Uber Eats was started in 2014 to deliver food from restaurants in return for a 30% cut of the action and a delivery fee. But Uber Eats seems to be more than just a delivery service. Besides delivering food from established restaurants, Uber also seems to be building a giant “virtual” restaurant empire where the restaurants exist only on the Internet. Based on its analysis of unmet needs in various neighborhoods, Uber is forming alliances with existing restaurants that have excess capacity.
Since Uber seems to be succeeding at this venture, it is important to note that Uber has found a way to reduce risk in the high-risk restaurant industry. Quick-serve and fast-food chains also reduce risk by repeating the same formula in new locations. Uber has gone one step further – by finding the right concept for each location, and then a low-investment strategy to enter the market.
But there is another level of brilliance in this strategy:
- Instead of a restaurant begrudgingly giving 30% of the menu price to Uber, now Uber has the option to collect the total amount and the delivery fee. It can then give a negotiated portion of the amount to the restaurant. Uber seems to be in control of the menu, of the price, and who gets to make the food, which seems to be a restaurant that has excess capacity.
- Uber does not have to own any restaurants, hire cooks, rent space, or deal with any of the other headaches that go with running a chain of restaurants. It has outsourced the fixed costs. It “just” gets to develop the menu, promote it on its site, have someone cook, and delivers it to customers that are already on its data base. Since it controls the customer, the food can even be cooked in a central kitchen.
- If one restaurant gets too busy, Uber can expand capacity by finding another restaurant with capacity.
- And most importantly, it can combine this with Uber’s ride-sharing services where we get to share a ride with another passenger in return for getting to see a city’s neighborhoods that you would otherwise not see. I have seen a fair amount of Miami doing this. And the co-passenger in this case could be a meal filling the car with a great aroma and creating another customer – You (although Uber currently does not seem to mix food and passengers).
I can see the day when Uber’s restaurant becomes as big as its ride-sharing business, except if Amazon joins the fray. And why should Amazon.com enter this business?
It is the last mile that Jeff Bezos has been trying to find. He is using UPS and Fedex. He has also bought Whole Foods. And he is developing Amazon’s own delivery program.
I am surprised Bezos has not seen what Uber is doing and started to deliver food from virtual restaurants. With his talent for efficiency and cost cutting, Bezos will give Uber and Lyft a run for their money and encourage all the other food delivery services to run for the hills. All he has to do is bundle it with Amazon Prime.
By adding restaurant food delivery, he can also create a nationwide chain of virtual restaurants and conquer another industry. Since most people eat every day, he can bundle food delivery with all his other products and services and cover the final mile
Add to this one of the newest trends in food – farm-to-desk. According to the article, restaurants that serve farm-fresh food to office workers are running at capacity. And restaurant owners are said to be looking at this growth with a mix of “hopefulness and resignation.” Not being enthusiastic about serving new markets can be dangerous because someone who wants this food delivered does not care who makes the food and Amazon can start to use industrial kitchens. Importantly, Amazon.com has always been good at reducing the frustration of its competitors who have excess sales by taking it from them.
Combining ride-sharing and fresh-food delivery from a central kitchen, Amazon.com can change the nature of the food industry and retail space. With a central kitchen, Amazon can cut costs compared with a restaurant. By controlling the last mile profitably, Bezos can offer a new level of services. No less a seer than Jim Stewart of the New York Times opined that the ride-sharing business can handle a third company. Hello, Amazon.com.
MY TAKE: Building a chain of virtual restaurants and combining this chain with ride-sharing is an obvious move for Amazon.com You wonder why Bezos has not started a ride-sharing business and added food delivery or bought one of the food delivery services and added ride sharing. This would be imitating Uber and improving on it and on all the restaurants out there. Imitating and improving has always been closer to the hearts of unicorn-entrepreneurs rather than innovating because most first movers fail. Imitators and improvers win more frequently than first-movers, and sometimes become unicorn entrepreneurs.