India food delivery discounts drag Uber margins as Q1 loss hits $1 billion

Ride-hailing giant Uber has said that its margins in the fast-growing food delivery business fell from 12% to 8%, primarily on account of the discount war in India against well-funded local rivals Swiggy and Zomato. Uber declared its first results as a listed company on Thursday, reporting a loss of $1 billion for the quarter ending on March 31, 2019, while revenues increased by about 20% to $3.1 billion.

Besides the fall in margins in the food-delivery business, incentives given to drivers and riders in the core ride-hailing operations also negatively affected Uber. Margins dropped 4% year-on-year to 18% of the overall gross booking value, the company said.

This comes at a time when Naspers-backed Swiggy and Ant Financial-backed Zomato are losing $50 million each per month, according to three sources familiar with the matter, as they battle it out for market domination. Uber Eats has emerged as the third major player in the market, where companies take a commission on the total value of orders, called ‘take rate’. But it has found it hard to match the war chest raised by the other two companies.

“Our ANR (adjusted net revenue) as a percentage of gross bookings declined 400 basis points (100 bps = 1 percentage point) year-over-year to 18%, primarily due to Eats which has a lower take rate than ride-sharing growing as a percentage of the core mix. In particular, in India, increased incentives to consumers, drivers and restaurants drove nearly half of the year-over-year decline in Uber Eats’ take rate to 8% from 12% a year ago,” said chief financial officer Nelson Chai during a call with analysts.

Chai added that the market is growing very fast and Uber Eats is trying to maintain its market share through discounts.

“There are two competitors that are very aggressive on it, including ourselves. We are doing well on holding our own. But it is a market, in that we are funding both the eater, the courier, as well as the restaurant in terms of building the business,” he added, saying that 2019 will a year of investments for Uber.

Chai’s comments on Uber Eats also come as the company had held talks with Swiggy earlier this year for a sale, but the deal could not go through due to differences over valuation, taxes and structuring, which TOI reported on April 5. Swiggy and Zomato declined to comment.

While not talking specifically about India, Uber CEO Dara Khosrowshahi said there will be consolidation in the food delivery space globally and there is no rush to close a deal. “We like our competitive chances ….So we will play a consolidating part if it makes sense for shareholders from a long-term perspective,” he said on the call.

In the ride-sharing business, the Asia-Pacific market, which includes India, saw revenues grow 6% to $267 during the quarter — lower than the average global growth rate of 16%. Uber is also present in South Korea and Japan in the Asia-Pacific region and competes with Ola in the ride-sharing space in India.

Source:-https://retail.economictimes.indiatimes.com/news/food-entertainment/food-services/india-food-delivery-discounts-drag-uber-margins-as-q1-loss-hits-1-billion/69606318

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