Has Uber over done it with Corner Store?
David Upton, Managing Director at DA Systems Ltd, comments on Uber's business model; whether it embodies a sustainable value or not, and how its revenue model works.
The move by taxi firm Uber into the sameday grocery delivery business in restricted Washington DC postcodes has been met with a lot of criticism. Experts are suggesting the business model is questionable because Uber is not charging a premium price for ordering the 100 products available via its Corner Store app.
At this stage all anyone can really do is speculate over the concept’s viability, because very little information around exactly how Uber is providing the service is available. This detail is critical to ascertaining whether it is sustainable or not, although at face value, it seems to be a logical next step from Uber’s main business model.
Uber has said that its drivers, who work on a freelance basis, will undertake their grocery delivery jobs during quiet times of the day. But are they expected to spend time actually doing the customer’s shopping as well? If so, would they be sent a list of groceries to pick up, then have to drive to a store, go round the aisles, pay for the items - and how would this be done? - then deliver it to the customer? The revenue model doesn’t stack up. Uber could potentially negotiate with major supermarkets but this is unlikely to be an attractive option for them. Or alternatively, are they relying on the stores’ existing Click and Collect service and simply dropping by to collect orders that have been bagged up ready to go?
In the case of the first option, Uber’s drivers are unlikely to be able to compete with the likes of Tesco and Walmart, who have made a massive investment in fully automated, “dark warehouses” with technology designed to pick items at optimal speeds without mistakes. The second option is therefore more feasible and this offers a convenient route for consumers who cannot wait for the supermarket to deliver or cannot make the collection themselves either. Uber is also promising its couriers can earn up to £60k per year, which means the end user would have to be paying a flat rate of £6 per delivery for nappies. Personally, I cannot see that taking off.
Regardless of the actual method of fulfillment Uber has chosen, technology will be playing a crucial role in making the economics of last mile delivery viable. Its contribution works at two distinct levels. Firstly, removing paper from operational processes makes the delivery process more efficient and increases the likelihood of a parcel being correctly delivered first time around. Secondly, technology provides a means for Uber as the service provider, to up-sell additional services and thereby make its service more cost efficient and commercially viable. For example, during a grocery delivery, the driver could be alerted via their mobile app to offer the customer a chance to purchase non food items on special offer, which could be delivered at a later date with their next grocery order for no extra charge.
Handsets can be dynamically branded to mirror either the retailer’s branding or Uber’s and offer a consistent and seamless shopping experience. There are other non-retail revenue generating opportunities that could work too, similar to those offered by postal operators, who are working with market research companies to provide local surveying of different postcodes, e.g. verifying the most popular cars in different neighbourhoods.
Uber could also make its service more profitable by offering audience polling, similar to the online services that YouGov offers, whereby consumers are segmented by gender, approximate age and postcode, then asked their opinions on one or two questions. It would be a great way to gather data cost effectively and consumers could potentially opt in to be part of an audience in the same way as they agree to participate in a YouGov omnibus survey. In addition to offering commercial research services, it would be equally viable to conduct immediate community research on behalf of the local authority or council.
So when Uber says ‘the more you love it the more likely it will last’ to justify the viability of its grocery delivery service, perhaps it is already planning a series of up-sell services for these reasons. They are dependant on being able to achieve a critical mass, and that is exactly what it needs to be successful too. This will be a difficult balance to get right because spending a long time at the recipient’s doorstep asking research questions or trying to up-sell services will inevitably come at the expense of reducing delivery costs by achieving a high volume of deliveries.
Whatever the critics say, the transportation industry needs to innovate more and it’s great to see companies like Uber coming along and creating some ‘disruption’, to use what’s fast becoming something of a cliché. And the fact that Google has backed them, when they also have a competing service, suggests they are onto something. We will have to wait and see what they introduce to ensure their service is sustainable, and what other innovations they follow up with that might provide others with inspiration.