal to be delivered to her destination in co-ordination with her arrival.

EATS UNDER SCRUTINY AHEAD OF IPO

Uber Eats' revenue growth has accelerated in the past year, due largely to the rapid expansion into new markets. It has also received a lift from partnerships to deliver from major chain restaurants, including McDonald's, Popeyes and Subway.

Mr. Droege said sales have “continued to grow” this year from its $6 billion annual gross bookings run rate — the amount it takes in before paying couriers, restaurants, promotions, taxes and fees — in the first quarter, although the company declined to provide an updated bookings figure.

Uber Eats sales grew at an annual clip of 200% and accounted for about 13% of the company's global gross bookings in the first quarter, up from 10% at the end of last year.

But the business is loss making in most of its nearly 300 markets, and is expected to remain a driver of costs as Uber invests in further expansion over the next two to three years.

With Uber heading toward an initial public offering (IPO) next year, executives and investors are focusing on Uber Eats both as a contributor to the company's overall valuation and a model for its future. Dara Khosrowshahi, chief executive, has said he wants Uber to become the “Amazon of transportation”: a platform for moving both people and goods.

“[Uber Eats] is the first and real demonstration of execution from Uber where they are able to layer more revenue streams on top of this global network of demand and supply of transportation,” said Rohit Kulkarni, managing director of private investment research at SharesPost. “That is a fairly powerful statement in terms of what other things could be layered on to this network.”

COMPETITION REMAINS FIERCE IN US AND UK

Fierce competition in food delivery has kept margins low or negative across most of the industry. In the US, Uber Eats competes with well-capitalized rivals including market leader GrubHub, Amazon, and the start-ups DoorDash and Postmates, both of which have recently raised new funding.

Uber Eats has outpaced its peers in gaining US market share, according to Second Measure, a research group that analyzes anonymized credit and debit card data. The group's share of nationwide food delivery sales rose to 24% in August from 13% a year ago.

Over the same period, GrubHub, which recorded $1.2 billion in gross food sales in the second quarter, saw its market share contract from 51% to 41%, while DoorDash's rose from 13% to 21%.

In the UK, Uber's push into the market over the past two years has spurred local apps Just Eat and Deliveroo to step up spending to defend their market share and differentiate their offerings. Uber has looked at a partnership with or an acquisition of Deliveroo, according to people familiar with the matter.

But Mr. Droege said his priority was to improve the Uber Eats service rather than engage in more deal making.

“Any [acquisition] decision is a big one,” he said. “It's case by case. It's not what we focus our time on.