On May 19th, Uber Eats, Uber’s on-demand food delivery business, announced that it is going to discontinue operations in Bangladesh from June 2nd, 2020. The decision, which coincided with Uber’s decision to trim its operation globally with major layoffs amid the coronavirus pandemic, can easily be attributed to the fallout from the pandemic. Uber’s ride-hailing business remains shutdown. The company has been making difficult decisions such as laying off a large number of people across verticals across markets.
However, Uber Eats is a different story. The on-demand food delivery business of the ride-hailing giant has seen meaningful growth in some markets including the US during the pandemic to the extent that Uber is rumored to be in a discussion to take over another food delivery giant Grubhub in the US. To clarify, on-demand food delivery is not doing that fantastic in all markets though.
Uber Eats has made an announcement that says it aims to focus “our energy and resources on our top Eats markets around the world” as its reason for shutting Uber Eats in Bangladesh. That’s a quite straight forward announcement that leaves little room for speculation and it does make perfect sense. It is true that pandemic has strangled Uber’s main business and the company is in no position to take things lightly. But it would be lazy to attribute Uber Eats decision to exit the Bangladesh market within a year of its launch to only pandemic fallout. There is more to it.
Late to the party
Food delivery remains a relatively small market in Bangladesh with a number of players spending heavily for market domination. Uber Eats entered the market on June 6, 2019. The company has since spent heavily in discount and offers to gain market share. It has made some inroads in the market but it remains far behind in an already crowded market.
While Dhaka’s food delivery market is far from a mature one, there are a number of players such as Foodpanda, Pathao Food, HungryNaki, Cookups, Shohoz Food that have been spending heavily for the market share for quite a long time. Uber Eats was late to an already crowded market. Moreover, companies like Foodpanda have been on a spending spree of late making it difficult for Uber Eats to make a meaningful inroads in the market.
It appears online food delivery in Bangladesh is different
There are several common themes in favor of the food delivery business in Bangladesh. One, a growing urban population with dual-income families scarce of time and in need of support for household chores. Two, the core value proposition many on-demand food delivery companies offer is convenience. The assumption is that inconvenience is a critical problem for a lot of people in Bangladesh. There is a lot of traffic, people don’t want or don’t have the luxury to go out and buy food or eat out. Hence, they would opt-in for on-demand food delivery services. Fourth, food delivery companies usually earn money in the form of commissions from restaurants and delivery charges from customers. There are expenses too. In Dhaka, most food delivery companies so far struggled to make restaurant partners pay a commission. There are restaurant partners who are more than happy to give a cut in exchange for sales but the most popular ones are far from willing to do so. Since these restaurants have already enough orders, they seldom care for orders from these food delivery companies.
One critical flaw in the current food delivery thesis, particularly in the context of Bangladesh, is convenience as a core value proposition. Convenience is important but for a very small set of customers in Dhaka and beyond in Bangladesh. If you consider it as a regular value proposition, it is more so. It has limited use in most markets outside Dhaka. In fact, in Dhaka, most people are not in need of convenience. The geographic setting is different in Dhaka than many western markets where the idea of food delivery first originated. Many locals call Dhaka the city of restaurants. There are restaurants in every other street. That being said, people do need food delivery service but that’s quite irregular demand if it is only for convenience. The potential market size is likely to remain limited, in its current form, where most food delivery companies taut convenience as their core value proposition.
In order to have a sizable market and sustainable growth, food delivery companies have to go beyond convenience as a value proposition and offer more meaningful value propositions such as price and service.”
Uber Eats did nothing different from every other food delivery company in Dhaka. The company worked with the same restaurant partners. The company offered similar services and discounts and offers. Uber Eats business model is predicated on the same business model like every other food delivery business. In a crowded market, when the market is significantly different for food delivery, this “me too” strategy did little for Uber Eats in Bangladesh.
Asia is different
It appears, local companies enjoy a competitive advantage across Asian markets. From Uber Eats India Lessons:
“There is a prevailing presumption in many markets in Asia including India and Bangladesh that it will take many years for local players to effectively compete with global giants such as Uber and Amazon. This theory does not hold water anymore. Uber selling off its food business to Zomato proves that local digital tech companies enjoy certain advantages in many markets in Asia and can effectively beat global players. This view gets only stronger when you pay attention to the recent precedences in a few Asian markets from Singapore to Indonesia to China to India. In India, local players lead the market in almost all verticals. One common trait that defines all these markets, however, is that local companies can access capital relatively easily. Thus it can safely be said that when access to capital is there, local players can effectively compete with global players.
For example, Uber Eats launched in India in 2017 with a high expectation to to leverage Uber’s popularity to displace incumbents Zomato and Swiggy. The company spent millions on the promotion and deep discounts to no avail. It never bettered its position from number 3. Zomato and Swiggy both forged ahead, thanks to relatively easier access to capital in India, and Uber Eats never had a chance.``
The first food delivery company Takeaway.com was founded by Jitse Groen, a Dutch entrepreneur who built a highly profitable single-market food delivery business. The company since expanded to a few more markets. However, the market dynamics in the US and European markets are meaningfully different. For example, a significant percentage of Uber Eats’s orders in the US come from areas where accessing a restaurant is not convenient. This, however, is different in markets like India and Bangladesh. In order to make food delivery works in these markets, food delivery companies have to come up with a value proposition greater than mere convenience.”
Uber Eats appears to be the first casualty of the pandemic fallout in Bangladesh’s tech scene. There will be more in the coming days. But treating Uber Eats exit to the pandemic fallout alone can be a misreading of the event. There are lessons to be learned for all tech startups in Dhaka, particularly for food delivery companies. Doing the same thing but expecting a different result is never a good idea. Food delivery is here to stay but food delivery companies have to change to survive and thrive in Bangladesh. Doing the exact same thing with a discount first strategy like every other player is a recipe for disaster. While Pandemic has some role in the exit of Uber Eats from Bangladesh, the company did little to make a mark in the market.