With Uber SEA purchase, Grab becomes a food-delivery giant

Grab CEO Anthony Tan / Photo credit: Grab

Grab’s pivotal purchase of Uber’s Southeast Asian business is now official. Here are the details:

• Grab has bought Uber’s ride-hailing business as well as its food-delivery business, Uber Eats. That’s major.
• Grab will take over Uber Eats’ operations immediately.
• As part of the deal, Uber now owns 27.5 percent of Grab. The stake roughly reflects Uber’s share of the ride-hailing market, which is around a quarter, a Grab spokesperson told Tech in Asia.
• By next quarter, Grab will expand its food-delivery service, GrabFood, to the rest of Southeast Asia. It currently operates in Thailand and Indonesia.
• In 2017, Grab grew 2.5 times in app downloads and four times in the number of driver-partners.
• All Uber employees will receive offers to join Grab, the spokesman confirmed.

The deal gives Grab a ride-hailing monopoly in the region. It ends costly discount battles against Uber, allowing Grab to focus on chipping away at Go-Jek and GoPay’s lead in Indonesia, a must-win market.

Foodpanda, Honestbee, and Deliveroo should be worried.

The biggest coup, however, is arguably the food-delivery business. Uber Eats competes strongly against its rivals, having snagged McDonald’s as a partner restaurant chain. It’s ranking especially well in the app stores in Singapore and Malaysia. Foodpanda, Honestbee, and Deliveroo should be worried.

For Grab, transportation is just the beginning. Although high-volume, the margins are razor-thin unless you can get rid of the drivers and replace them with AI. Food delivery works the same way. Like travel, food is a daily necessity. Grab probably won’t make a lot of money off food delivery, but that’s not the point.

By owning the platforms that serve two major consumer needs, Grab can collect a treasure trove of data that will allow it to shed its label of a ride-hailing firm and become the dominant ecommerce platform in Southeast Asia.

Key to its ambitions is building out all the infrastructure, a necessity in the region’s rising economies. It began with its e-wallet GrabPay, which is now a mode of payment for many merchants in Singapore, not to mention the actual rides on Grab.

It then moved into financial services when it announced that it will offer loans and insurance products to its driver and merchant network. This will grease Grab’s network and keep the transactions flowing.

Financial services could also be where Grab makes its money. Because there’s no need to expand a physical delivery network as the business grows, the marginal cost of expanding its loans and insurance offerings is arguably lower compared with rides and food delivery.

Further, many labor-intensive functions of a financial services business can be automated. Credit scoring and claims are just two examples. With a ready customer base on the Grab network, the cost of sales can be reduced.

Treasure trove of data

Now with Uber Eats in the fold, consumers will have another compelling reason to use GrabPay, and Grab will have more customers to sell its financial services to.

The consumer data is key. Grab will have insight into consumer behavior that not even the tech giants and traditional institutions have. This gives it an advantage. Ecommerce giants like Amazon have transaction data, but they can’t collate consumer travel patterns like Grab can.