Craving for your favorite pizza or a healthy snack? You are just an arm away with Uber Eats app though your go-to restaurant is five miles far away.
Thanks to evolving technology and food delivery apps, you can order your food from your phone as simple as booking a Uber taxi. There are a few amazing online food delivering apps that make people’s life easy and convenient. No more waiting in the queue at the takeaways or the table for orders!
Of all food delivery apps in the world, Uber Eats is the fast-growing and largest platform that exists in more than 45 countries and over 6000 cities.
The company posted $1.2 billion in revenue as of Q2 2020. In fact, during the pandemic, in Q2 2020, it made more than its parent company Uber with over $6.96 billion gross bookings, double the bookings of Uber rides.
Wondering how Uber Eats makes such money with limited margin as it is dedicated only to deliver food orders? Well, let us discuss its business model and understand how it makes money in this article. So, are you ready? Okay, before that let us have a quick look at what is Uber Eats and when did it start.
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What is UberEats?
Uber Eats is an American online food delivery platform owned by Uber Technologies Inc., the world’s largest ride-share company. It was launched in 2014 initially as UberFRESH in Santa Monica, California. UberFRESH was renamed to UberEATS in 2015 and is headquartered in San Francisco, California, U.S.
Within no time after its launch, UberEats has reached over 50% of the US population. The company is expanding to cover over 70% of the US population. Uber Eats competitors are DoorDash, Grubhub, Postmates, Zomato, Swiggy, Deliveroo, Slice etc.
Thus, with number of apps, food ordering and delivery to home or office from favorite restaurants have become as easy as booking a ride on Uber.
Read: Postmates Business Model – How Postmates Makes Money
It is a huge platform with top-rated restaurants listed virtually on it. Customers can scroll over different restaurants and their menus and order from any nearby restaurant. Then, the company’s delivery partners (individual delivery drivers) deliver food orders to customers’ doorsteps. Simple and crisp, right?
Okay, let us now discuss how it manages its expenses and makes profits for itself below.
UberEats Business Model
The easy food ordering and delivery platform have three revenue segments- B2B, B2P and B2C.
In another way, the platform connects three players in its business: delivery drivers, restaurant owners and customers.
Read: Instacart Business Model – How Instacart Makes Money
Now, let’s connect the above two statements.
B2B: Uber Eats (the business itself) to Restaurants (other businesses)
The company charges service fees from its restaurant partners plus a good percentage of the total from every food order.
The service fee is based on the restaurants and the percentage is around 30%. Additionally, the platform charges an extra amount for promotions and advertisements of restaurants.
B2P: UberEats connects with Delivery Partners who is none other than individual delivery drivers
UberEats pays its delivery partners a fixed price for each pickup, drop off, distance and time. Moreover, it offers incentives and bonuses during special occasions, milestones and peak hours.
Let us see the fee breakdown for delivery drivers here.
- Pick up fee – $1.50 per trip to a restaurant
- Drop off fee – $1.00 per order delivery
- Time – $0.30 per minute for waiting at a restaurant and traveling to deliver.
- Distance – $0.65 per mile
Thus a delivery driver can earn at least $5 per each delivery (the least possible).
B2C: UberEats connects with its customers and also it lets restaurants connect with their customers.
Customers pay three types of fees to the platform.
- Service fee – 15% of the total food order amount
- Delivery fee – based on the restaurant, location and availability of driver
- Surge fee – charged during busy hours, varies depending on demand
- Small order fee – a fee of around $2 if the order value is under $10
So, thus UberEats allows customers to place orders from their favorite restaurants and delivers them with the help of delivery drivers.
Read: Zomato Business Model
The best part is, the company makes money from all three players.
- It charges certain commissions between 15% – 40% from restaurants for each order.
- It charges customers the service fee, delivery fee and cancellation, surge fee sometimes.
- Finally, delivery drivers have to pay a certain service fee for utilizing the platform.
However, the service fee which the driver pays to UberEats is lesser than what it pays them. Drivers are paid based on the time and miles they travel to deliver orders. Also, the tips that customers pay completely go to the drivers.
The amount that drivers earn is not what customers pay as a delivery fee. In fact, the delivery drivers earn handsome money for each minute they invest. Thus the platform creates a win-win for itself and all its players.
How did Uber Eats become So Popular in No Time?
Of course, Uber Eats was launched after Uber had successfully established its mark. It was already a household name for booking taxis online, hence it didn’t take much time for people to recognize and remember Uber Eats. Moreover, the child company followed Uber’s business model to make money.
However, not just UberEats follows its parent company’s successful business model to bag profits, but it also shares some advantages with Uber. In fact, those advantages made Uber Eats expenses cost-effective, let us look into them.
UberEats Cost-Effective Model
Drivers and Riders
Uber Eats shares drivers and riders with Uber reducing the costs and efforts to build a network of delivery drivers from scratch. It would be definitely a time and money-taking process for companies that start from scratch.
Reduced Marketing Expenses
The advertising and marketing expenses are less for Uber Eats when compared with its competitors. Because it drives most of its users from cross-promotion on the Uber app.
Uber Eats makes most of its revenue from cross-promotion which is a very effective marketing strategy.
Logistics Costs
Being the largest food delivery platform with thousands of users, it has the opportunity to save logistics costs for multiple food orders. It can deliver orders to multiple users on the same route in a single van.
Read: Deliveroo Business Model
Enough said! Let us quickly jump into how Uber Eats makes money.
How does Uber Eats Make Money?
As you can see above, Uber Eats makes money from three segments: restaurants, delivery drivers and customers.
Restaurants Partners
The company receives a 30% commission from the restaurant partners on each order it delivers to its customers via Uber Eats. The company is both introducing its customers to different restaurants and customers of established restaurants to new restaurants. Thus, its customer base is growing. As more customers make more sales, it receives more commissions.
It also displays special promotions on its platform for popular food chains such as McDonald’s and receives special commissions.
Customers
The delivery fee is charged to customers based on their location and availability of couriers for each order they place. 15% of the total order value is charged as a service fee to customers.
Some part of this service fee goes to delivery partners and the rest goes to the company.
Also, Uber Eats charges a flat $2 as a small order fee when the total order amount is less than $10. In addition, it also charges cancellation fees when they cancel the orders.
Surge Fee
The company raises prices during busy hours the same as its parent company. The fee can be at least 3X of the normal delivery fee based on the demand and delivery partner availability. Again, it shares the fee with its delivery drivers. However, when more delivery drivers are available the fee goes low.
Drivers
The company pays well to its delivery drivers. At the same time, it charges certain fees from them for using the platform and making money. However, the money it charges is just a small fare.
Savings
As discussed above, Uber Eats operates in a cost-effective manner in all its functions. Right from building a network of drivers, logistics costs to marketing expenses, it shares them with its parent company. Thus, it saves a lot of money in both creating brand awareness and driving sales. Yes, it isn’t any less than its competitors in any matter.
Why is the Uber Eats Business Model Successful?
As the saying goes, “A penny saved is a penny earned”, Uber Eats is fortunate enough to have a parent like Uber, a well-established brand and huge food delivery platform in the world. As you see above, Uber Eats cuts major costs i.e., marketing and advertising on which most companies spend thousands of dollars. Uber Eats escapes the costs by using cross-promotions.
Moreover, with the increasing demand for online shopping and online food ordering, the company is making good profits. As aforementioned, the company made double the revenue of Uber rides this year in Q2. Also, though the company has tough competition with DoorDash, Grubhub, Swiggy and other local apps, it is the third-best food delivery app in the world with a market cap of $ 1.2B.
Final Thoughts
So, that is how Uber Eats makes money for itself and for its parent company, Uber Technologies. Isn’t it a great thing to surpass its parent company this year in bookings? Yes, right? Of course, it is the necessity that is responsible for both innovation and success. Uber Eats has utilized the key necessities and upgraded user experience by innovating new features such as customized meals at the scheduled time, tailored food recommendations, tracking etc using technology. In fact, that is how a company should work in order to stand out from the crowd.
