Uber Eats: The New Agent of Change
To better compete in the grocery delivery industry and mitigate food waste issues, Uber Eats should partner with Flashfood while creating a food redistribution program through its Cornershop app.
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
Driving Growth in the Food Delivery Industry
Within the last decade, the food delivery industry has undergone rapid evolution in its value proposition to the end consumer. With the onset of the COVID-19 pandemic, food delivery has entered the mainstream—becoming a “new normal” and even a necessity for some. This trend does not appear temporary as 49 percent of Canadian consumers plan to keep ordering online after the pandemic is over. As schedules get busier and technology becomes more widespread, consumers will continue to demand greater convenience and choice, forcing industry players to remain agile with their service offerings. Meanwhile, the global food delivery market is expected to grow tenfold to revenues of $365 billion by 2030, largely driven by the flexibility around online ordering and the rise of third-party delivery platforms.
Traditional brick-and-mortar businesses such as grocery stores are now capitalizing on online delivery by partnering with third-party platforms. Despite the superior level of service grocery delivery platforms are able to provide, premium pricing remains the primary barrier for adoption. Retailers typically mark up prices on these platforms, with one of Instacart’s co-founders stating the company charges an average of 15 percent more when customers shop at a non-preferred partner. As pricing pressures within online food delivery continue to rise, providers must consider differentiating in other ways to avoid further harming their already razor-thin margins.
In contrast to the United States, the Canadian grocery delivery industry is less developed. With sizable business opportunities not yet recognized and competitors fighting for share in an immature market, the country serves as an especially attractive avenue for growth, with over C$50 billion in market opportunity within the next few years. Similarly, Canada has long served as a prime test market for the global launch of new initiatives or products, including those of grocery chains. Cumulatively, these factors make Canada a highly appealing market for the development of grocery delivery infrastructure.
Corporate Social Responsibili-eats
Social and environmental concerns have started to influence millennials’ purchasing decisions, though the industry’s economic outlook remains positive. Many companies are starting to focus on building their brand reputation to evade public scrutiny. Uber Eats specifically has been criticized by the public for its controversial commission fee structure charged to small businesses. This commission fee has contributed to the company’s attempts to garner market share, as Uber Eats holds just 14 percent of Canada-wide revenues in food delivery. Pervasive corporate social responsibility (CSR) issues contributed to increased customer acquisition costs, a major driver of Uber’s Q4 2020 adjusted EBITDA loss of $145 million. In light of this, Uber should pursue new opportunities to rectify its brand image, which could help drive revenue, shareholder value, and employee commitment. As intensifying competition within the space will continue to shrink margins, Uber must prioritize factors other than price to attract new customers. Fortunately, Uber is uniquely positioned to solve one of the industry’s most persistent and visible problems: food waste.
While consumers and corporations alike are aware of the magnitude of food waste, responsive measures have been dismal. Canada in particular is one of the largest food wasters on the planet, with 2.2 million tonnes of edible food wasted each year, costing Canadians more than $17 billion annually. Consumers bear the impact of this externality, paying an estimated markup on food products of 10 to 20 percent as a direct consequence of food waste. Consequently, food waste reduction is a ripe opportunity for innovation and could have material implications for reducing societal problems and generating economic savings.
A New Shopportunity for Impact
Nonprofits such as Feed it Forward and Second Harvest have used technology in the past to redistribute food to vulnerable populations. Even Uber Eats has attempted similar initiatives, partnering with Second Harvest in 2015 to provide meals for Torontonians in need through its one-day #UberHungryTO campaign. Similarly, A&W Canada recently announced a partnership with Mealshare to donate 1.25 million meals per year to local youth in need within Canada. These partnerships highlight a trend towards the alignment of corporate goals with the mitigation of prominent social issues, which provides immediate benefits to those impacted by the cause and an improved public image for the acting companies involved. Despite these incremental strides, smaller businesses lack access to the technology and logistics necessary to carry out such initiatives. Properly addressing these social issues on a larger scale will require key players to collaborate throughout the industry value chain—a dilemma that can be solved by Uber Eats and its new subsidiary, Cornershop.
A Convenient Partnership
Cornershop is an online grocery marketplace operating in Toronto and Montreal that was recently acquired by Uber and has since been integrated directly into the Uber Eats application. This acquisition has enabled Uber to enter the Canadian grocery delivery market through Cornershop’s existing retailer partnerships, which include Costco, Metro and Walmart. Additionally, it also now allows Uber Eats to use its logistical capabilities and large network of drivers to redistribute excess food to local food banks. Various grocers listed on the Cornershop platform have existing relationships with the Food Bank of Canada and other charitable organizations, which can help reduce existing operational barriers within food redistribution.
To further augment its capabilities, Uber Eats should partner with Flashfood, an app that lists discounted food products nearing best-before dates from grocery stores. This partnership serves to divert food away from landfills, drive incremental revenues for retailers, and improve the customer experience on the Cornershop marketplace. The Flashfood platform hopes to create a circular solution whereby consumers can purchase products at a discounted price while also improving profitability for grocers by reducing inventory waste costs. Since its inception in 2018, Flashfood has partnered with just three retailers: Loblaws, Farmboy and Longo’s. However, Flashfood has sold more than 75 percent of products listed through its platform, saving consumers an average of 50 percent on their purchases. As Flashfood looks to grow its scale and expand operations, a partnership with Uber Eats and Cornershop could be beneficial for all involved parties.
By integrating Flashfood with Cornershop’s marketplace on the Uber Eats platform, customers would have the unique ability to shop for both full-price and discounted food products in one app. Uber Eats’ robust recommendation system would assist consumers and grocers alike by listing suggested products and tailoring discounts to customer order history. Flashfood’s automatic notifications to consumers regarding availability could incentivize additional purchases. These complimentary marketing tactics would create a personalized experience for the consumer, and could deliver an increase in total sales for grocery companies. Flashfood’s founder previously estimated that 70 percent of new customers who spend $10 on Flashfood will spend $15 on other full-price products as well. This partnership would introduce the discounted food product segment to the Uber Eats platform, which would drive market share and improve consumer loyalty by virtue of being an all-in-one marketplace app.
Adding More Cooks to the Kitchen
There are additional opportunities for Uber Eats to curb food waste in Canada by partnering with both retailers and the public sector. The Government of Canada has pledged C$100 million to help food banks sustain operations, highlighting an opportunity for private sector companies such as Uber Eats to work with government bodies to solve societal issues such as food waste. Given that third-party platforms like Uber have the necessary capabilities to streamline food redistribution, a cross-sector partnership would serve to capitalize on the respective strengths of the private sector, government, and nonprofit organizations to create meaningful impact.
One example of a successful strategy is DoorDash’s ProjectDASH initiative. Launched in 2018 in the U.S., drivers delivered excess food to various food banks, and later expanded to help with COVID relief efforts through partnerships with government agencies and restaurants. ProjectDASH consequently delivered a total of 650,000 meals across 46 states within the first eight weeks of operations. Since March of 2019, over 6.5 million meals have been delivered to those in need, demonstrating the immense impacts that cross-sector partnerships can create.
Uber Eats should look to emulate this model in Canada in partnership with the government by implementing a distribution model in which its drivers can deliver excess food to local food banks in the Toronto and Montreal area. There is a demonstrated history of retailer participation as well: Walmart is currently partnered with Food Banks Canada and Loblaws has delivered up to 13 million pounds of fresh, frozen, and non-perishable food annually in the past. These partnerships showcase retailer willingness and capability in pursuing food redistribution initiatives.
B-eating the Competition
As food delivery becomes more sophisticated and consumer demands evolve, existing players must seek new ways of delivering value to their customers. Systematic issues like food waste will grow in severity if contributing parties such as third-party platforms do not hold themselves accountable. Uber Eats’ partnership with Cornershop uniquely positions the company to implement a food redistribution program with grocery retailers and increase Uber’s goodwill through demonstrating corporate social responsibility. By partnering with Flashfood, Cornershop will attract new customers with various budgets and effectively compete with Instacart and Amazon.