July 4, 2020
JOSé AVILLEZ, a Portuguese chef, won two Michelin stars for his creative take on traditional dishes, like a pudding that boldly combines chocolate ganache with cuttlefish ink. On June 29, he tried again: his restaurant in Lisbon, Bairro do Avillez, started serving gourmands at home via Uber Eats.
He joins Hakkasan and Claro, from London, Brooklyn, who before covid-19 would never have dreamed of having a service associated with hamburgers and pizza. In May, Uber chief Dara Khosrowshahi said recruiting these luxury restaurants would expand the sector.
The veteran is Just Eat Takeaway.com, an Anglo-Dutch company that, in June, bought Grubhub, an American company, for $ 7.3 billion. Both offer online access to restaurants that, for the most part, already have delivery drivers (although each is also investing in its own fleet). The trio of later arrivals on the scene – Uber Eats and two American rivals, Postmates and DoorDash – rely instead on armies of economic messengers.
Uber seems committed to dominating the industry. On June 29, it offered $ 2.6 billion to buy Postmates, which ranks fourth in the US in revenue. The approach could relaunch plans for an initial public offering (IPO), which Postmates filed last year after warm investor interest. At the time, food delivery was becoming a poster child for technology companies whose presence in the physical world meant that costs tended to rise as fast as revenues or faster.
The pandemic changed the climate again. Demand from blocked consumers is increasing. Grubhub recently reported a 50% revenue growth year over year, which may have accelerated in the past month. At Uber Eats, which operates in 45 countries, revenue in April was 89% higher than last year. In the past few weeks, the general market has been expanding at rates above 100% in the United States, according to Mark Shmulik of Bernstein, a research firm. Despite continuing to lose money, DoorDash recently secured a valuation of $ 16 billion, up from $ 12.7 billion at the end of 2019.
Although sales are growing, profits remain elusive. At the beginning of last year, companies restricted spending on subsidies to consumers. Now, strong demand has returned to arouse hunger for market share. Grubhub’s profitability per order has fallen accordingly, according to Bernstein. Uber Eats is still losing about $ 1.10 on each order, on average, although that is an improvement. Its first-quarter operating loss of $ 313 million is far from its ambition to achieve an operating margin of 30%.
Can the numbers add up? It’s too early to tell, says Shmulik. Consolidation can reduce costs and, over time, allow higher prices. At the same time, however, the business’s recent prominence is drawing the attention of trust advocates and politicians concerned with the treatment of independent post offices and restaurants that depend on them to reach customers. In June, the British competition authority waved Amazon’s investment in Deliveroo, a British company. But Uber’s previous conversations with Grubhub were partly based on antitrust concerns that may not have arisen without all the attention. Investors should wait to see if the sweet ingredients of meal delivery outweigh the sour ones. ■
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This article appeared in the Business section of the print edition, under the title “Appetite for destruction”
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