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Restaurants Fuel Uber's Rocketship
Its delivery business is bigger than rides right now and just as big as rides was a few years ago... but Uber's not cooking the food.
Uber’s delivery business is, right now, a bigger company than Uber’s rides business. The company’s CEO has touted the promise of food delivery and its importance to the company for years; but after reporting second quarter earnings last week, Dara Khosrowshahi’s assertion that Uber Eats carried huge growth potential has come true. Just took a pandemic and a total upheaval of our way of life to get there.
Uber Eats saw “massive acceleration” in April, May, and June, Khosrowshahi told investors during the call. Gross bookings are up 113 percent year over year (that is: the amount people spent on food delivery more than doubled) globally, reaching close to $7 billion. Delivery revenue doubled, too. Uber’s delivery business, of which Eats is a part, is now just as big as Uber’s ridesharing business was when the CEO joined the company in 2017. “We’ve essentially built a second Uber in under three years,” he said.
It was the first earnings call since Uber announced it would acquire Postmates in July for $2.65 billion. (The deal is expected to close early next year.) Postmates “achieved a $4 billion annualized gross bookings run rate in Q2,” Khosrowshahi said, which could mean Postmates’ gross bookings were about $1 billion this quarter, but could also mean that the company had an especially banner month or week or day multiplied out over a period of a year. Run rate is a projection, not an accomplishment. Even if it did hit $1B in gross bookings, this is likely a significant jump from the first three months of the year. (For a v. v. basic comparison, Uber Eats did $4.6 billion in bookings in Q1, or about two-thirds of its Q2 total.) One very interesting note: non-U.S. bookings account for over half of delivery volumes, which is an important thing to keep in mind as Uber continues to be frantically compared to DoorDash and Grubhub, which do the bulk of their business domestically.
Uber has always been strangely bullish on Eats, even in the early days. There were a few notable milestones as it grew: an exclusive deal with McDonald’s that lasted a lot longer than it probably should have; an image and business that remained virtually untouched as Uber’s reputation tanked under its previous CEO. While we all scrambled to #deleteUber, we were still looking for that late-night McNuggets fix. The decision to maintain Uber Eats as its own app doesn’t look so silly in hindsight, but seemed a strange choice at the onset.
Now that second business is keeping Uber afloat, sort of. But the company is *still* losing money. (I really like TechCrunch’s analysis of the numbers here, if you, too, are into this sort of thing.) That’s a weird thing to think about given Uber’s sheer size, which is why company executives spend so much time talking about how many customers they have and how hard they’re working to attract new ones, especially in new markets. “The Covid crisis has moved food delivery from a luxury to utility, and as we add more use cases, our service will move from a utility to daily need,” the CEO said.
Uber plans to continue to cozy up to delivery’s success, rolling out its subscription Eats Pass across markets and bundling deals with rideshare customers to keep them in the Uber ecosystem. This has long been the plan, but today’s flipped script makes it even more important. “This translates into something simple: more loyal and delighted eaters across the globe,” said Khosrowshahi.
This also feels like a weird time to be comparing year over year growth, even though it’s the reporting standard for these quarterly filings. We’re in the throes of a pandemic and watching a bonkers news cycle deliver one unbelievable but true story after another. Still, Uber’s message seems to be to continue full speed ahead, using the pandemic as a springboard to keep numbers moving up and to the right. It also wants a bigger slice of the cashmoney pie, targeting a 15 percent take rate — or cut — of orders according to a presentation shared along with its earnings results. (This is a different figure than the commissions charged to restaurants, which are getting a lot of attention at the moment.) If I were a betting woman (depends on the day, ugh, remember flying to Vegas?) I’d say the take rate target that’s discussed internally is even higher than 15 percent. The deck also suggests advertising as one way to increase that rate; rationalizing its marketing spend — i.e., stop spending so much money — is another.
There’s been a lot of talk about technology saving restaurants. It’s still not, though there’s very good work happening. In a very strange twist I definitely would not have predicted, restaurant tech might be saving big technology.
Everyone’s got to eat.
One interesting wrench: AB5, the contentious California state law that took effect at the beginning of the year, requires companies like Uber to classify their drivers as employees. Companies like Uber (and Lyft and DoorDash) have been actively fighting the law, and have yet to make the mandated employment change. (AB5 also applies to freelance writers in California, and rule followers like me have certainly taken a hit from its implementation, I can personally attest to that. Funny how that works!) Anyway, the latest in the ongoing argument saw a judge ordering companies to convert drivers to employees, giving Uber about a week to appeal the decision. In an interview with MSNBC, Uber’s CEO said that the company might pause operations in its home state of California (!) should the ruling stand. If that happens, we wait for November — the aforementioned companies successfully lobbied to add a proposition to the state ballot that would exempt Uber drives and the like from the law, which was literally created to... protect Uber drivers. Where that leaves us lowly freelance writers is yet to be determined.
Time to Stop Extolling the Pivot
Speaking of technology saving restaurants, as an avid reader of news and social media, I see the same “XYZ new thing could be the thing that saves the business.” We are so far past that, now, in August of 2020, months into a pandemic. I have to say, at the beginning of all of this, I bought into a little bit of this positivity and change. I was hopeful that the best of restaurant tech would step in and help restaurants continue to operate. The good news is that the best of restaurant tech did step in to help restaurants operate; the bad news is that it’s been months and there’s no end in sight.
The big story out of San Francisco this week is that Prairie, a restaurant that I personally enjoyed and one that received a fair amount of press during the pandemic as its chef and owner Anthony Strong slowly converted the restaurant into a full-on grocery store, is closing permanently at the end of the week. I’m not sure how many stories were written about the business (I, um, wrote one) but most of them celebrated Strong’s ingenuity during tough times. I’m all for celebrating success, but this isn’t a success story — it’s a story of trying to make do with dwindling resources and near no support on a local, state, or federal level. And that’s just the business side! What of the employees… most of whom likely won’t qualify for any formal government assistance? (There’s a GoFundMe should you care to chip in.)
This isn’t necessarily a tech story, but it’s tech-adjacent. Without real help and relief to #saverestaurants, this news is going to keep rolling in for the next eighteen months. It’s going to take a lot more than good tech for the business to emerge from Covid looking anything like it used to. I’m all for positive change, but it’s hard to lose the ones we love.
More $GRUB but Actually $TKWY.AS
Grubhub’s stock jumped this morning on news of soon-to-be parent Just Eat Takeaway’s success in the first half of the year, with revenue up 44 percent. Business more than doubled in Germany, the company’s largest market. Like Uber’s Postmates deal, the Grubhub-Just Eat partnership isn’t final yet; that should come late this year or early next after a so-called “extraordinary shareholders meeting” scheduled for October.