SAN FRANCISCO -- In a move that heightens competition in the food delivery market, Uber on Tuesday launched a new on-demand meal app.
UberEats, now available in San Francisco, lets users order meals from local restaurants and have them delivered to their door. It's the first time Uber has launched a new app that operates separately from its well-known car-hailing service, and the shift in business strategy highlights Uber's commitment to the growing delivery industry.
But the $51 billion company is diving into an already crowded space, and may find itself bumping elbows with the multitudes of other food delivery companies that have become popular in the Bay Area, such as GrubHub, DoorDash, Munchery and Sprig. Some experts question whether the industry can support so many players, and a few recent signs on that front haven't been encouraging. Berkeley-based SpoonRocket closed its doors Tuesday, and earlier this year DoorDash reportedly was not on track to hit its targeted $1 billion "unicorn" valuation.
"In my view, it's probably one of the single most overcrowded spaces that exist in the digital economy," said Canvas Ventures partner Ben Narasin. "Uber's got a phenomenal brand and network, but they are trying to compete with people who offer basically the same thing."
UberEats has been available on a limited basis in San Francisco since last summer, when users could access the service through a tab embedded in Uber's ride-hailing app. The original service offered lunchtime delivery only, and users had to choose from a handful of meal options preselected by Uber. The new app, represented by a fork icon, allows users to order food from more than 100 San Francisco restaurants between 8 a.m. and 10 p.m. Uber is waiving the delivery fee for now, but it eventually will be $5.
"We are excited to launch the UberEats app, which leverages our logistics network and technology to bring food from San Francisco's best restaurants to you, whether you're at home, in the office, or even relaxing in Dolores Park," Susan Alban, UberEverything's San Francisco general manager, wrote in a statement. "We have seen a huge appetite for food on demand and have heard from restaurant partners what an important revenue stream UberEats has become for them, so we are thrilled to expand together."
The service also is available in Chicago, Houston, Los Angeles and Toronto.
Stan Chia, senior vice president of operations for Chicago-based GrubHub, said despite the competition, GrubHub is doing just fine.
"I think there are a lot of players in the space," he said. "And in a certain regard that's actually a good thing because competition breeds a lot of innovation and disruption."
But GrubHub is in a unique situation -- it's larger than most food delivery startups, and it went public in 2014. The company reported $362 million in revenue for 2015, up 43 percent from the year before. On Tuesday afternoon the company's stock price was down about $2.50 from its $26 offer price.
Meanwhile SpoonRocket, which prepared and delivered its own meals to customers, announced it was closing in a Tuesday blog post.
"We continued to face intense competition from competitors like Sprig and an ever tightening funding environment," the company wrote. "We explored all strategic options (until) the very last minute but unfortunately, they all fell through."
That could have been the fate of San Francisco-based Bento, if it hadn't been for some quick pivoting. The company, which delivers customized Asian meals to customers within the city limits, couldn't stay above water using its original on-demand business model. With customers ordering food on a moment's notice, the company wasn't able to accurately predict demand, said CEO Jason Demant. So they ended up losing money on uneaten Bento boxes, and paying too much in delivery costs as a result of inefficient routes.
Bento changed tactics about a month ago -- now customers order their lunch by 10 a.m., and Bento delivers between 11 a.m. and 2 p.m. It's working better, Demant said, though now the challenge is getting more customers to think about their lunch plans before 10 a.m.
Demant insists the food delivery market is huge, and there's plenty of room for new entrants. But he's noticed a funding slowdown in the industry that he says began shortly after on-demand home cleaning service Homejoy closed last summer.
"That spooked a lot of investors with on-demand," Demant said. "And then with the amount of people entering the space, that also spooked investors."
