Amazon is hungry for more -- literally. It is reportedly in talks for a buyout of Uber Eats, the food delivery platform from Uber, the San Francisco-based cab aggregator. For an ecommerce firm that has built its business backed by timely delivery for years, this is quite a logical extension.
But it might not be easy making a success of food delivery. This is not the first time Amazon is having a go at food delivery. Such experiments by the e-tailer for its Prime members in the US and the UK have met with little success. Earlier this month, it pulled shutters down on Amazon Restaurants that catered to Prime members across 20 cities.
The going was equally tough for the UK market, where Amazon Restaurants was shut down in December last year. That’s not all, its plans to invest $575 million in London-based food delivery firm Deliveroo have run into a regulatory wall.
So, after many false starts, can Uber Eats give Amazon what it is looking for? Why is Amazon interested in a business area where it has burnt its fingers multiple times before?
The MNC feels it still stands a chance to step up its play riding on what it’s good at – that is, delivery.
No doubt, it has an advantage in India. The Jeff Bezos-led e-commerce player covers all of 19,100 PIN codes in the country.
But that’s not enough. Food delivery is still a phenomenon restricted to top towns in India, with a major chunk of the revenue coming in from metro cities. And cooking food at home still remains the preferred mode.
That probably explains why food delivery has not taken off in a big way in India as it’s confined to nearly 4,000 PIN codes even after 10 years of its existence.
This is where Amazon smells a chance to be the undisputable king. It might have bigger plans as well – to integrate its grocery business with food delivery, a segment dominated by Big Basket and Grofers. The penetration of online grocery stands at an estimated just 0.1 percent. Which means the potential to grow is huge, given the scale of underpenetration.
One quick benefit is a likely boost to its delivery network if the Uber Eats buyout goes through.
But competition is hotting up. Food delivery firm Swiggy, which eyed Uber Eats as a potential target, is also looking to enter the online grocery segment. The plain truth is, grocery as an online segment has been whipping up interest big time. According to a February 2018 report by Crisil, investors’ interest in online grocery rose 7 times during 2017-18.
Amazon may have mastered the art of one-day delivery for its Prime members. But it’s not stopping there. All it wants is more members for its Prime app and as such, increased transactions, according to a media report.
The chase for Uber Eats stems from the fact that it’s Uber’s most successful business in recent times, which grew 7-fold between September and December 2018. A report by The Times of India said Swiggy delivered 8 lakh orders a day in December 2018 while the second largest Zomato came in at 6.5 lakh. And the latest entrant Uber Eats delivered just 1.5 lakh food orders in December.
If Amazon finally succeeds, it’s almost certain that companies such as Zomato, Swiggy and Ola’s FoodPanda will have to sweat it out. Even Oyo is reportedly looking to buy out FreshMenu. Food delivery has always been a hyper-competitive market in India and it is likely to remain so.
Food delivery apps numbered a good 400 between 2013 and 2016. Most of them were serving one or two cities. Even in future, there will all always be new hyper-local food delivery firms that will create some trouble for national players for some time.
Whatever headway food delivery has made in India, discounting has played a big part. This is where Amazon will have its advantage as standalone food delivery firms will keep looking for their fuel – fresh funds. And tying up money will be by no means easy.
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