Uber has just bought majority stake in online grocery startup Cornershop for an undisclosed amount. The ride hailing firms wants a bigger slice of its consumer’s daily life.
As Uber CEO Dara Khosrowshahi said in a statement, “Whether it’s getting a ride, ordering food from your favourite restaurant, or soon, getting groceries delivered, we want Uber to be the operating system for your everyday life”.
But why? Probably, the Softbank-backed startup -- wants to keep on expanding in new areas of business even if it does not work. Uber is entering a business where it failed before. This is Uber’s second attempt to crack grocery delivery. It had, in 2014, launched Uber Rush which it had to shut down in 2018.
Besides, it is entering a cash-guzzling business at a time when its valuation is under question, and some of the existing investors consider it a flop show at least for now.
The Cornershop acquisition followed by Uber’s third global retrenchment drive. Uber has just handed over pink slips to 350 people globally, of which 10 percent are reportedly based in India.
Still, Cornershop may have good potential in India if Uber manages to launch soon. At present, Cornershop operates in Chile, Mexico, Peru and Toronto. The grocery delivery startup, backed by Accel, ALLVP, Creandum and JSV, tried to sell itself to WalMart for $225 million last year, but the deal did not get regulatory clearance.
There are two main reasons why the Cornershop could succeed in India.
First, grocery delivery is a fast-growing business in India with very low penetration. Online grocery is still an urban-only phenomenon with an estimated 0.1 percent penetration. So, the opportunity is huge. According to a February 2018 report by Crisil, investors’ interest in online grocery increased by seven times between 2017 and 2018.
Second, while it may have failed elsewhere, Uber has seen success in almost everything it has tried in India. With about 11 percent of its total trips, India is termed as Uber’s “healthiest market” in terms of growth rates and is the third largest market after the US and Brazil. Naturally, hopes are high. Last year, Khosrowshahi had said that the company had aims to increase number of trips in India by 5-10 times over next 10 years.
Its latest venture, the food delivery business Uber Eats, saw a seven-fold growth between September and December 2018. However, it was reportedly trying to sell Uber Eats in India earlier this year.
But the going won’t be easy in the grocery space too.
This is a cash-guzzling unknown territory that is being targeted by deep-pocketed biggies such as Amazon, WalMart-owned Flipkart and China’s Alibaba who are pumping in large sums aiming to crack the online grocery mart in India. Moreover, Uber will have to fight against the locally dominant Big Basket and Grofers. Also, online grocery is a low-margin business, backed by discounting (like almost every online commerce business) and the most important thing is the time taken for delivery. This will continue to be a cash guzzler for Uber for quite some time, at least in India.
Besides, Uber will have to figure out its delivery fleet. Uber is unlikely to leverage its existing fleet of cab drivers for grocery delivery. What it can do is probably use its fleet of Uber Eats delivery agents to deliver grocery simultaneously. To what extent Uber can manage this will determine its success in the online grocery game.
Still, a question remains. What will be Uber’s model in online grocery? Will it follow inventory-led models like Big Basket and Grofers, or will it try to replicate the food delivery model and works as connect between local retail stores and consumers?
In the first case, it will need to invest substantially. In the second scenario, Uber will have to deal with millions of kirana stores, thousands of supermarkets and a few hundred mandis. That’s also not easy. In this segment, there has been instances of failures such as Localbanya.
In the end analysis, there is no doubt that India is important for Uber, and it wants to see success in every business it does in the world’s second most populous country. Simply, because Uber failed to crack China. But the overweening obsession with expansion should not result in losing focus on its core business which is rides. That is already under pressure from fierce competition from Ola, which is also backed by Softbank.