Popular ride hailing service Uber is rapidly making its way into the food delivery business posing stiff competition to its peers like GrubHub Inc. GRUB and its Seamless division. The UberEATS service, rolled out earlier this year through the common Uber app, is now being made available through a separate dedicated app.
However, for now, the app is only available to Apple’s AAPL iOS users in Toronto. Android users in the region are likely to get the app by next week.
What’s New in the UberEats App?
So far, UberEats was available in only 12 cities with limited time, delivery and menu options. Now with this new app, the company has given an enormous upgrade to the service by making it available from 10 A.M. to 10 P.M. and with flexible menu options. The UberEats app will basically have three menu options for users to choose from, differentiated on the basis of delivery time required and the popularity of the dishes. The ‘Instant Delivery’ menu will have a select number of dishes (up to five in all) but they will be delivered in as less than 10 minutes.
This apart, users will have a wide range of options from over 100 restaurants but they will require longer delivery times. The app will feature popular dishes from each of the food joints to make it easier for users to place their orders. Most importantly, the feature that gives Uber an edge over its peers is that users track their orders in real time (yes, just like you track you cabs). Additionally, Uber is focused on making its food delivery app visually appealing so as to attract more users. It has also waived off the delivery charges for the rest of the holiday season.
How Will this Impact GrubHub?
GrubHub being the first-mover does have an advantage in the space in terms of its presence (over 900 cities in the U.S. and London). Nonetheless, Uber has made a name for itself in offering speedy on-demand services. This is increasingly becoming the most important aspect in the food delivery sector as it is preferred by people who don’t have much time to spend on ordering food or waiting for it to arrive. Additionally, Uber’s flexible menu options do make it more user friendly in our opinion.
On the other hand, Grubhub’s growth rate, despite its initiatives to expand (recently it acquired another leading service- Delivered Dish in Portland), has been slowing down. Increasing competition in the industry, especially as startups in the U.S. are now being able to raise much more capital for investment, is creating headwinds for GrubHub.
Additionally, because the company charges a lower-than-average rate, it requires huge volumes to be profitable. So it probably needs to make changes to its pricing strategy while also growing volumes. This could be a daunting task as its three prime markets, New York City, Chicago and San Francisco, already seem saturated.
Bottom Line
Though Uber still has a long way to go in terms of reaching GrubHub’s scale, it seems to have an upper hand in terms of technology as well as innovative offerings. Therefore, while it may be a bit early for GrubHub to be significantly affected (at present its business in Toronto may see some competition) by the growing UberEat, it definitely needs to solidify its overall position and strive to revive its growth.
Moreover, the food delivery business is already quite crowded with companies like Postmates, DoorDash, Caviar, Munchery, Sprig, Maple, Blue Apron, Plated, Yelp Inc.’s YELP Eat24 and now even Amazon AMZN vying to capture a share of the market.
Currently, GrubHub carries a Zacks Rank #3 (Hold).
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