BUSINESS Technology

UberEats launches in Los Angeles, aiming to succeed where others have failed

Uber Technologies Inc.'s hard-charging strategy and breakneck fundraising isn't just scaring the taxi industry.

The ride-hailing pioneer is also starting to rattle the food-delivery business, an industry that raised a record $5.7 billion in venture capital globally last year compared with Uber's $5-billion haul.

Uber announced Tuesday an expansion of its meal-delivery service in Los Angeles and other cities. The rollout comes as a smaller food-delivery competitor in Berkeley said it would shut down because of increasing competition and difficulties raising capital.

SpoonRocket's closure could be the first of many in the delivery industry, analysts have said, as start-ups realize that growing a business shuttling meals is not cheap.

Uber, Amazon, GrubHub and other established tech firms have significant size advantages. Many Uber drivers deliver meals along the same routes on which they pick up passengers, meaning they could generate more revenue per hour than a driver working solely for a standalone food delivery company. Amazon, even more than Uber, has access to cash to spend on aggressive marketing and expansion. And publicly traded GrubHub has perhaps the best-known brand in the industry.

SpoonRocket, founded in 2013 and backed by about $13 million in venture capital, used in-house chefs to cook meals delivered to customers' doorsteps for up to $15. The service had been available in San Francisco and Seattle.

SpoonRocket and several of its investors didn't respond to requests for comment.

"We set out to build the next generation of food-delivery network and we are proud of what we were able to achieve in a short period of time," the company told drivers. "However ... it became clear that we could not continue to compete."

SpoonRocket noted it had been outdone by start-ups such as Sprig, which launched the same year and also prepares meals itself. But it has raised more than $56 million from investors.

Uber's strategy differs. It delivers meals from restaurants, adding a $5 delivery fee to users who must come to the curb to pick up their order. The service is now available in central Los Angeles through a new app, UberEats. About 100 restaurants' menus are available, including Hummus Bar Express and Benny's Tacos.

UberEats joins its existing food delivery option, Instant, which offers a smaller menu of meals prepared prior to peak times and stored in drivers' cars. They can be had for a delivery fee of $3 or less, in 10 minutes or less.

Users of Uber's ride-hailing app were being prompted to download UberEats on Tuesday via pop-up message.

Kevin Kopelman, an analyst at Cowen & Co. who follows GrubHub, warned in a research note that UberEats could become a threat. Citing Uber's 19 million U.S. users and more than 400,000 drivers as reasons to be slightly "more cautious" about GrubHub's prospects, he rated the company's stock at "market perform."Kopelman also said the final price tag, including tip and tax, on a $25 meal from UberEats comes to $30 because of the flat fee, whereas a comparable order could run as high as $38 from Postmates, $37 from DoorDash, $36 from Caviar and $33 from GrubHub. Amazon runs about $28, because there is temporarily no fee.

Twitter: @peard33

Copyright © 2016, Los Angeles Times
70°