Grocery Delivery is the Real Reason for Uber’s Willingness to Unionize
Sometimes it takes a careful reading of a financial report to understand the true motivation for a corporate decision, or the real meaning of a news story. Such is the case with Uber Technologies Inc.’s decision to recognize a union called the Independent Drivers Guild in New York City.
The privately-held Uber shocked many observers when it recognized the Guild in May. The group; which is part of the International Association of Machinists and Aerospace Workers, will act as a sort of middleman or agent for NYC-area Uber drivers.
Many people were wondering why Uber CEO Travis Kalanick; who is famously resistant to outside interference, was willing to sign off on that deal. Now we know at least part of answer; on June 3, Walmart Stores Inc. (NYSE: WMT) announced it would be testing an Uber delivery service for its products in Phoenix.
During the test; Uber drivers will pick up Walmart same-day delivery orders and take them to customers. Walmart’s Sam Club subsidiary is testing a similar service in Miami with Deliv. The world’s largest retailer will test out Lyft’s delivery service in Denver.
Why Unions could be the Key to Uber’s Delivery Service
The next logical step after Walmart delivery is for Uber to start delivering food for supermarkets like Kroger (NYSE: KR), Whole Foods Market (NASDAQ: WFM) and the private Safeway. Delivering precooked meals, deli orders and groceries from supermarkets would be a logical extension of Uber EATS; the restaurant delivery solution.
This is where unions come in, many large supermarkets like Kroger, Safeway and Publix (OTC: PUSH) are union shops. Kroger’s King Soopers subsidiary in Colorado is a Teamsters shop. It is hard to imagine the Teamsters; or other large unions, allowing non-union Uber drivers to delivery their food.
Now that Uber has a union, it can get in the door at Kroger and Safeway. This gives the app access to a potentially large stream of new business for EATS. It also opens the door to delivery of prescriptions from Kroger and Safeway pharmacies. Kroger alone filled almost 175 million prescriptions in 2014 according to its FactBook.
Precooked Meals are the Next Frontier for Supermarkets
Extending Uber EATS to supermarkets makes a lot of sense because grocers are fighting changing behavior patterns. Those patterns include a new generation of Americans that want somebody else to do the cooking for them.
In March 2015, Americans spent more on eating out than groceries for the first time ever according to Commerce Department data, Bloomberg reported. That trend explains why you are probably seeing more precooked meals and delis at your local supermarkets.
Why Kroger will Link Up with Uber
It also explains some of Kroger’s recent strategic investments. That includes Market & Vine, its latest effort to clone Whole Foods, the purchase of Roundy’s; which operates the high-end Mariano’s supermarkets in Chicagoland, and the strategic investment in Lucky’s. Lucky’s is a small chain of high end markets based near Boulder, Colorado.
“We invested in Lucky’s because of their great people and unique go-to-market strategy; which includes smaller-format stores that resemble an indoor farmer’s market, plus a culinary department that showcases amazingly restaurant-quality prepared foods,” Kroger CEO Randy McMullen said during the company’s 2016 earnings call.
The emphasis here should be on the words “restaurant-quality prepared foods.” Kroger; like other grocers such as Whole Foods, is slowly moving into the restaurant business. It has opened Asian cafes and tacoritas in some of its stores.
Connecting this system to UberEATS would increase the customer base. More importantly, it would get some of those Millennials who are reluctant to push a shopping cart to start buying from Kroger.
Why Kroger Might Need Uber
Just imagine how much more business UberEATS would do if it could deliver your laundry detergent, diapers and milk as well as your pizza. That will certainly be appealing to Millennials who are used to ordering everything around, and to younger people that hate to drive.
The percentage of Americans with driver’s licenses is falling. The University of Michigan’s Transportation Research Institute discovered that 31% of America’s 19 year olds; and 16.5% of those aged 20 to 24 did not have driver’s licenses in 2014. The same survey determined that 23.6% of Americans between 16 and 44 did not have driver’s licenses; in contrast only 7.9% of those between 45 and 69 years old lacked a license to drive.
Those statistics are very bad news for Kroger, a company that operates supermarkets designed in the expectation that most of its customers will have cars. They are good news for Uber, a company that sells rides to those without their own wheels.
Why Uber might Need Unions and Kroger
This might explain why Uber is so anxious to unionize and get into supermarkets. Kalanick has other good reasons to expand EATS and his delivery services; including the loss of taxi business in cities like Austin that have banned ride sharing apps. Uber Eats is still functioning in Austin, even though the ride service is shut down, The Austin American-Statesman reported.
Uber almost lost a far bigger market than Austin when Chicago’s City Council voted on an ordinance similar to the one in the Texas capital on June 23, 2016. News reports indicate the council backed down only after Uber threatened to leave town.
Such stories expose the shakiness of Uber’s business model and show why Kalanick is so interested in developing new sources of revenue such as delivery. Since delivery services are not regulated like taxis are they will be easier to expand and operate in more areas.
A potential deal with Walmart or Kroger might also explain the formal agreement Uber recently signed with Fiat-Chrysler Automobiles (NYSE: FCAU) to develop self-driving vehicles. Uber wants access to the Dodge Grand Caravan, Rammaster Pro and Chrysler Pacifica vans which would be perfect delivery vehicles. Chrysler also has a deal to develop a self-driving van with Alphabet (NASDAQ: GOOGL).
The union story and the Kroger earnings report indicate that there will soon be major changes to Uber’s business model. The app-based solution may soon transition from a taxi company to a delivery service. When it does, Uber might be in a position to disrupt retail and threaten delivery companies like UPS (NYSE: UPS) and FedEx (NYSE: FDX).
The future of Uber might just be in retail and delivery, just as the future of supermarkets could be in delivery apps. That means, app-based driving will be the next frontier for unions, and the Independent Drivers Guild could one day be bigger and more powerful than the Teamsters.
