You will be redirected back to your article in seconds
Skip to main content

Is On-Demand Delivery in the Driver Seat?

“Wait, if it was delivered with Uber Eats does that mean I can eats it?” actress Jennifer Coolidge quipped as she stares at a roll of aluminum foil.

Uber EatsSuper Bowl ad amused some with a glittering roster of celebrities, including the “Legally Blonde” and “American Pie” star, eating non-food items to highlight Uber’s ability to deliver more than pizza, burgers and sushi. The question facing Uber and others like it, however, is a matter of whether their diversification beyond food will help define retail’s next evolution, and profitably so for their businesses.

Clearly, the largest players in the on-demand delivery space believe their role in last-mile delivery is meant for more than just grocery and restaurant transactions.

Last year Uber, which had a recent market cap of $72.7 billion, added more than 120,000 non-food merchants to its platform in the U.S.

“I don’t think that we’re the future of retail, but we can certainly help drive the future of retail,” Uber CEO Dara Khosrowshahi said during a keynote talk at the Shoptalk retail conference held late last month in Las Vegas. “If you step back, on-demand has completely reshaped transportation, has completely reshaped e-commerce. Amazon is the big player there and we are right in the middle of reshaping it as far as local commerce goes.”

Where Amazon has what Khosrowshahi said is a vertical fulfillment network, Uber is pitching itself as the conduit for powering local, online commerce across categories. The recent marketing campaign, which Khosrowshahi declined to say how much the company spent on it, has helped build awareness, according to the CEO.

Related Stories

Similarly, DoorDash last week said it is partnering with BJ’s Wholesale Club, marking its first deal with a club retailer. BJ’s joins JCPenney, Sephora, Ulta, Bed Bath & Beyond, Office Depot and Petsmart among other non-food retailers now on the DoorDash platform.

“Over the course of the last two years we’ve increasingly gone beyond restaurants and food,” DoorDash president Christopher Payne said during his talk at Shoptalk. “The vision of the company was always to serve all of the businesses. It was named DoorDash for a reason.”

The company, with a market cap of $43 billion, saw demand surge during the pandemic much like its peers, prompting a race to expand the boundaries of business types on its platform.

“I like to think of it as this trend was already happening, but the pandemic brought that trend forward,” Payne said. “We have 25 million active monthly customers and so these are the customers that want things now. And so our strategy has been to give them more and more and they’re taking advantage of that and that’s going to be a unique advantage for DoorDash.”

Instacart Worker
Instacart worker Saori Okawa loads groceries into her car for home delivery in San Leandro, Calif. AP Photo/Ben Margot

Another view on revenue diversification

Instacart’s taken a bit of a different approach as it relates to revenue diversification, with the push to offer advertising to its retail partners as one of several levers CEO Fidji Simo has pulled since being tapped for the top spot seven months ago—a period of time that has also seen the company reprice its shares and expand the Instacart platform.

“To me, it was very clear that it was more than just bringing grocery online, and it was much more about building a retail enablement platform so that all of [the] grocers can benefit from technologies to execute on their digital transformation,” Simo said during her Shoptalk keynote. “If you look at the history of Instacart, the first 10 years were really about taking an industry that was fundamentally very underpenetrated online and bringing them online…. I see the next 10 years as helping them across their entire business, both online and in store, with all of the technologies that they need to compete with large players like Amazon.”

Instacart Advertising now gives companies the option of touting their products as sponsored items seen when customers are shopping in the app, with performance analytics advertisers can use to measure efficacy.

“It’s very important,” Simo said of advertising when asked about the business. “I mean, if you look at the future of our financial model, it’s really running the delivery business at break even and making our margin on the advertising side.”

The CEO went on to say at some point advertising will eclipse delivery when it comes to revenue. It’s already the company’s fastest-growing business segment, tripling in 2021.

Instacart shelved its plans for an initial public offering last year, but Simo confirmed going public is still very much in the cards, but that there’s “no real rush.”

Despite not being public, Instacart move last month to reprice its shares was aimed at mirroring what’s happening in the public markets, according to Simo. The reduction trimmed Instacart’s valuation by almost 40 percent to $24 billion.

“As a private company, even though our business is incredibly strong, we really wanted to reflect the fact that, of course, we’re not immune to the volatility of the public markets and so by proactively kind of taking down our valuation to reflect what it would be like if we were a publicly-traded company, it’s a first move so that we can then start granting stock to our employees at this lower valuation,” Simo said.

Instacart Platform
Instacart said its latest service offerings will help make things easier on the backend as its partners further digitize their operations. Courtesy

The business of on-demand

The question of profitability and share price among on-demand delivery companies remains a top one among investors, analysts and other industry watchers. Shares of both Uber and DoorDash are down so far this year and neither is profitable, although Khosrowshahi pointed out Uber is generating earnings before interest, taxes, depreciation and amortization.

Still, demand is only expected to continue to ramp amid new entrants in the delivery space promising ultra-fast delivery that have raised questions as to whether the business case can be made for 15-minute delivery.

“In a business like logistics, taking goods from A to B, ultimately you have to make that math work,” DoorDash’s Payne said. “There’s no way around it and these are economies of scale. We understood that when you increase scale, we can make the [delivery] map work. Now we can test the edge of that.”

The intense competition and capital needed to make the math pencil out, coupled with consumers’ increased expectations around delivery, are likely to pave the way for further consolidation, the CEOs agreed.

DoorDash bought hospitality tech company Bbot in March. Instacart in October paid $350 million for cart checkout technology company Caper AI and that same month bought order management software provider FoodStorm. Then there was Uber’s $2.65 billion purchase of Postmates in 2020 and the more recent acquisition of e-commerce alcohol marketplace Drizly in October for $1.1 billion.

“When you look at these e-commerce players, they are spending enormous capital in building out an entire presence in these [warehouse] facilities,” said Simo, who went on to say Instacart doesn’t have that challenge with the infrastructure of stores already built and, more recently, its foray into offering microfulfillment services—from warehouse leases to operations—to companies on the platform.

“I think there will be consolidation,” Uber’s Khosrowshahi said. “For perspective, there isn’t a single mobility or delivery player outside of the U.S. that’s profitable…. We have a scale and audience that no one else has and we made the early investment in globalizing early on.”

At the end of the day, consumers aren’t going backwards in their expectations on delivery service, Payne said, and the winners in the market will be those companies able to accommodate demand.

“I very much view this as incremental behavior,” Payne said of customers. “Consumer expectations are only going in one direction. They only increase in terms of ‘I want more selection and I want it fast.’”