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Uber Eats and Area Restaurants. How Are They Affected?

Hungry Kiwis have used the Uber Eats delivery service since 2017, when it was first introduced to the New Zealand area. It has enjoyed moderate success in Australia and the United States since March 2016. The service lets customers choose from a wider range of restaurants and food options for in-home or business delivery.

The mechanics of the Uber Eats program is similar to those of competitors PostMates and GrubHub. Customers place an Uber Eats order from one of hundreds of restaurants via a mobile device, pay a flat delivery fee between $5-$8, depending on the area, and have food delivered straight to their door. Uber Eats holds a few advantages over its competitors.

  • An enormous base of drivers to call upon for food deliveries whenever scheduling gaps occur
  • An existing base of satisfied users already using Uber for taxi rides
  • The intent and ability to invest a significant amount of money into the business and outspend the competition

Effect on Hospitality Industry

While the full impact of Uber Eats remains to be seen, restaurants have certainly had to adjust. In October, area restaurants were calling upon Uber Eats to lower its delivery fee, as it deeply affects bottom lines and profit margins.

Restaurants that choose to partner with Uber Eats forgo up to 35 percent of the sale of every order, which goes to the app. As a result, many restaurants have chosen to limit Uber Eats delivery menus to encourage customers to either come in and eat at the restaurant or get take-away service.

Take the Auckland restaurant &Sushi, which had to pull half its delivery menu from the app to prevent continual losses. Although the owner says he sold an average of $12,000 worth of sushi each week, about $4,000 of that was going straight to Uber Eats. At the same time, the number of customers dining at the restaurant dropped.

Further adding to the frustration is that the restaurants are not allowed to adjust the prices of the meals available on the Uber Eats app, so there’s no way for these eateries to make up the loss.

Opportunities for Adjustment

On the other hand, while the cut that Uber Eats takes is significant for some restaurants (although many establishments claim they were able to negotiate a lower rate with Uber Eats), other establishments are taking advantage of the popular food delivery service and basing their overall business concept around it.

Flip City, for example, in Australia, is a burger joint that exists only on the Uber Eats app. It cooks its buns in a special oven and offers thicker fries for maximum heat retention, so food stays hot for as long as possible. The business has specific offerings on its Uber Eats menu that they know will travel well and, so far, the restaurant has managed to factor Uber Eats’ cut into operating costs. Restaurants struggling with app delivery models may learn from this example if they’re able to adjust their approach.

A Careful Balance

To be sure, it’s a fine line for a restaurant between deciding what will appeal to existing and new customers and keeping profits in mind. If restaurants can negotiate a lower rate with Uber Eats, perhaps offering the option could be beneficial, especially for younger customers, who are the most frequent users of the food delivery service.

At the very least, the popularity of Uber Eats will require some adjustment on the part of restaurant businesses that choose to participate in the food delivery service. Patrons who prefer delivery food and the ease of ordering with their phones over the experience of dining out will find places that fit that niche, while those customers who prefer more traditional dining experiences can find restaurants that focus more on providing that.

It will be interesting to see how Uber Eats continues to affect restaurant businesses across New Zealand, especially as the business expands beyond the Wellington and Auckland areas.