Should Restaurants Fear Uber Eats?

A restaurant delivery worker rides his bike on April 18 in New York City. Photo: Cindy Orr/Getty Images

Restaurants continue to reel from the devastating impact of the coronavirus. The ones that have remained open have become even more reliant on the handful of online platforms that dominate the food-delivery landscape — despite the fact that those platforms don’t really make any money themselves. Anxiety over the fees restaurants must pay to be listed on the right delivery websites was already mounting before COVID-19. Now restaurant owners have criticized the sites for not reducing their fees amid the pandemic. And as lockdowns end, consolidation may prove to be another threat to restaurants. This month, Uber, which operates Uber Eats, reportedly made a takeover offer to Grubhub, which has notched record revenue in recent weeks. If two of the largest online food-delivery platforms became one, restaurants might lose even more power.

On the latest Recode Decode podcast, Kara Swisher spoke with Uber CEO Dara Khosrowshahi about the impact of the coronavirus on Uber, which has already laid off more than 6,000 employees amid the pandemic — but has seen its Uber Eats business pick up considerably. She also spoke to him about the potential regulation of food-delivery companies and what he has to say to restaurant owners who are worried that they won’t survive the squeeze of both the coronavirus and consolidation.

Kara Swisher: Do you expect pushback if you move forward with something like an acquisition of Grubhub? There’s a mood of opposition around this idea. You had AOC and Elizabeth Warren working on a no-consolidation bill during the crisis. And on this issue, it’s not just from the left but from Republicans — Josh Hawley and others. Are you concerned with their concern?

Dara Khosrowshahi: I think we always have to be concerned with their concern, because these are important people that you have to listen to, right? We have been a highly regulated and locally regulated business for a long time and will continue to be. Listen, if the concern comes from restaurant partners, making sure that the restaurant business is sustainable and they can grow — if the concern comes from couriers getting paid, that’s a great concern. If it’s from people who want food to be affordable and available to everybody — we are aligned in that direction. And the thing is, no one’s really making money in this business, right? So the business itself has to be sustainable, and it has to be sustainable in a way that works for restaurants, works for couriers, and works for people who are ordering the food and it works for business, as well. So things are going to change. And we’ll definitely listen to the opinions of regulators.

Swisher: What has to change? Because besides the regulators worrying about consolidation, you have restaurant owners in distress right now, in terrible distress. And obviously, they’ve been worried before this, about the fees that all these delivery services charge. How would you answer their concerns? There are big chains like Domino’s, but most restaurants are small and they don’t have the ability to get together and fight you all. In terms of technology, they don’t have the ability to organize it in the same way. And shop owners and retailers, in general, have been taking it on the chin here.

Khosrowshahi: It’s an industry that has been hit really hard. And these are people who build their lives around a great business, and they are being hurt. And I guess what I’d say is, it’s easy to generalize, but as far as Uber goes, just take a look at what we’re doing. First of all, in our business, in our food business, what we charge a restaurant includes the cost of running the business but also paying our couriers. So after you actually net out how much we pay our couriers, we make 12 percent in this business, right? So for a sale of $100, we make $12, on average. And we’re a publicly reported company, so it’s out there. That’s a fact. Our goal over the long term is to get the 12 percent to 15 percent, the $12 to $15.

A lot of that is actually geographic mix, as well. So for us to make $15 off a $100 bill is not like these horror stories that you hear. And I do think that this is what happens when young businesses grow. There are certain practices that don’t make sense. I saw certain practices in the rides business. Employees were, in the olden days, getting into cars and recruiting drivers. We stopped that. If you’re going to grow, you’re going to be a leading brand, you’re going to have consumers trust you, you’re going to have riders trust you. You actually have to start doing business the right way.

Swisher: So what do you have to stop here?

Khosrowshahi: We have to keep doing what we’re doing. We are running this business in the right way. We are being, I think, very strong partners to our restaurants. What we charge our restaurants includes delivery. It’s not just the marketplace fee — there’s a pass-through to the courier. We’re making 12 percent, which I think is very reasonable, and our goal is to make 15 percent. So the vast majority of the money here goes to the restaurant and goes to the courier, which we think is appropriate. And basically, the way we can make money is scaling the business and really, really growing it, which we are. We’re investing in it very heavily.

Swisher: So when you’re talking about that 12 percent getting to 15 percent, who loses that 3 percent? And then secondly, how does that affect the couriers themselves? Because there’s been a lot of controversy about tipping.

Khosrowshahi: Yeah, that’s been on the tipping side — we never took the tips. The tips are 100 percent pass-through. And again, there were competitors who were kind of messing around with tipping being part of earnings. We never did that. We will not do that. We introduced the feature where the eater can now pay the restaurant directly. If you just want to help out your local restaurant, you can pay that restaurant directly. That actually hurt our volumes very slightly. So we actually hurt our own volumes to have more of a pass-through to restaurants. We didn’t change anything else, but it was the right thing to do at the right time. Can we get better? Yes. But we’re building these businesses in the right way. And I think when we have a dialogue with regulators, the press will hold everyone accountable. I think that’s the power of the press, and that’s a good thing. I think people will find that we are one of the good actors and as we grow this business, we can set a standard that others can follow.

Swisher: What do you say when you talk to restaurant owners? Some of them are worried about the power you might have over them.

Khosrowshahi: I’ll tell you that those aren’t the discussions we have with restaurant owners. They want demand. We talk about how we can partner up. We talk about how we can help. But the discussion with restaurant owners hasn’t been about consolidation, where the industry is going. It’s like, “Hey, what are we doing tomorrow? How much business can we drive tomorrow? How much business can we drive the next day?” Et cetera. We’re taking this day-to-day right now.

Swisher: When you think about post-COVID, when the business comes back, are you expecting a much smaller restaurant scene? What does that do to your business?

Khosrowshahi: God, I hope not. Honestly, the answer is, I don’t know. We have about 450,000 restaurants or so on the platform. That number was grown really, really quickly. And then when COVID happened, it kind of took a dip and it flattened out because just some restaurants went offline. We’re seeing restaurants come online. I think that the entrepreneurial spirit that you see with these folks is powerful. I think we underestimate individuals and the ability of these businesses to get back online. My hope is that they will, but I do know on a daily basis they’re hurting. And my honest answer is, I don’t know how this comes back. It’s going to take time, and we want to play a constructive part in it. And every day, we’re doing our best.

Swisher: And how much of your business do you expect Uber Eats to be, going forward? What’s your aim?

Khosrowshahi: I think that our rides business is going to be the profit generator for the next two years, but I can see our Eats business and grocery being just as big as the rides business going forward, because the category has expanded so much. And I’ll tell you, that was not my expectation pre-COVID, but you just have had such an acceleration of delivery being a service that’s not only accepted, but I think it’s going to become more and more of the norm. And I think what’s interesting about our businesses — we kind of have a hedge, right? Which is, if the world comes back faster than expected and people start getting going again, you can imagine that our food business may not grow quite as quickly. I think it will still grow, but then the rides business is going to come back super fast. If the world is slower in coming back, well, then we’ve got a food business and a delivery business that is rocketing and we’ll have a rides business that comes back slower.

Recode Decode

Kara Swisher interviews Uber CEO Dara Khosrowshahi.

This transcript has been edited for length and clarity.

Should Restaurants Fear Uber Eats?