Intense competition in the Indian food delivery market has whittled down the earnings of the third largest player in the segment: Uber Eats. According to company executives, who briefed analysts after disclosing Uber’s first quarterly performance as a publicly listed company, the Indian market saw the company dole out increased incentives to drivers, restaurants and users.
UberEats works on a commission model, where the platform takes a commission on the total order value. However, this ‘take rate’ fell by around 4 per cent in India during the quarter ended March 31, 2019. Uber, overall, reported a loss of $1 billion during the quarter while revenue rose by 20 per cent to $3.1 billion. In Asia alone, Uber’s ride-hailing business saw revenue rise 6 per cent to $267 million. UberEats saw a revenue of $536 million during the period as a standalone business.
Speaking to analysts, Uber’s chief financial officer, Nelson Chai said that in India, the company has seen “increased incentives to consumers, drivers and restaurants” driving nearly “half of the decline in UberEats’ take rate to 8% from 12% a year ago”. This is primarily due to the intense price wars between the three biggest players in the segment: Swiggy, Zomato and UberEats.
“There are two competitors that are very aggressive. We are doing well in holding our own, but it is a market in which we are funding the eater, the courier as well as the restaurant,” Chai added. According to the company, the pressure on food delivery margins affected Uber’s overall performance, with margins dropping 4 per cent.
The price war, waged through almost constant discounts to all stakeholders, are resulting in a substantial cash outgo for all three major players, with industry sources saying that monthly losses due to incentives and discounts run into the millions of dollars. According to Chai, Uber’s adjusted net revenues on an overall basis (including ride-hailing) fell primarily due to UberEats which “has a lower take rate than ride-sharing” growing as a percentage of the core business for the company.
Meanwhile, Uber CEO Dara Khosrowshahi also spoke during the analysts’ call, pointing out that the food delivery space will see a consolidation globally soon and UberEats liked its “competitive chances”.
Media reports had speculated earlier that Uber might sell its UberEats India business to its competitors. However, the company’s CEO noted in the analysts’ call that they would “play a consolidating part” if it made sense for the company’s shareholders in the long-term.
Discounts place pressure on earnings
According to industry sources, companies in the segment are burning millions of dollars monthly on incentives and discounts to users and partners