Uber CEO Dara Khosrowshahi says investors are happy with Uber’s growth in the delivery market, but he thinks it should be growing even faster.
He wrote this in a message to employees a few days ago, as first reported by CNBC, outlining the company’s strategy to weather challenging market conditions: war in Europe, an unending global pandemic, record inflation, and [this writer gestures broadly]... everything else. We’re in the midst of a “seismic shift,” he said, before telling employees the company will tighten its purse strings while slowing down on hiring and cutting inefficient marketing expenses.
Uber’s delivery business kept the company afloat as the rideshare business tanked in the earliest days of Covid. At one point in 2020, it was bigger than rides, based on adjusted net revenue. It’s still punching above its weight in the company; Khosrowshahi told investors and analysts during Uber’s recent earnings call that promoting its rides business within the Uber Eats app is working to “resurrect riders back into the reopening.” (“We frankly weren't sure if it [was] going to work,” he said of the cross-promotion on the call.)
But investors expect profitability, and that’s where Khosrowshahi says Uber is heading, this time on a free cash flow basis. Per coverage in The Verge:
Uber has long been criticized based on the way it calculates its adjusted profits. The company’s definition of EBITDA includes an unusually large list of exclusions and is widely seen as an inaccurate measure of the company’s overall profitability.
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Then there’s growth.
Together, Uber Eats and Postmates — the delivery company Uber acquired in 2020 — make up a reported 27 percent of the U.S. delivery market sales to competitor DoorDash’s 59 percent, according to data last updated in April. In its most recent earnings report, DoorDash’s performance beat analysts’ expectations.
Uber is fighting the (other) delivery giant on all fronts as the companies continue to add new products and services for restaurants and other retailers. In its quest toward overall profitability, Uber will keep going after new partnerships in the grocery and convenience space, but likely won’t be building out its own chain of dark convenience stores or grocery options.
“We believe that we're able to get essentially 100 percent of the experiential benefits of fast grocery through partnership and avoid the kind of capital investments that you have to make in terms of leases, opening up a bunch of stores all over cities, in addition, frankly, to the defocusing of the team,” Khosrowshahi said on the earnings call.
This is probably not a bad idea, especially in today’s conditions.
In an interview with venture capitalist Rick Heitzmann, tech journalist Eric Newcomer asked about the same thing that Khosrowshahi warned Uber’s employees about: signs that the good times in tech might be over, at least for now. Heitzmann indicated the rapid growth of rapid delivery could come to exemplify exactly what went wrong. When Newcomer asked which companies might be held up as examples of what, exactly, happened during this wave of change, he answered:
“These quick delivery guys — that are all over the streets of New York, the Jokr’s, the Getir’s,” Heitzmann observed. “We saw Kosmo. We saw it didn’t work and then we just did the same thing with another $10 billion.”
“We saw this movie. Everybody died at the end,” Heitzmann said. “Now we’re wondering why in the sequel we think there is going to be a happy ending.”
(If the presence of a bursting tech bubble is to be predicted by the frequency with which Kozmo is referenced in conversations about bursting tech bubbles… yes, we’re getting closer.)
From where I sit, this represents a significant shift in the way investors and technology companies are thinking about growth and ultimate success. It’s no longer about expanding at all costs, hiring relentlessly, and forgiving the huge marketing costs associated with customer acquisition. It’s about whether or not the business actually works, as judged by the bottom line.
Might an investor-sanctioned move toward responsible growth forestall future business challenges? In his note to employees, Khosrowshahi wrote: “In times of uncertainty, investors look for safety.” He continued: “...while investors don’t run the company, they do own the company — and they’ve entrusted us with running it well.”
Gopuff adds a pizza brand
About a year ago, Gopuff added restaurants to its list of competition, debuting Gopuff Kitchen to deliver prepared food alongside its convenience items. Now it’s introducing its own pizza brand: The Mean Tomato.
According to Gopuff, pizzas will be “made in minutes from scratch,” which I guess is a selling point for a pizza sold by what is essentially a convenience store; it’s like the 21st century version of gas station nachos. The company promises “bold and unique flavor profiles” including some of-the-moment CPG brands like Mike’s Hot Honey and Truff hot sauce — both also available for sale on Gopuff. (A Truff x Gopuff line of pizzas debuted last October.)
Like others before it, Gopuff seems to be using pizza as a bellwether of sorts for its prepared foods business. Amelia Riba, Gopuff Kitchen’s vice president and former chief brand officer at Pizza Hut, said in a statement that the company was “just beginning to test the waters.” Gopuff has also hired former Whole Foods culinary director Alan Morgan. As restaurant delivery giants expand to the convenience space, so do convenience giants expand into restaurants. Rinse and repeat.
What else is happening?
By Danielle Hyams
Sweetgreen will open first pick-up only location. The store, which is located in Washington, D.C., is set to open on Aug. 1. It will not feature interior dining or a front-service make line, only pickup shelves. Customers can order through Sweetgreen’s website, app or delivery services. The decision to go pick-up only is a result of the chain’s focus on growing its digital business, which made up 67 percent of revenue in Q4 2021. This feels like an extension of the Outpost program rather than a new Sweetgreen. Hiding the make line is a big deal for a restaurant chain that is literally building a drive-thru “observation window” so people can get the Sweegreen experience without leaving their cars.
Delivery apps reach the Arctic tundra. With penetration in cities, suburbs, and small towns across the country, big delivery is tackling the last frontier: rural villages. The New York Times has a great story about the lengths some Americans will go to get their delivery. Residents in remote Alaskan villages have long been cut off from the creature comforts available in cities, especially when it comes to food. Not anymore. Through the rise of delivery services like DoorDash, Grubhub and UberEats, food from KFC, Pizza Hut, McDonald’s and more is making it to these remote outposts by way of air.
The availability of delivery is dependent on the planes flying passengers in and out, but if a plane is passing through, it’s go time. Village residents place their orders via a delivery service or local expediter, paying $10 to $30 just to get their food on board the plane, depending on weight and available space.
The takeout-by-plane business has become so successful that one Anchorage resident created a business called Alaska Sky Pie to arrange the shipping of frozen pizzas, cakes and party decorations all over Alaska. Through a network of contracts with airlines, she told the New York Times she is able to ship pizzas to “pretty much any village” for less than $5 shipping. During summer, when locals are busy hunting and fishing, she sends 25 to 50 pizzas a week. In the fall and winter that number rises to several hundred per day.
More tumult at Grubhub parent Just Eat Takeaway. The company’s chairman left last week, while its COO, Jörg Gerbig, has also stepped away from his role on the management board as he is investigated for inappropriate behavior — in the company’s words, “possible personal misconduct,” according to TechCrunch. JET execs have confirmed they’re exploring a Grubhub sale.
Starbucks plans to enter the web3 space. The company announced during its quarterly earnings call the launch of collection of non-fungible tokens (NFTs) later this year (even though NFT sales are flatlining?) People who buy Starbucks’ NFTs will gain access to exclusive content and other experiences, according to Restaurant Dive, but what exactly that means is unclear. The company said it plans to establish a Starbucks’ NFT community on an “environmentally sustainable” web3 platform where it will expand its concept of a “third place,” a warm and welcoming place, outside of the home and workspace where people can connect and build community.