To stanch ride-share bleeding, Uber looks to move packages, not people

“They’re doing things around the edges to keep the ecosystem moving.”

Less than a year after going public, Uber (NYSE: UBER)  has launched two services that move away from its core business of shuttling people around toward  parcel and package delivery.  The move comes as hundreds of companies, big and small, race to ramp up last-mile delivery in the wake of the coronavirus pandemic.

Uber Direct is a courier service that delivers essential items from medication to pet supplies. Uber Connect allows friends and family to send packages to each other. Both services debuted last week in select cities in the U.S. and internationally.

“We’ve heard from people around the world who are looking for new ways to get necessities delivered to their door quickly, and businesses that are exploring how to better serve their customers from afar,” Uber said in a blog post. “That’s why we’ve accelerated our delivery efforts beyond food and grocery, to provide on-demand and scheduled last-mile delivery solutions for consumers and businesses alike.”

An Uber spokesperson declined to reveal how many customers used the services during their first week of operations.

But analyst Ygal Arounian, who covers Uber for Wedbush Securities, told FreightWaves that the services will not be big enough to compensate for the steep decline in rideshare customers, who numbered in the hundreds of millions before COVID-19 changed habits in the U.S. and around the world.

The company’s gross bookings in Seattle were down by 60-70% in mid-March, Uber’s CEO Dara Khosrowshahi said in a March 18  call with investors, and that was during the early stages of the pandemic in this country.

Separately, executives at Uber are discussing plans to cut around 20% of the company’s employees, as it copes with a sharp decline in its ride-hailing business, The Information reported today. That could result in more than 5,400 of Uber’s 27,000 employees losing their jobs. 

Skepticism notwithstanding, Arounian views the new delivery offerings as “very interesting nonetheless.”  Of the two services, Uber Direct has more long-term staying power, he said, given general trends in consumer expectations and demand “more in the direction of ecommerce.” Uber Direct pharmaceutical delivery, in particular, he said,  is “a model that makes a lot of sense.”

The last-mile march

Uber’s pivot comes as hundreds of startups and companies either enter the last-mile delivery market or ramp up existing services as demand for delivery of goods skyrockets during  the pandemic.  

Among the new entrants is Lyft (NASDAQ: LYFT), which announced on April 15 a new pilot for delivering essential items in the U.S. Lyft is also working with Amazon (AMZN) to help its drivers apply for any of the e-retailers’ open jobs (including last-mile delivery positions) via a custom URL, a Lyft spokesperson told FreightWaves. 

On the other end of the spectrum is  Haultail, an on-demand company that is serving cities in Arizona, Hawaii, Pennsylvania and Texas, and soon to be in Connecticut, Florida and Kansas. 

In the past few weeks, the Burlington, Massachusetts- based company has been delivering groceries, appliances, documents and other essential items, with rapidly growing demand, said CEO Bruce Williams, in an email to FreightWaves.

Is he worried about the Ubers of the world cutting into market share?

Not so much. Uber and Lyft, Williams, said “have entered this market understandably out of desperation and their goal is to try and mitigate any damage to their market share while keeping drivers from going to work for competitors.” 

While trying to “adapt on the fly,” he noted, the ride-share giants are so far limited to carrying packages 30 pounds and under. “While they are household names in ride-hailing, they simply don’t have the same focus on identifying materials and handling them properly.”

Earlier this week, FreightWaves reported on Frayt, another last-mile service that recently pivoted to consumer deliveries, led by a new partnership with Kroger.

Cheetah, a San Francisco startup that offers contactless pickup and delivery of food and restaurant supplies, today announced a $36 million in a Series B funding round, Crunchbase reported. Simultaneously the company shifted its business model from a wholesale app to consumer delivery in the wake of COVID-19, the company stated on its website.

A disruptor, disrupted

Amid these and hundreds of other new businesses, Uber, slated to report earnings on May 7, is looking less like a disruptor — and more like a survivor.

“They’re doing things around the edges to keep the ecosystem moving,” Arounian said,

There is some precedence for Uber Direct, as the service builds on Uber Eats’ recent expansion into grocery and convenience store delivery.  Still, Arounian doesn’t think “anything they do can meaningfully offset demand for ride-share until the world opens back up and people are traveling again.”

A side note: UberEats has come under fire during the pandemic, with several cities announcing caps on the commissions Uber charges participating restaurants. 

But don’t cry for the tech-transport leader. As of the end of February, Uber had $10 billion in “unrestricted cash,” Khosrowshahi said during the March call with investors.

“They certainly have enough cash to make it through the year, and they will be able to get through the pandemic,” said Arounian. “The question is how quickly will they get back.”