News on Thursday that the food delivery arm of transport behemoth Uber, Uber Eats, will cut its delivery charge and open a marketplace to allow restaurants to make their own deliveries, has struck many as being a case of playing catch-up with its rival, Just Eat PLC (LON:JE.).
The company’s plans to cap its fees charged to restaurants at 30% of the value of an order from 35% previously, will seek to edge out competition from both Just Eat and other rival Deliveroo, but more importantly the revelation of its marketplace plan has placed it directly on a collision course with the former.
Is it too late?
In a note to clients, analysts at broker Liberum saw the moves as “too little, too late”, given that Just Eat had “already established a lock on much of the UK restaurant market”, with nearly two-thirds of its business coming from outside the country’s 11 biggest towns.
The broker continued that for restaurants switching to Uber Eats from Just Eat would be “too great” a risk in terms of losing customer orders, while learning a new operating system and concerns over counter space would likely prevent smaller eateries from adopting both.
Given that Just Eat has been pouring investment into its own efforts to create a network of delivery drivers, the competitive edge this brought to Uber Eats and Deliveroo is diminishing rapidly.
Or is there another motive?
While playing catch-up to the more successful competitor may seem like the obvious reason for Uber Eat’s shift in strategy as it tries to maintain market share, Just Eat’s success could have put it in the acquisition crosshairs.
“What Uber Eats move does suggest is that they recognise their model is not working and that they are not gaining share,” said Liberum’s analysts, adding that the “more likely outcome” at this point was for Uber Eats to acquire Just Eat instead.
Given that Morgan Stanley has previously valued the Uber conglomerate at a whopping US$120bn (£91.8bn), dwarfing Just Eats own current market cap of around £5bn, it would likely have more than enough firepower to take it out and integrate its operations.
Liberum’s analysts said that an added benefit of a Just Eat acquisition would be to make Uber Eats the top player in Canada, a “key strategic target” for the group.
Recent pressures may make Uber swoop more likely
The potential for a takeover by Uber may have increased recently after US hedge fund Cat Rock Capital Management, which owns a 1.7% stake in Just Eat, called on the company to explore a merger with a “well-run industry peer” rather than look for a new chief executive after boss Peter Plumb stepped aside in January.
This, coupled with Just Eat’s slip from the FTSE 100 index in December after just one year in the blue-chips, have placed in a somewhat weak public relations position.
Liberum’s analysts said that Uber Eats would “probably wait 12-18 months” for its new initiatives to take effect, but the recent issues around Just Eat “may make now a good time to make a move”.
They added that an acquisition would make “strategic sense” for Uber Eats, given that Just Eat has nearly four times the share of the UK food delivery market as both itself and Deliveroo combined, with the gap “likely to have widened” since their figure was calculated in 2017.