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If your family is like mine, you’ve grown to depend on the last mile delivery industry. On any given week, we’ll receive Amazon Prime Now deliveries for grocery, meal kits from HelloFresh, or the occasional prepared meals from Postmates.  As last mile becomes a way of life for more consumers, the platform influence for these companies have grown.

For last mile delivery, 2019 will be a significant year. According to Postmates CEO Bastian Lehmann, Postmates will IPO after a $300 million late stage investment by Tiger Global at a $1.2 billion valuation. This raise was finalized just months after the news of DoorDash raising nearly $800 million (led by the embattled Softbank) at a $4.2 billion valuation.  According to data by RSG, Inc. the real battle for last mile delivery is between Postmates and Uber Eats.

Between 2017 and 2018, Postmates’ market share of delivery contractors rose from .5% to 8.7% and Uber Eats‘ share of the same measure has grown from .5% to 22.5%. In a recent report by Bloomberg, Uber’s quiet initiative to build virtual restaurants was revealed:

Uber Eats is still a secondary player in this segment, but it’s expanding the fastest. It kicked off in December 2015 in Toronto, following various food delivery experiments including Uber Fresh. The virtual restaurant program began quietly in early 2016, and by March it had spread to 10 cities. Today the company works with 1,600 virtual restaurants around the world in the 300 or so cities in which Uber Eats operates.

In a manner similar to Amazon’s growing private label catalogue, Uber Eats is employing consumer data to deploy new brands within their delivery app. According to Bloomberg, there is a unit of 300 employees focused on leveraging order data and supply gaps to build in-app restaurants. This accomplishes a few things for the Silicon Valley titan, one that’s struggled to find a path towards profitability.

• This move increases delivery margins: by partnering with a restaurant and leveraging demand, Uber can negotiate a higher margin of the sale. Rather than delivery, service fees, and 10-15% share on each sale: Uber Eats can demand a 40-50% share of that delivery’s revenue (on top of delivery and service fees).
• For the restaurants, they are generating a higher volume of orders and spreading fixed costs over new business.
• This circumvents consumer dependence on Yelp and Foursquare rankings by instituting its own an-app system. Uber Eats can repackage mediocre restaurants into great first impressions.

By building digitally vertical restaurants, Uber has gained the ability to engineer product loyalty that competing platforms cannot yet compete against. Uber Eats’ explosive growth between 2017 and 2018 is a result of the logistics company incentivizing its regular drivers to become delivery hands and also by incentivizing Uber users to become Uber Eats users. By increasing supply and demand-side economics, Uber Eats has leverage to that Postmates cannot yet manufacture. This is essential when approaching existing restaurants and offering them a private label product opportunity.

The value of groceries to Uber is connecting consumers with retailers and in turn, identifying the optimal strategy for monetizing the platform and services Uber can provide across each transaction to match supply with demand.

Uber Wants To Deliver Groceries

Uber Eats is benefiting from their parent company’s top funnel to grow the consumer demand for these types of products. This will translate well to Uber CEO Dara Khosrowshahi’s commitment to reenter the grocery market. Using the aforementioned restaurant model and the vertical branding that Uber has instituted, Uber Eats is one step closer to distributing its own unique brand of meal kits. This is an efficient path to regaining a foothold in the hyper-competitive market of grocery delivery.

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By Web Smith |About 2PM