Uber opens Corner Store in nation’s capital
Uber, the company known for its ridesharing app, is dipping its toes into the grocery delivery waters with a new service called Corner Store that will allow consumers in Washington, DC to order from a short list of health and beauty care staples. The test of the service is slated to last a few weeks, but will go longer if response is strong.
Consumers in DC will use their existing Uber app to set their location and order products from the available list of over 100 items. Uber drivers will go the specified location to deliver orders. Charges for purchased items go to the customer’s Uber account and no additional fees are required. There is no minimum order amount and current hours of operations are 9 AM to 9 PM Monday through Friday.
Corner Store is the latest in an increasingly crowded field for deliveries that includes Amazon, FreshDirect, Google, Instacart, Peapod, Walmart and others. Uber’s pricing is said to be on par with drugstores. The company does not charge an additional delivery fee and there are no minimum dollar order amounts.
As with other services, the question becomes whether Corner Store can make money with its delivery model.
"Long term, this is most likely not going to be economically feasible unless Uber starts to figure out other ways to monetize this, through adding delivery fees or charging advertising fees to brands that take part in the program," Stephen Mader, director of digital retail at Kantar, told BBC News.
Discussion Questions
Do you think Uber’s Corner Store test is likely to succeed? Which of the currently available delivery services do you think is most likely to succeed and why?
It’s amazing how many same-day delivery businesses are popping up without a viable economic model. No doubt there will be some consumers that use the new Uber service and love it, but not enough to support the business.
The problem is that while consumers want their purchases as quickly as possible, they also want them to be delivered for free. Free shipping is consistently one of the highest motivating factors in e-commerce, and in Q1 almost 60 percent of all e-commerce sales included free shipping. No one has figured out how to profitably sell with express delivery, much less same day, and UPS and FedEx are in the process of raising their rates (with their new dimensional shipping weights)!
I’m all for offering premium delivery options for the customers that want them, but they are unlikely to be a significant volume business unless, or until, someone figures out a new model.
Uber’s outsourced model is even more problematic. What happens during the big snow storm in Washington DC, when everyone is willing to pay extra for same-day delivery (to avoid going out in the storm) and Uber is on surge pricing? None of those package are going to be delivered!
I’m a huge fan of Uber, and given how many delivery services have had the VC pitch “We are the Uber of home delivery,” it’s funny that Uber is now the Uber of home delivery, but I don’t see this particular offering getting significant scale.
It’s important to emphasize that this is only a test, but I’ve expected something like this since Uber’s CEO Travis Kalanick told CNN Money last December that “Once you can deliver cars in five minutes, there’s a lot of things you can deliver in five minutes.”
Uber’s unique angle with Corner Store versus more developed competitors like Google Shopping Express and Instacart appears to be its extremely limited assortment of 100 items. I’m not entirely clear yet on the logistics, but it’s plausible that participating Uber drivers are actually stocking this limited assortment in their vehicles. This would enable more efficiency than either GSX or Instacart, both of which pick products to order from local stores.
Uber is ultimately about maximizing capacity utilization. So far, it has focused on various flavors of personal transportation. But there’s no reason Uber shouldn’t capture other forms of demand—like courier services or urgent delivery of consumer products—that can be served ably with its existing infrastructure. And with its massive funding and installed user base, it’s a must-watch player whose asset-light economics may not be as unviable as some currently believe.
Define success. Success in that people will try it because there is no minimum purchase and its free? Then yes. Success in that it makes money? Not without a lot of changes, as Mr. Mader points out in the article.
OK, nice try, but here’s just a few key consumer-driven questions: Where’s MY brand? Who’s at my door? What took you so long? This is the wrong order. When will I get the rest of my order? (just for starters).
And here’s some ops-hat questions: What’s the margin on that stuff? When is that driver going to get here? Who goes to that area of town? We could only fill half the order, should we still get a driver? This order is for toothpaste only, now what?
Peapod didn’t have a volunteer army of drivers, but at least they worked for the company and at least Peapod could fill orders. Like I said, nice try, but to me, the real “get” will be when grocery stores figure out they can do it all themselves within a five mile radius. But as we all know, they’re slow adapters.
I think consumers will give Corner Store a try, particularly because they are shaking up the establishment. How well they do depends on the “first try” experience.
I agree that Uber needs to monetize delivery—employing delivery fees or selling ads, or both. The death of Webvan, early in the digital delivery game, should be a warning to those who enter: consider profitability-per-transaction in addition to scale economies.
Yes, as more devices allow for mobility and hectic schedules take their toll on time, taking some of the shopping burden off for staple items will be a winner. Can Uber deliver?
I used Uber on a trip to LA last week and could have sworn that the driver was lurking in the bushes at the hotel where I was speaking. The service was that unbelievably fast. In my chat with the driver about her job, it occurred to me that Uber drivers spend a little to a lot of time either stalling in one location waiting for a call to go to another, or deciding whether taking a ride in another location even makes sense. This has to be a major conundrum in sprawling, traffic-choked cities like LA in particular. Enter Corner Store. A great way to use up the stall time “capacity” of otherwise idle or location-challenged drivers. Under this assumption, initially running the delivery service as a loss leader makes sense as Uber gets its already-rabid fans (now including me) hooked on another offering. From there, Uber can move in many directions and get paid by any number of parties that benefit.
The Uber test could be a way to accomplish two secondary purposes:
1. Raise awareness of its services and acquire new customers
2. Mend some fences with local authorities that are pushing back on Uber in protection of established taxi services.
Those two goals could sustain the effort early on, but eventually, Uber will have to find a way to monetize the service.
The last mile…that has always been the delivery challenge. I don’t that changes for Uber either, and this test will not be feasible.
Companies that offer free shipping usually make money on the products they sell, not on delivering them—so for a third party to do it doesn’t make sense. We’ve seen this play before and it is a tragedy.
Uber’s Corner Store delivery concept could be a way to help its drivers fill out their schedules between customer rides. Seems like Uber is searching for a formula here.
There are a lot of variables to test, including the limited merchandise offering, price structure, driver compensation, etc. My chief concern so far is micro-economic: Will deliveries of 1 or 2 items yield enough profit?
Uber is trying to understand if people will use their service for deliveries. Let me answer that so that Uber can save some time and money on their “test”: Yes. Consumers will pay a certain amount for home delivery of products.
Now can Uber create a model that provides the convenience, timeliness, cost, and product selection that a consumer desires and still make a profit for Uber and its drivers? I do not see them being successful in home delivery with a model that is based on random availability of under-utilized driver/car capacity.
But I guess as Uber doesn’t own the infrastructure (car) or pay their workforce by the hour gives them the ability to look at concepts to create more value for the company. I don’t see this one working out.
Yes, I do think there is a market here, but more effort is required. The good news is that Uber will test first and see what those requirements are.
The model is in place with this new “social economy,” so the sky’s the limit for my 2 cents!
What Steve said; you don’t need an actual fire to have a fire drill, but you DO need a product’s “test” to actually offer what the product does (or doesn’t, as it were). “Free and no minimum” for a service that most certainly will not be either of those things later on doesn’t seem to make it.
A bigger question isn’t which delivery service is going to succeed, but which home delivery model is going to succeed. Uber may be locked into a fulfillment model, but the entrenched players like Walmart, Amazon, and Peapod like are more likely to adapt than withdraw.
Which model—in-/out-sourcing, fee/free, promoted/EDLP—is going to win? Look at costs:
*Fixed costs include fleet and inventory holding. It’s not just the hard costs but the ability to amortize them over multiple delivery units and service lines.
*Variable costs include product, promotion, salaries. Margins also depend on categories and price segments.
I would bet mobile-as-remote-control (MARC) home delivery will be cost-justified, at least in affluent urbanized markets. Once the model is proven viable, it’s not a winner take all. Some will win on price, others by assortment. Some will succeed in home markets but not in expansion markets.