Uber Eats spent $1B on excess driver incentives, referrals in 2019

Dive Brief:

Uber reported its Q4 and full year 2019 earnings Thursday, including its Uber Eats results, which reported adjusted net revenue of $1.4 billion for the year, an increase of 82% compared to $759 million in 2018, but reported EBITDA of negative $461 million, according to a company press release.
Much of this loss came from increased investments in key markets "that delivered category position improvement." Specifically, for the full year 2019, Uber Eats spent about 45% of its revenues, or $1.13 billion, on excess driver incentives, which refers to when the company pays drivers more than its actually earning from the delivery, and driver referrals, which are payments made to existing drivers for referring new drivers to the platform. In Q4 alone, it spent $319 million on this effort.
To keep its costs in check, Uber Eats has pulled out of markets, including India most recently, where it is not a top player.

Dive Insight:

Retaining and growing its driver base will be increasingly important for Uber Eats, especially with consistent growth in overall bookings. Gross bookings, which includes the total value of food delivery orders placed on the app, rose 73% year over year, which was the same increase reported in Q3. The company noted that its Eats subscriptions also continue to grow and the program is now rolled out to all U.S. cities with the exception of California.

With demand growing for delivery among consumers, and not just in the food category and aggregators rapidly expanding into new markets, delivery drivers are becoming harder to come by. Uber Eats benefits from Uber drivers, who can quickly switch between passenger to food on their app, but drivers have said that Eats trips can be timely and result in less pay than passenger rides. Companies like Deliveroo have added benefits for drivers, such as educational programs, to help improve retention, while Uber Eats rolled out Uber Eats Pro in October to offer an incentive program in 200 U.S. cities and provide access to 100% tuition coverage to ASU Online for drivers and family members. DoorDash revised its tipping policy after customer backlash in 2019 so that drivers get the entirety of their tips.

Additional spending during the quarter came from promotions as well. This practice has become common among delivery providers, as companies vying for market share in a fast-growing market are constantly giving away food and offering other incentives in an effort to gain and keep new customers.

Still, Uber has to navigate the high-cost model of its Eats business, a model that has affected the entire food delivery category in its quest to find profitability. However, one advantage Eats may have over its competitors is its giant parent company and its brand equity. Uber completes about 40 million rides monthly, for example. That company could also help subsidize Eats’ losses for now. Uber reported Thursday that it expects to be profitable by the end of 2020, a year ahead of initial expectations. This could buy some time for Eats to rein in its high customer acquisition costs.

Once delivery becomes a bit more habitual for consumers, which is expected, delivery companies should start spending less on promotional incentives, which should yield better results. That is, if its investors are patient enough.

In the meantime, the delivery landscape continues to change at a rapid pace, and Uber Eats continues to chase market share leader DoorDash. DoorDash makes up 35% of the market, according to Edison Trends, followed by Uber Eats at nearly 29%, Grubhub at 22% and Postmates at nearly 10%.