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UberEATS: Cloud Kitchens

Former Global Head of Pricing and Strategic Initiatives at Uber

IP Interview
Published on February 16, 2020

Why is this interview interesting?

  • How UberEATS can leverage the ride hailing business on the supply side
  • The impact of Cloud Kitchens on driving UberEATS margin
Executive Bio

Kapil Agrawal

Former Global Head of Pricing and Strategic Initiatives at Uber

Kapil joined Uber as the Global Head of Pricing & Strategic Initiatives in 2015 when the business was rapidly growing across developed but also emerging markets. He was responsible for formalising pricing structures across both UberX, UberPOOL and UberEats globally. Kapil left Uber after two years and joined Poshmark, the fast growing social commerce marketplace, as VP of Finance and Corporate Development where he has helped quadruple revenue at the business. Kapil has led $90m of capital raising for growth equity companies and has deep experience scaling marketplace businesses.

Interview Transcript

You mentioned how the supply can be used for both Eats and the ride-hailing business. Do you see a lot of drivers doing that, in using both services, for Uber? Do you think that’s an advantage over the other players?

I think there are a couple of factors here. Firstly, on the Uber X platform, the car needs to be in a specific condition. The car, in general, when I was in Uber, we were only allowing cars which were manufactured after 2000 or newer cars because, ultimately, the customer is sitting in the car and you need to give them a good experience. On the Eats platform, any kind of car could work. If it is an older car, you are only allowed to deliver on the Eats platform, but if it is a newer car, you have much more flexibility; you can do ride-sharing and you can also do the Eats platform.

The second factor is, in different markets, the supply could be different. For example, in a dense market, like London, New York, Chicago, etc. or in developing markets, such as Indo-Asia, your supply is totally different. You have many more bikes or motorbikes, who are delivering the Eats order. In an ideal world, if your car is new, and your market is much more driven by motor transportation then you can, potentially, see a lot of drivers driving on both the X platform and the Eats platform.

Then there is the element of choice. Some drivers like to have people in their car, whilst for some people, that is not their preference. However, there may be a few psychological things, as well, that could be taken into account. We do notice that, yes, there are people who driving on both the platforms.

What is the break-even number of trips, per hour, for the Eats business, roughly?

I won’t say that we can define any break-even point. It all depends on what kind of gross margins you want to achieve. The higher gross margin you want to achieve, the higher number of trips you will need in an hour. In general, if you only do one trip, it won’t be as profitable a business. But if you do two trips, I think you will be in a good enough position. Ultimately, the long-term objective would be that you do multiple pick-ups and multiple drop-offs. The idea is that you can pick up multiple items from the same restaurant and you can deliver to multiple people, who are near, so you are not significantly changing the service. Customers expect you to deliver food in 30 to 45 minutes. You cannot significantly change that, but if you can create enough liquidity here and you are able to do multiple pick-ups and multiple drop-offs, then I think you will be in very good shape.

However, I think that one point to identify here is that, in general, the economics of the Eats business is lower than the ride-sharing business, because it is a three-player marketplace and you are paying drivers, but you are not earning any money from them. You are only making money from the restaurant side. On the eater side, you are only charging a small amount, which is almost negligible. You are making money from the restaurant side, but you are giving a lot of money to the driver. The one biggest factor could be the cloud kitchens, and how you control the pricing. Once you have the cloud kitchen, if it is much more vertically-integrated model, then you can have better economics. That’s why the way to improve your take rate, from 25% to 30% to much higher, would be if you are delivering much more from the cloud kitchen, who may have better unit economics. They may be willing to give you 30% to 40%.

The long-term evolution of the market would see a vertically-integrated business, as a merging of the cloud kitchen and the delivery business and that is where the better unit economics will come into the picture.

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