Uber is indeed restless: it has become a grocery delivery company. Note, I did not write “meal delivery” as in Uber Eats. Yes, Uber can help you deliver groceries now. Uber is looking for a path to profitability. The challenge Uber has is typical: aggregation on physical-element business, unlike what Twitter, Facebook, Google, Instagram and Tik Tok do, is challenging. The distribution cost does not tend towards near-zero without affecting the fixed cost, optimally (see plot below). The implication is that making money on what Uber does is harder when compared to the aggregation models of Facebook and Google. Yes, software can eat the world, but that does not mean that making money doing so is guaranteed!
Uber is moving into the grocery delivery business, offering the new service in Toronto, Montreal and more than a dozen Latin American cities ahead of a U.S. launch later this month. The Uber and Uber Eats apps will allow users there to order groceries from local stores, receiving them in “as little as one to two hours,” according to an Uber product exec. Uber sees groceries as an extension of its food delivery service, which has gained in popularity over the pandemic.
Uber recently announced plans to acquire Postmates as it looks for that stability that comes with profitability. Here, the motivation is economies of scale: combining Uber Eats with Postmates can provide better margins in a very competitive market.
Uber is set to buy food delivery service Postmates in a $2.65 billion deal, the companies have confirmed. The tie-up ?— earlier reported by Bloomberg ?— could help Uber’s food-delivery service, Uber Eats, to compete against rival DoorDash, following Uber’s failed bid for GrubHub. Demand for food delivery services has grown during the pandemic, although profitability has remained a challenge, prompting delivery app companies to consider tie-ups to increase scale.