The ride-hailing and ride-sharing services are largely under the control of Uber, an American mobility service provider with headquarters in San Francisco. And Uber Eats, a 2014 spinoff that specializes in food delivery, is already active in dozens of nations. With more than 66 million users, UberEats has over 29 percent of the global market for meal delivery.
Despite having funding from international venture capital firms and being successful elsewhere in the world’s food delivery business, UberEats’ activities on the Indian subcontinent lacked pace. Early in 2020, Uber sold its operations in India to local food delivery company Zomato in an all-stock deal for $300–350 million.
Very Tough Economy
With every order filled, the meal delivery industry continues to strangle new businesses. Order and delivery apps charge 10% to 15% of the order price plus a delivery fee of about Rs. 50, with an average order costing Rs. 300. As a result, a consumer must pay Rs. 390 when ordering through a food delivery app, but only Rs. 300 for the food when dining in a restaurant.
The fact that Ola, India’s top cab-hailing service, repeatedly entered the food delivery business before exiting is another example of the difficulty the food delivery market presents. Initially, there is Ola Cafe, which was present in Delhi, Mumbai, Bangalore, and Hyderabad before closing down in 2016.
The takeover of Foodpanda from its German parent company, Delivery Hero, occurred for the second time in 2018, but it abruptly ceased operations in 2019. Ola has 102 cities where it is present in India, compared to 29 cities for Uber, but it has not been able to successfully enter the food delivery market.
According to an entrepreneur who was linked in this context, no one is successful in the food delivery industry, thus companies try to diversify their operations and services. The launch of Swiggy Homely, Grocery, and non-rush hour delivery with Swiggy stores is now being tested. While Zomato has hosted different businesses from its inception, including advertisements, Zomato Gold, etc.
Comparable to this, Zomato recently debuted “Zomato Wings,” a platform that links restaurateurs and investors. In a blog post, Deepinder Goyal, co-founder, and CEO of Zomato expressed excitement about the introduction of Zomato Wings, a platform that links investors with restaurants.
Investors hunt for brands and teams that have the capacity of becoming the next big chain in the same way that optimistic restaurant owners look for investors. a calculated strategy to enter other tech-related markets. Zomato reported a combined loss of $47.5 million for the second quarter of FY21.
About the Problem
In 2020, Uber Eats produced more than $4.8 billion in sales. Additionally, Uber Eats became crucial to maintain the business in 2020 when Uber ride-hailing activities were prohibited owing to COVID 19, and income decreased by 50% year over year. Uber Eats has increased its revenue from its ride-hailing platform since Q2 2020. In the post-pandemic environment, the riding-hailing platform has thrived and made $4.84 billion in Q3 2021.
Industry observers claim that Uber Eats joined the Indian market late in 2017 but with several important benefits. Its riding services had a respectable customer base and helped to solidify the Indian market. But for some reason, it was unsuccessful in persuading the Indian buyers who were looking for discounts.
In a statement publicly disclosed, Swiggy COO Vivek Sunder praised UberEats as a fantastic company and brand. However, because global corporations have greater scale, competency, and access to large cash, they suffered from being a worldwide company. Indian businesses, however, can quickly adapt their operations to changes in the markets. For MNCs, local adjustments require approval from the global HQ, which could take some time and eventually be rejected.
Surcharges, revenue sharing, advertisements, and promotional services generate the majority of revenue for a food delivery company. Although they make a lot of money, their earnings are really small. However, in India, the profit margins are small in comparison to the global market, the businesses are struggling, and they frequently require new investments to keep providing their services.
During the first three years of operation, Eats has a user base of 10 million people. The user bases of Zomato and Swiggy, in contrast, are above 40 million and 42 million, respectively. However, the introduction of Eats and Zomato could bring great success to Zomato by giving it control of 52% of the subcontinent’s meal delivery business. Due to the transaction, Uber now owns a 10% stake in Zomato.
Despite being a global powerhouse, the subcontinent did not respond well to Eats’ otherwise effective strategies. According to industry observers, Eats’ aggressive discounting damaged the company, resulting in operating losses of $292.97 million, more debt, and a competitive market.
About the First-mover Advantage
When Uber Eats launched in 2017, the two biggest incumbents, Zomato and Swiggy, had already gained significant influence over the industry for meal delivery. Furthermore, Zomato and Swiggy already have the majority of the establishments on their lists.
While Uber Eats suffered from being the slowest mover. They relied heavily on discounts—which didn’t pay well—to attract and keep customers. Customers continued to gain from such tactics, while operators suffered losses. A high amount of app downloads in exchange for a smaller profit margin did not entice businesses to put their products on the app.
In comparison to Uber Eats, the incumbents had greater focus, spending power, and aggressive corporate expansion. There was additional pressure from foreign investors for UberEats to leave the food ordering and delivery industry in the subcontinent due to the company’s extremely low profits and accumulation of losses.
Absence of a strong objective
Zomato debuted in 2008, and Swiggy followed in 2014. Nevertheless, Swiggy distinguished itself from Zomato by offering a superior app user experience and emphasizing delivery, which enabled Swiggy to quickly cross the market threshold.
Uber Eats, on the other hand, failed to distinguish itself in any way from its competitors. Eats was a pitcher who arrived late. Without any product difference, it had proven challenging to maintain the meal delivery industry.
Market analysts think Uber Eats was entirely dependent on its parent firm and worldwide support. Additionally, Uber Tech ought to have started its food delivery service under a different name. Furthermore, Uber did not focus on its food delivery operations as it should have, and UberEats was introduced with a lot of fanfare.
Uber Eats also made history as the first food aggregator to run star-driven advertising campaigns. Its Indian wing hired Indian celebrity Alia Bhatt to serve as its brand ambassador. Uber advertisements are more likely to include celebrities like Elton John in the UK than they are here. According to a market expert, investing a lot of money in a business with fierce competition is not a good idea.
To promote Uber Eats, tags like “for your tinder moments,” “Your favorite food delivered,” and “Eats new every day” were used in conjunction with the advertisements. Notably, Eats advertising became the most watched YouTube ad in its first month of availability.
The app had a major drawback. It just shouted the brand name Uber Eats but failed to emphasize its core services like prompt delivery, post-delivery customer care, ease of ordering, payment options, loyalty program, promotions, etc.
Also, Uber initiated building better delivery ride support through its ads. The ads did not communicate much, and the variety and promises were dull. But the incumbents had already cracked the riddle of social media promotion. They maintained regular communication with the audience, which Uber Eats could not.
Facing Difficulties since the IPO
The app had a significant flaw. Instead of highlighting its primary offerings, such as timely delivery, after-delivery customer care, the convenience of ordering, payment options, a reward program, promotions, etc., it just shouted out the name of the company Uber Eats.
Additionally, Uber started using its advertisements to develop better delivery ride assistance. The advertisements did not convey anything, and the diversity and promises were uninteresting. However, the incumbents had already solved the promotion puzzle on social media. Unlike Uber Eats, they continued constant communication with the audience.
Prediction for the Future
Following the acquisition, the business stated that it wants to concentrate on its Indian riding activities to more effectively compete with Ola, a rival. Significantly, Uber controls a 50% market share for transportation services.
Even if Zomato was recommended to the clients, the switch remained primarily unprofitable for Zomato. Users quickly began switching to Swiggy. In conclusion, Zomato did not fully benefit from acquiring the user base.
With funding from Alibaba, Zomato has a market valuation of $13.3 billion. While Tencent, a Chinese company, supports Swiggy, a rival with a market value of over $10 billion. They are now the two market leaders and established players in India for meal delivery, yet they are still losing money. In reality, huge meal delivery services like DoorDash, which is valued at over $40 billion, are still losing money.
With more than 3 million meals delivered daily around the nation, India’s food delivery business continues to be one of the hardest to break into. It can be said with certainty that the global food delivery sector is difficult to penetrate. With two major businesses already going head-to-head in the Indian market, it is not a big surprise that Uber Eats was unable to survive.