The app-based food delivery business has always been a fraught one, pockmarked by massive losses, hostile legislators, and a landscape so competitive that delivery apps add restaurants without consent (and to the apps’ financial detriment) just to remain in the game. It’s that business that San Francsico-based transportation giant Uber now says might be its salvation, as it continues to struggle with losses related to the coronavirus pandemic.
The company, which is best known for its ride hail service, has never made money: Funded by venture capital, in the last quarter of 2019, it lost $1.1 billion (a 24 percent increase year-over-year), and in the first three months of 2020, it lost lost $2.9 billion more, as passengers around the world stayed at home in an effort to avoid COVID-19 infection. On the heels of those losses, Uber laid off 3,700 people the first week of May.
This week, it laid off 3,000 more, multiple news outlets report. Those cuts, said Uber CEO Dara Khosrowshahi in an email to staff that was reported on by the Wall Street Journal, were “tough action to resize our company to the new reality of our business,” after its ride hail business dropped 80 percent year-over-year in April.
In the email, Khosrowshahi characterized Uber’s food delivery unit, Uber Eats, as the company’s “next enormous growth opportunity,” but also admits that “the business today doesn’t come close to covering our expenses.” In Uber’s last earnings report, the company said that the delivery business was up by 54 percent, likely for the same reason its Rides business has tanked — because people are staying at home.
That’s why, Khosrowshahi says, Pierre-Dimitri Gore-Coty, the vice president of Uber Eats, has been elevated to oversee a unified delivery team that will — and this is new — also move into the business of grocery delivery.
This honing in on food delivery as the way out of its financial pit makes Uber’s bid to purchase Chicago-based GrubHub (all other major food delivery apps — Postmates, Doordash, and its subsidiary, Caviar — are based in San Francisco, as is grocery delivery powerhouse Instacart) all the more imperative for its business, JMP Securities analyst Ronald Josey tells the WSJ, as a merger between the two could “bring more than $800 million of operational efficiencies” to Uber, which likely means another slew of layoffs for one company, the other, or both.
But even that path forward is fraught with problems, as not only has Grubhub reportedly spurned Uber’s latest offer, but legislators are already voicing concern about the market dominance an UberGrub might have. Just this past weekend, Uber reportedly upped its offer for Grubhub (which also owns Seamless, Menupages, Allmenus, and Levelup) to 1.9 Uber shares per share of Grubhub, but Grubhub turned that down. (This follows a proposal by Grubhub of 2.15 Uber shares per Grubhub share, which Uber previously rejected.)
It’s Monday A.M. & the Trump antitrust enforcers must be up..so like I said, Uber eating up Grubhub is a pandemic-driven $6 bil deal to take out big competitor to Uber Eats. Result? Uber controls more than 1/2 the delivery market. Monopolies = ↗️ prices! Also Facebook/Giphy https://t.co/4cnD5MRYhF— Amy Klobuchar (@amyklobuchar) May 18, 2020
That same weekend, U.S. House of Representatives Antitrust Subcommittee Chairman David N. Cicilline released a statement opposing the merger, saying, “Uber is a notoriously predatory company that has long denied its drivers a living wage. Its attempt to acquire Grubhub — which has a history of exploiting local restaurants through deceptive tactics and extortionate fees — marks a new low in pandemic profiteering.”
Meanwhile, U.S. Senator Amy Klobuchar tweeted in opposition to the nascent acquisition more than once, saying Sunday, “If Uber takes over Grubhub it isn’t good for competition and it isn’t good for you. When big companies corner the market it usually means more for them and less for you, especially in a pandemic. That’s why I’m challenging the Trump antitrust enforcers to do something about it.” She repeated that sentiment Monday, saying, “Uber eating up Grubhub is a pandemic-driven $6 bil deal to take out big competitor to Uber Eats.”