Past few years, online food delivery has become a developing industry. Uber Eats is one such online food delivery service that is operating in 45 countries across the globe, catering to the needs of the customers who are seeking for a home food delivery option. The following discussion covers the Porter’s Five Forces analysis for Uber Eats and examines how the industry dynamics affect the company and its future endeavors.
Uber Eats – Threat of New Entrants
The threat of new entrants is low as the new companies that plan to enter in the online food delivery industry face resistance from the well-established companies. Uber Eats has a notable market presence and the new entrants would find it difficult to establish a strong position due to this market presence. Developing an app, marketing it and making the users adopt the newly developed app is a challenging task for the new entrants. In order to achieve growth in the market, new entrants need to have financial and human capital, along with strategic plan to deal with the present companies.
Despite having the capital, presence of large-scale delivery services deters the new entrants. This situation benefits the established companies like Uber Eats that have an existing customer base. From market share of 3% in 2016 to 27% in 2020, the company showed progress in the US as it has been able to expand its market presence (Statista, 2022).
Uber Eats – Threat of Substitute Products
Substitute products or service can determine the profitability and growth of an organization. When it is easier for the customers to switch to a substitute, the threat is higher, while lower threat is characterized by lack of direct substitutes or higher cost for shifting from one company to another. The substitute for online food delivery apps is when customers engage in direct dealing with the restaurant instead of using an app and contacting the food vendor to deliver at the customer’s location. Another threat that is a substitute for the customers is the other food delivery service operators that have similar business model as Uber Eats.
It is easy for consumers to shift from one food delivery option to another, as it is free of cost and only requires the installation of the app. The alternative apps are also offering the similar service as they connect the customers to the restaurants and deliver the food to them. This low differentiation between the service providers makes it easier for the customers to shift to other services. It can be seen that Uber Eats is facing moderate threat of substitute services.
Uber Eats – Bargaining Power of Buyers
Since buyers have different options to choose from for online food delivery, with no additional cost for shifting from one service to another, the customers have an edge in this case. If one app is not providing them with the desired level of service quality or promotional offers, the customers can switch to other options, exerting pressure on the companies to follow customer demands and trends. Due to these factors, the buyers of Uber Eats have a high bargaining power.
The company has to offer the users with good quality customer service to ensure that the customer base is maintained. Uber Eats is struggling in this domain as its customer service quality is deemed as a problem area, obtaining 1.5 rating out of 5, which can have a negative impact on its market presence (Kline, 2022). Due to a high bargaining power, the customers are offered a refund and extra credit, in an effort to retain them. In addition, high bargaining power necessitates the need to offer affordable prices to the customers in order to retain the market share.
Uber Eats – Bargaining Power of Suppliers
The bargaining power of supplier is dependent on the number of suppliers, their size and the industry in which they are operating. Industries that have less number of suppliers depict a higher bargaining power of buyers. But when suppliers are numerous, the bargaining power becomes lower. The suppliers include restaurants and partners that are connected with Uber Eats and are taking orders through the app. Since Uber Eats is an online delivery service, the company is dealing with B2B transactions as well as B2C transactions.
The customers can order from a restaurant of their choice from the app and the driver partners deliver the prepared order to the customers. The restaurants and delivery partners as suppliers hold low level of power over the company and the rates being offered to be a part of the business model are largely determined by Uber Eats.
Uber Eats – Competitive Rivalry
There are other companies operating with a similar business model such as DoorDash and Grubhub. The competitive landscape becomes more complicated as DoorDash holds 59% of the food delivery business in the US, while Uber Eats competes with 27%. There is a significant gap between the market share of both of these companies and Uber Eats is facing strong competition from its leading rival company. Grubhub holds similar level of market share as Uber Eats competing at the same level.
An interesting development in the competitive landscape occurred with the entry of Uber Eats when Grubhub lost its market share as the new entrant gained market share. Uber Eats is competing with its rivals by offering lowest price to the customers in response to the strong threat of competitive rivalry (Fierro, 2020). Overall, it can be seen that there is highly competitive rivalry being faced by the company.
Uber Eats – Conclusion
There are low chances of new entrants venturing into the online food delivery industry and disrupts the current position of Uber Eats. The high bargaining power of buyers is a source of concern; however, the low power of suppliers makes the industry dynamics supportive of company’s survival and growth.
The substitute options of different food delivery companies are creating high degree of rivalry for Uber Eats which requires development of strategies that would help in retaining its market competitive position. Overall, the industry is moderately attractive for Uber Eats.
References
Fierro, J. (2020). DoorDash vs. Uber Eats: Which food delivery app is best? Cnet. Retrieved from https://www.cnet.com/tech/services-and-software/doordash-vs-uber-eats-which-food-delivery-app-is-best/
Kline, D. (2022). Uber Eats Has a Customer-Service Problem. The Street. Retrieved from https://www.thestreet.com/investing/uber-eats-customer-service-problem
Statista (2022). Market share of Uber Eats in the United States from 2016 to 2022. Retrieved from https://www.statista.com/statistics/1080844/market-share-uber-eats-us/