More "disruption" from Uber. The only good news is that, as they have yet to figure out how to turn a profit, it's only a matter of time before bankruptcy.Small businesses have told The Spinoff that hefty commission fees from the global delivery giant are pushing them to the brink, and are asking why global fast food chains get a discount.
Small hospitality businesses are paying substantially higher commission rates to Uber Eats than fast food giants using the food-delivery app, and some say it’s threatening their survival.
The standard commission rate New Zealand businesses pay to Uber Eats per order is 35%, but large international companies like McDonald’s, which are able to use the negotiating power of their scale, are thought to pay closer to 20%.
Some local businesses have managed to negotiate a rate lower than 35%. Better Burger, which has four Auckland outlets on Uber Eats, confirmed it had done so, as did Hell Pizza, which has dozens of stores nationwide. But other multiple-site businesses said their requests to negotiate had been rejected.
Tina Nguyen, co-owner of Wellington Vietnamese restaurant business Where’s Charlie, has four stores on Uber Eats but still pays 35% commission per order. “After we opened the second and third stores, I asked them if they would do us a deal since we have a few restaurants with them, and they said no, that’s a standard percentage and no one else gets any different.”
The Spinoff has sought clarification from Uber on whether they offer different rates to different businesses.
Nguyen said Where’s Charlie paid a $500 startup fee when each of its sites joined Uber Eats, including $160 each time for photography that happened only once. “I said to them obviously the photography was only done for one restaurant – we use the same menu for all the stores, so technically we shouldn’t be charged for photography for the other stores, but they charged us anyway.”
Joel Stirling recently closed the Ponsonby branch of his business Poke Bar after dine-in customers dried up. With 80% of orders coming through Uber Eats, and 30% of the cost of each of those going to the app, it wasn’t sustainable to stay open, Stirling told the NZ Herald.
Stirling, whose three other Auckland stores are still on Uber Eats but are able to survive through substantial in-store business, pays 30% rather than 35% because he was a launch partner, signing up when Uber Eats first arrived in New Zealand in 2017.
“We were one of the first to jump on board during the trial period,” he said. “They wanted 35% and we said there’s no point for 35, we’ll do it for 30. Then they said they wanted to put it up to 35 after 12 months and we said we’ll leave, so they kept it at 30. Even at 30 you’re not making any money.”
Since then he has attempted to negotiate the rate down, but to no avail. “We explained to them that we needed a better rate for Ponsonby or we’re closing down, because it’s not sustainable. When you’re too busy on Uber Eats you need to hire more staff, so it’s sort of a catch 22.
“They just said oh well, there’s nothing they can do about it. They’ve always said from the beginning that everyone’s on the same rate, but they’re not.”
Stirling says he’s spoken to the managers of neighbouring businesses – his remaining three Poke Bar sites are on Queen Street and in the Sylvia Park and Westfield Albany malls – who were happy to reveal the rates they paid to Uber Eats. He says he’s been told that Subway pays 25% and McDonald’s 20%.
“It’s just not a level playing field,” said Stirling. “It makes it hard for the average Joe.”
As Coco’s Cantina did in July, Stirling is considering opening a “ghost restaurant” that exists solely on Uber Eats to cover the orders the Ponsonby Poke Bar was catering to.
Neither McDonald’s nor Subway would confirm the rates they paid to Uber Eats per order, with both saying it was commercially sensitive. Both Hell Pizza and Better Burger confirmed they had negotiated discounts, with Ben Cumming, Hell’s general manager, saying, “Hell does enjoy a slight reduction on the fee due to our volume through the platform. We are satisfied with the agreement we have with Uber.”
Josh Harre, Better Burger’s operations manager, confirmed the business had negotiated a lower rate through “a lot of work”, but wouldn’t give specifics.
“Ultimately the future of Uber commissions is going to be how we tailor negotiating with them,” he said.
Harre believes Uber essentially having a monopoly on the delivery market is problematic. Earlier this year, Uber Eats cut its standard commission rate from 35% to 30% in the UK in response to competition from other delivery apps, but while other services do exist in New Zealand, they don’t attract anything approaching the “eye traffic” that Uber Eats does.
“I think what Uber really needs to do is take responsibility for the fact that they’ve created a marketplace that is leveraging off brands that are already running small margins,” said Harre. “For a successful hospitality business, the margins are anywhere between 10 and 20%. You give Uber 35% of that and it’s like, where do you go from that?” he said.
“It’s a case of everyone is doing it because everyone else is doing it, but at what cost? What it’s going to come down to is how many have to drop out before they start moving the commission rate. I guess that’s why they look after the big boys, because as long as they’re still there it still has a certain attraction.”
“Right now when I go to negotiate a rate, I guess from Uber’s end they have confidence in the business model and that confidence is the monopoly and everything that comes with that. So you’re sort of negotiating against yourself, really.
“Because, OK, we could turn this off and stop giving [them] the commission, but what does that actually do to our business? There is no other place to go, so I think the only good that can come from it is if there are other competitors. If you look at some of the [delivery partner] brands operating in Australia, the commission rate is as low as 20 or 25%, which is more sustainable from a business point of view.”
Nguyen of Where’s Charlie said she has come close to pulling her business from Uber Eats many times. “It’s been playing on our minds.
“The only reason I stick with Uber is to keep up the momentum, because we want to bring our food to our customers but we have no delivery service ourselves.
“I think it might work OK with restaurants that sell their food for $20-25 – after 35% they will still have some sort of profit going into their pocket – but we sell our food for like $10-$11, so after 35%, after tax, after labour, we maybe make $1 or $2. It’s not a lot.”
In a statement issued to The Spinoff, Uber Eats said: “We have more than 1500 restaurant partners in New Zealand who choose to be on our platform because it helps them grow their business and reach new customers with a fast, reliable and efficient delivery option.”
Uber, losing billions, freezes engineering hires
I hope nobody here was stupid enough to buy Uber stock when they had their IPO.Uber has been burning cash at more than $1 billion per quarter.
TIMOTHY B. LEE - 8/10/2019, 1:30 PM
Uber is freezing hiring for software engineers and product managers across its US and Canadian workforce, the company acknowledged to Bloomberg on Friday. The shift was reported by Yahoo earlier in the day. The freeze does not apply to Uber's autonomous vehicle and freight-shipping divisions.
The news comes a day after Uber reported second-quarter operating losses of $5.4 billion—a new record for the company. That figure exaggerates Uber's quarterly burn rate because it includes more than $4 billion in one-time charges related to Uber's initial public offering. Still, excluding IPO-related charges leaves around $1.2 billion in operating losses, worse than the $1 billion the firm lost in the first quarter.
Uber recently laid off 400 marketing workers. According to Yahoo, Uber employees are worried that this could be a prelude to broader cuts as the company struggles to stem its losses.
"During a recent all-hands meeting, a question about potential layoffs in the engineering department was also raised, but executives didn't provide any timelines," Yahoo's Krystal Hu reports.
Uber is in no immediate financial danger. Despite years of losses, Uber had $13.7 billion in the bank at the end of the second quarter—a figure boosted by $8 billion in Uber's IPO. With that much cash in the bank, Uber can continue at its current burn rate for more than two years. But CEO Dara Khosrowshahi will face pressure from Wall Street to stem Uber's losses much sooner than that.
Except those that shouldn't exist.
