Uber has announced its intentions to expand into delivering groceries. Uber may choose to expand its already successful Uber Eats to be the service for grocery delivery or the company may choose to manage grocery delivery through another service. Photo: Getty
Like Amazon, Uber is a company that thinks big. Uber and Amazon also share the same passion for leveraging economists and research scientists to operate as in-house think tanks to study consumer behavior, and identify opportunities for disrupting traditional industries by introducing innovative services, products and business models.
Uber has succeeded as a ride-hailing company that is credited with breaking the taxi monopoly in most major cities. Uber has also morphed into a self-driving trucking company, Otto, and a food delivery company, Uber Eats, that has generated $6 billion in bookings with a 200% annual growth rate.
Uber’s next focus appears to be on delivering groceries, something Uber tested with Walmart under the service UberRUSH. The program ended with Walmart after three months when data verified that delivering groceries, packages and passengers all in the same vehicle didn’t achieve the desired goals in customer experience and revenue.
Dara Khosrowshahi, chief executive officer of Uber Technologies Inc., understands the strategic value of leveraging Uber’s digital platform to connect people who offer a service with people who have a need. Photographer: Patrick T. Fallon/Bloomberg
Uber CEO Dara Khosrowshahi, however, has identified that given Uber Eats’ success in the delivery of food, it only make sense for Uber to re-enter the grocery delivery market:
“With Eats, we’re getting into the business of moving food around. I think that this product of delivering great quality food to you at home in 30 minutes or less is magical and is going to move into grocery in a way that’s fundamental and a lot more people are going to be eating at home…you can absolutely see grocery as being an adjacency,” he said at Vanity Fair’s New Establishment Summit 2018 on Tuesday, October 9th.
“Eating is something you do three times a day. So these are habits that go very, very deep. And someone needs to be the orchestration layer for people moving around cities, and I think that can be us. It’s an enormous opportunity. The real challenge for us is where do we focus and where do we partner,” Khosrowshahi said, suggesting the intention to go at it alone this time around.
Moving into online grocery delivery won’t be easy for Uber but I’m sure it has learned from its failure with Walmart.
An interesting fact about online grocery is that the strategy advisory firm Bricks Meets Clicks estimates online grocery sales are only 5.5% of all grocery sales in the U.S.. Demand for online grocery is growing but even by 2030, most industry analysts predict online grocery sales will peak at 20% to 30%.
I believe the estimates are too high. I believe grocery analysts would be wise to begin questioning not only the growth of online grocery ordering in the future, but the future of grocery retailing altogether.
The Kitchen Is Dying
In simple terms, the reason why consumers shop for groceries is to buy food to eat and to meet their needs for daily existence. If consumers maintain their current behavior, grocery stores will thrive for years to come.
Unfortunately for grocery retailers, consumers won’t maintain their behavior. In fact, consumer behavior has the potential to change so drastically over the next 12 to 20 years that ordering fresh produce, milk and dairy, eggs, meat and baked goods online will decrease, not increase. Purchasing these items will even decrease inside supermarkets.
Why? Demographic shifts and technology.
Uber will be the first to admit that there are massive differences among demographics when it comes to food. Baby Boomers have a preference for cooking and eating at home and they view going out to eat or ordering food for delivery as something that is done only occasionally.
Millennials, however, are three times more likely than their parents to want to order food. Millennials are also more likely to order their groceries online. Generation Z is even more comfortable with ordering groceries and food online.
The changing behavior in consumers has the potential to negatively impact grocery retailers and restaurants. This video from UBS provides an overview of what I mean:
Based on my research of global consumption trends for food and groceries, the future described by UBS is more fact than fiction. Consumers will gravitate towards an option to order cooked and/or prepared meals on-demand for home delivery vs. having to shop for groceries and cooking their own meals.
Grocery retailers could see a significant loss in business as the fresh food supply chain is disrupted. Companies operating today that are primarily focused on online grocery fulfillment and delivery may become irrelevant.
Uber Is A Platform
Uber is not a taxi company, a trucking company, or a transportation company. Uber is an online platform that connects people who offer a service with people who have a need. The value of groceries to Uber isn’t duplicating what Shipt, Instacart, or Deliv are already doing in terms of delivering groceries to customers. Far from it.
The value of groceries to Uber is connecting consumers with retailers and in turn, identifying the optimal strategy for monetizing the platform and services Uber can provide across each transaction to match supply with demand.
Uber doesn’t own the cars that consumers get into every day for ride sharing. However, Uber makes money every time a consumer uses its app to summon a car.
The goal of Uber is to leverage its platform to become the Conductor to a massive and complex ecosystem of suppliers, retailers, restaurant chains, food companies, and logistics companies globally.
In order to achieve its goal of becoming a major player in the food and grocery industry, I believe Uber should explore the following:
- Partner with companies that have industrial kitchens or commissaries. Sodexo and Schwan’s are two companies that I believe can be strategic to Uber’s future due to their capabilities in food and kitchens.
- Acquire a company with a platform already dedicated to a new business model for delivering food. Zume has pioneered “Baking on the Way” whereby consumers can order meals and have the meals baked while the truck is driving toward the delivery address. Zume Inc., is a company I believe is strategic to Uber’s future.
- Assess acquiring Instacart to gain immediate access to a large grocery retail customer base.
- Assess an acquisition of Peapod or a strategic partnership. Should Uber deliver groceries for grocery retailers or should Uber become an online grocery retailer and integrate the capability into its platform? Uber will have to decide.
InstaCart is one of many companies that fulfill and deliver online grocery orders for customers. Uber would be wise to create a platform and a value proposition to entice grocery retailers to replace Instacart with Uber or acquire Instacart to accelerate its strategic position in the grocery industry. Photographer: Patrick T. Fallon/Bloomberg
Just delivering groceries is not strategic to Uber. Uber should create an integrated experience whereby it connects consumers with companies offering groceries and food. For example:
- Customer A wants to order groceries online for home delivery.
- Customer B wants to order food online from a restaurant for home delivery.
- Customer C wants to order groceries and food online. Customer C does not want to order food from a restaurant, Customer C wants to order a customized meal to be delivered cooked and hot. Customer C also wants to order meals to be delivered prepared but not cooked.
Uber can meet the needs of Customer B through Uber Eats. As of today, Uber is unable to meet the needs of Customers A and C.
Uber does, however, have the ability to introduce a business model whereby it becomes the “orchestration layer” to meet the needs of consumers like Customer’s B and C. For example, Uber can do the following:
- Design and implement the optimal strategy for becoming the preferred provider of online grocery delivery. Explore acquisitions (Instacart, Peapod).
- Expand Uber’s platform to connect consumers with companies capable of preparing, cooking and delivering food. Explore acquiring Zume Inc. to gain access to Zume’s Ratio Platform and Bake on the Way technology.
- Introduce a business model whereby grocery stores with delis and kitchens can leverage Uber’s expanded platform to receive orders from customers for meals. Stores can prepare and cook the meals. Uber can coordinate the delivery of the meals and online groceries together or separately; whichever is optimal.
- Utilize Uber’s platform to optimize all of the steps in each process and provide complete transparency and visibility.
Uber Economics
With the right business model and strategy, Uber can become a leader in online grocery delivery. However, as UBS and other industry analysts have identified, grocery retailers are facing a future of extreme disruption as consumers shift to ordering more cooked meals for delivery instead of shopping for groceries in stores or ordering groceries online.
Uber has an opportunity to create something truly special by unshackling economic constraints that exist in static business models that exist today across multiple industries associated with the production, sale and delivery of groceries and food.
What I don’t want Uber to do is strive to become the “Amazon of food.” A more appropriate goal for Uber should be to become the “Facebook and Amazon of food”, only larger. Food is personal. Uber has the potential to reimagine groceries and food unlike any other company in existence.
I began this article by referencing Uber’s use of highly skilled economists and research scientists. The future of Uber is truly in their hands. Design the right strategy and Uber will succeed. Design and implement the wrong strategy and Uber will fail. Miserably.