Strong demand for the service could help offset the hit to Uber’s ride-hailing business as a result of the pandemic.
The two aspects of Uber’s operations in Taiwan show the very different effects that the coronavirus pandemic can have on business.
With few foreign tourists around since Taiwan closed its borders to non-residents on March 19 to minimize spread of the virus, Uber’s ride-hailing business has suffered. At the same time, more Taiwanese are ordering in rather than going out to eat – a plus for the company’s food-delivery service, Uber Eats.
After years of squabbling, Uber last year regularized its Taiwan operations by joining the new multi-purpose diversified taxi program, which allows surge pricing and does not require the taxi to be painted yellow. But the timing, shortly before COVID-19 came on the scene, was not propitious.
Many drivers say that business is down about 25-30% year-on-year because of the coronavirus pandemic. “There’s no easy way to make up for the lack of foreign visitors,” says Jason Chen, who has been driving for Uber in Taipei for two years. Before the pandemic, a full-time Uber driver could expect to make NT$60,000 monthly, Chen says. Now he reckons it’s closer to NT$45,000.
There is no easy fix, as Taiwan cannot safely open its borders until the pandemic is contained globally. Some drivers have switched to taxi companies, which are less reliant on foreign passengers, Chen says. Uber, meanwhile, is placing more emphasis on food delivery, which many Taiwanese eateries currently see as vital to their bottom lines.
Consumers spent a record NT$1.2 billion (US$40.6 million) on food delivery in April, up 150% from September 2019, according to the Financial Supervisory Commission (FSC). There was a total of 6.1 million transactions, a 300% rise from September.
“Traditional restaurants have changed their mindset as they were hugely affected by the pandemic in the spring,” says Jessica Liu, a partner at the Taipei-based AppWorks accelerator. “Food delivery not only has helped them to find a new revenue source, it’s helped them to survive.”
The trade-off for restaurants is that they have to allot Uber Eats one-third of each sale, “a huge portion,” Liu says.
Uber is likely taking a huge cut of food-delivery sales to offset its loss-making ride-hailing business. “You cannot be subsidizing drivers and rides and make sense of the operating margins,” says Daniel Tu, managing director of Hong Kong-based Active Creation Capital and former chief innovation officer of the Ping An Insurance Group. “That remains the biggest challenge for the [ride-hailing] industry and that is why you see these platforms adding products and services like food delivery.”
Likai Gu, former general manager of Uber Taiwan, sees strong potential in Uber’s food-delivery business here. “Taipei is a big market for food delivery, while rides cannot achieve the same scale.”
Gu notes that both Uber and taxis are concentrated in the Greater Taipei area, including New Taipei City, Taoyuan, and Keelung. Taxi oversupply has been a problem for years, but there is little appetite in the government to reduce the number of taxis on the road. Officials are loath to cross the politically influential taxi industry.
Uber does have a key advantage over taxis and Foodpanda, its main food-delivery competitor. The U.S. firm can generate business from two complementary mobility services. “There is a scaling effect, generally from riders to eaters,” says Gu.
The road ahead
From a regulatory standpoint as well, Uber Eats is in a better position than Uber’s ride-hailing business. While ride hailing competes with a powerful legacy industry, Uber Eats faces off against newcomers, with Foodpanda, a subsidiary of Germany’s Delivery Hero SE, being the most prominent. Put simply, in food delivery there is no entrenched incumbent pressing the government for support.
Uber Eats appears to have an edge over Foodpanda in terms of service quality. From January to April, Foodpanda was involved in 564 consumer disputes while Uber Eats had just 80, according to the Executive Yuan’s Consumer Protection Committee. Of Foodpanda’s consumer disputes, 368 occurred because delivery drivers canceled orders after being unable to reach customers. Another 108 pertained to food quality or quantity. About half of the disputes involving Uber were related to the automatic renewal of its Eats Pass subscription program, which costs NT$120 a month for unlimited free delivery of orders over NT$199.
Foodpanda’s app seems more prone to glitches, such as sometimes logging users out abruptly. The English version of the app automatically translates text typed to a delivery driver in Chinese into broken English on the user’s screen, perhaps assuming that the non-native Chinese speaker would prefer that to the Chinese characters originally written.
Nevertheless, Foodpanda is expanding aggressively. In June, Foodpanda said that it would roll out its 24-hour Taipei and New Taipei City service nationwide. The service is now available in every county on Taiwan’s main island.
Looking ahead, regulatory challenges remain for both Foodpanda and Uber Eats. AppWorks’ Liu notes that the Ministry of Labor considers delivery drivers to be employees, while the food-delivery services regards them as contractors. Under the Labor Standards Act, food couriers have maximum daily working hours, are entitled to one fixed day of rest per week, and must receive double pay on national holidays.
Uber Eats says that the labor regulations do not fit its business model, which allows drivers to set their own working hours and decline assignments they do not want to take.
“We hope that the government will discuss with all relevant stakeholders, including platform operators, and create regulations that protect the interests of delivery workers, but also allow this innovative service to prosper,” Uber Eats said in a public statement.
Some restaurateurs say they can do without Uber Eats. Duncan Smith, co-owner of Taipei’s Craft House, which specializes in craft beer and pizza, says that the company’s fees are too high. “We used to use Uber Eats, but not anymore. For a small business, 33% per transaction is a huge chunk of money to hand over. Plus, we can’t sell alcohol on the Uber platform because it’s considered online sales, which are forbidden by Taiwanese law.”
Beer is a large part of the Craft House’s business. Pubs also occupy a certain niche in the food-and-beverage business. It’s hard to duplicate the experience at home, especially ther draught beer and live music.
For small outlets focused squarely on food, though, delivery service could be here to stay.
“The noodle shop owned by my friend’s family now relies on Uber Eats on rainy days, and it rains a lot in Taiwan,” says AppWorks’ Liu.