How does UberEats Make Money, Analyzing UberEats Business Model & How does UberEats Work
About UberEats, Founders, Funders and Facts
I was recently reading an interesting book about How Killer Companies of Silicon Valley are Changing Tech LandScapes – The Upstarts and was intrigued by its movie like storyline, there I got to know about various things that tech companies are doing things differently there as compared to Asia. Thus this post is about Uber’s new venture into FoodTech and Delivery, called Uber Eats, and they just have launched it across many places where Uber is already present. I must say that with Uber’s limitless vehicles running on the road 24×7 and with no added cost of owning/hiring vehicle owners, Uber will become the undisputed king of food delivery.
UberEats Founders: UberEats is a subsidiary of Uber Inc. The parent company that owns the ride-hailing app Uber. Thus the founding team etc. remains the same.
UberEats Funding: UberEats is funded by Uber Inc. (parent company).
How does UberEats Make Money
How UberEats Makes Money is interesting considering the fact that it’s direct competitors are shutting down (FoodTech) and rival Ola experimented and failed miserably at the food and grocery delivery business.
Before understanding How does UberEats Make Money it is imperative to understand some bit about its operations and How does UberEats Work?
How does UberEats Work
The UberEats process is fairly complicated and has evolved over a period of last 2 years across US, India etc. The Uber Eats process is the pillar on which how does Uber Eats make money is based, so pay attention.
How does UberEats Work is more or less similar to the way other FoodTech or Food Delivery companies are working. It has following 4 components:
- Customer – Instant Order Placing (Restricted set of menu items, locations and fixed delivery times)
- Customer – Real-Time Order Placing (Unlimited Menu, Times and Locations)
- Courier Partners (Uber Drivers)
- Restaurant Partners
How does UberEats Work for Customers
Now, this section is a little tricky and different depending on the age and maturity of the market UberEats is operating in. I have tried to generalize and cover most standard operations.
2 Options for Customers are Instant Delivery and Real-Time Orders (Ordering is Real Time but Delivery is Delayed).
In Instant Delivery – Menu, Time and Location is prefixed by the Customer. Uber just stacks up these items in hot bags and delivery happens according to the time selected by the customer. Here the Unit economics work out very well in favor of UberEats because the items are pre-picked up in bulk (for all the similar orders).
In Real Time Ordering – The customer can select from the wide range of the restaurants that UberEats has to offer. In these cases Uber just works exactly similar to any other Food Delivery company with an added advantage that Uber might (in high possibilities) have a driver nearby (considering that the order will most likely come from a place where people have been dropped off previously – for e.g. commercial areas in working hours and residential areas during non-working hours).
How does UberEats Work for Partners (Courier / Restaurant)
For Courier Partners: Courier Partners can be exclusive UberEats drivers (Car / Scooter / Bicycle). They register or opt-in for becoming a part of the delivery partner network. The partner where he is depending on the location and proximity to the customer and the pickup point is allocated the order.
For Restaurant Partners: Restaurant Partners need to submit a form mentioning details about their restaurant and UberEats get back at them with their proposal.
Now that we have a good idea about How does UberEats Work, let’s have a look at How does UberEats Make Money?
How does UberEats Make Money
UberEats Makes Money from 3 revenue sources:
- Delivery Fee from Customers
- Rev-Share from the Restaurant Partners
- Advertising Income from Restaurant Partners
How does UberEats Make Money from Customers
Customers, whenever they order from UberEats, irrespective of the order size have to pay a flat fee to Uber. It ranges from 5$ in the US to 1$ in India (50 Rs).
There is surge pricing in UberEats too 🙂
Yes.. You guessed it right…
Lunch and Dinner time are peak hours and surge pricing is applicable there (though not on the delivery fee or anything, but the menu and locations to order becomes limited in those time periods as of now, surcharges may be introduced soon).
Some restaurants just disappear from the ordering mechanism whenever peak time hits in.
UberEats Business Model
UberEats Business Model has 3 components to measure its viability:
- Customer Convenience/Delivery Fee
- Courier Partner Fee
- Restaurant Partner Rev-Share and Amortized Marketing Fee
Before we move onto the actual business model of UberEats let’s look at the remaining two revenue lines below.
UberEats Business Model from Restaurant Partners
Restaurant Partners have two cost heads when it comes to UberEats, one is a marketing fee that they charge the restaurant to come up as the preferred one in user searches or a promoted listing.
The other is recurring rev-share for the orders fulfilled by UberEats. This ranges from 15% to 40% depending on the age and maturity of the market. In the US it is 40% and in India, as I’m writing, it is 15% to 30% depending on the location of the restaurant.
UberEats Business Model and Unit Economics
Let’s take an example: Mr. X orders something from Restaurant of Mr. Z via UberEats which costs $50. There is a convenience fee of $5 from Mr. X. This order is serviced by courier partner/driver Ms. A.
Here is how the maths from this order looks like:
- Total paid by Mr. X : $50 + $5 = $55
- Total Received by Mr. Z : $50 * 0.7 (30% commission) = $35
- Delivery Income for Ms. A : Pick Up Revenue + Delivery Revenue + Per KM/Mile Charge = $4 + $2 + $2 * 3 Miles = $4 + $2 + $6 = $12 [This is so because there can be multiple orders from the same restaurant so UberEats will not pay the Driver partner multiple times for picking up orders from Mr. Z at the same time]
- Net Income for Uber : $55 – $35 – $12 = $8
Now, this looks very optimistic because UberEats seems to make money out of it on a per unit level, but it is not so, today just to penetrate, UberEats is doling out discounts, losing money on deliveries, signing up restaurants for free (no rev-share) etc.
This is just a marketing strategy and market penetration strategy, once it crushes the competition like the cockroaches they are, it will start charging higher from everyone, like how it does in Cabs 🙂
Hope you liked it, let me know what you think about How does UberEats make Money or How Uber Eats Work or UberEats Business Model in comments.