Can Uber Eats’ new model make quick-commerce pay?

The rapid grocery model as we know it is broken, says Uber Eats. The unit economics just don’t stack up.

But the company has claimed a sustainable solution to ultra-fast grocery delivery in the form of a “new quick-commerce concept”: Uber Eats Market.

Market ditches the dark store model, and instead relies on retailers to do the picking and packing before orders are delivered by Uber couriers.

Available on the Uber app and promising delivery within 20 minutes, it launches this week in three Iceland stores in central London.

So, as consolidation continues across a quick-commerce sector stricken by burn rate horror stories and tumbling valuations, has Uber Eats hit on what UK general manager Matthew Price calls “a new and sustainable approach”?

For Uber, it means “you’re not paying for [picking] staff, or a warehouse, or for much marketing because people go to Uber for groceries anyway”, says Quaid Combstock, Jiffy’s former head of delivery operations and now a q-commerce consultant.

Iceland also has a handy location on high streets. “Iceland will be right along the street from the same restaurants where all the riders are going to be,” Combstock adds.

And the infrastructure Uber Eats needs is already in place, says former head of buying at Getir-acquired Weezy Andrew Hargreaves, now MD of Tortuga Logistics. “It seems to make sense,” he sums up.

Indeed, even the stores supplying Uber Eats Market already offer a 30-minute Iceland delivery service via the app. So they are used to the process.

“Definitely the approach is more sustainable, as you don’t need to invest and maintain the infrastructure and stock, which is super expensive,” says Stephan Soroka, Unilever rapid grocery advisor and growth chief at q-commerce outfitter Wear Your Brand. “It gets to do what it does best – logistics, facilitating orders to the existing customer base.”

But for those same reasons, some question whether it’s a new model at all. It’s faster than a typical Uber Eats grocery order, perhaps, with a dedicated in-app shopfront, but it’s otherwise doing what Uber Eats has been doing in grocery for some time, including with Iceland.

“It’s the same wine with a new label,” is how online grocery investor and Jiffy founder Dominique Pierre Locher sees it.

“But why not? They have the platform, they have the traffic on it, they’re diverting part of that traffic to spend on a new vertical,” he adds.

Plus, it has another advantage over Uber’s dark store rapid rivals. “Because they’re partnering with lots of grocery stores across the UK, they’ve got access to years’ worth of data. They know precisely what’s selling, unlike q-commerce companies,” says Combstock.

Indeed, Uber has worked with Iceland to come up with 1,000 SKUs it is confident will sell well in the store’s surrounding area, Price told The Grocer.

Availability

But there are drawbacks to Uber relying on Iceland for everything behind the app shop window. Take availability. Typically 98% of items ordered on rapid grocery apps get delivered.

“rapid delivery customers aren’t scrolling through the apps looking for things they fancy, they want product X. If it’s not available they just move on,” Hargreaves says.

It is unclear what measures Iceland is taking, beyond standard store replenishment, to ensure those key 1,000 SKUs are always available, nor to what extent real-time availability feeds into the app.

“You’d need a live inventory read for every location – not impossible, but definitely outside of current EPoS tech,” Hargreaves says. “If they can maintain a tight range of SKUs and ensure they are always available, it could work.”

Uber will also “not be as flexible in adjusting their product offer as they are relying on the retailer”, says Soroka. “Your own dark store unlocks an opportunity to be hyper-local and adjust range to the area.”

Still, Uber Eats is confident it has struck rapid gold. Of all the possible methods, “this is one we think balances it all nicely”, says Price. Whether that’s true will rapidly become clear in coming months.