Why Uber and Lyft Want to Deliver Your Groceries

Ridesharing titans Uber and Lyft are making headlines after they announced a new grocery delivery partnership with giant retailer Wal-Mart (WMT 0.32%).

In this video segment from Industry Focus: Consumer Goods, Vincent Shen and John Rosevear take a closer look at the deal. They also review what the two transport companies do, talk about how they're expanding, and discuss some of the opportunities and challenges they're going to face. Also, Vincent and John delve into some of the many programs that Uber and Lyft are already throwing at the wall to see what sticks, from intra-city courier services to restaurant delivery, and more.

A transcript follows the video.

This podcast was recorded on Jun. 7, 2016. 

Vincent Shen: Wal-Mart CEO Doug McMillon, he announced that his company would be partnering with Uber and Lyft to essentially have them offer last-mile delivery services for some of their grocery orders as they expand their e-commerce and direct consumer initiatives. For these companies, the ridesharing companies at least, we'll discover what their business is like, how they're expanding into complementary business, like in retail with delivery, and just what their story is like, some of the opportunities and challenges they have ahead. For our listeners, John, who might not be as familiar with these two unicorns, could you give us a really quick overview of Uber and Lyft and their business?

John Rosevear: OK. These are two companies, the two leading companies, in the United States at least, that specialize in what we call ride-hailing. Most of you listening have probably had some experience with this, directly or indirectly, but for those who haven't, you get a smartphone app that allows you to summon a ride in many cities, from one of these companies. It's like a private taxi service. You use the app and summon a ride. Now, these are crowdsourced, we say. The drivers are not licensed taxi drivers or anything like that. They're just regular folks who have signed up with the service to provide rides, and Uber and Lyft say they're providing gig-type jobs for people, chances to make extra income, and so forth, as well as transportation that goes around a lot of the existing infrastructure and fills in some of the gaps.

Shen: I personally have used this service quite a bit, both during my time in New York and also my past few years living in D.C. I am somewhat agnostic between the two, I don't have a preference. Overall, it just depends on who's charging more and which one has a shorter wait time, but it seems like Uber is the far bigger, the dominant player in the space at the moment.

They also had a bit of the first-mover advantage. They were developed in 2009 by Travis Kalanick, who is still the CEO, and Garrett Camp, and they launched in San Francisco officially in May of 2010; whereas Lyft did not launch until June 2012, and that was started by Logan Green and John Zimmer as an offshoot, actually, of Zimride, which is another service that they were working on for longer ride shares between cities rather than within cities, which, I think, is the way that most people use these two services now. Beyond the ride-hailing that you mentioned, the core service, with this Wal-Mart announcement, it seems like potentially, they're testing some new ways to grow their businesses, and it seems like, I think from my research, Uber has done this in the past with things like UberRUSH and UberEATS, but what do you think?

Rosevear: I think there's a lot of experimentation going on. This deal with Wal-Mart, it's, they're actually running three city tests. They've got Uber in Phoenix, they've got Lyft in Denver, and they've got a third start-up called Deliv in Miami. Deliv specifically does crowdsourced delivery services. They say their goal is to help their retail partners out-Amazon (AMZN -2.87%) Amazon. You can see what everybody here is thinking, that Amazon is moving into same day service, and Wal-Mart is like, "Whoa, we've got to compete with that."

It looks to me right now like this is a test. Where will this catch on, as well as how do the different partners for these tests perform, Uber, Lyft and Deliv? They may be in competition with each other in terms of who Wal-Mart will choose to go forward with long term, which is an interesting dynamic. It is interesting that they've signed up three different companies to do this in three different cities, but the general structure of it, as Wal-Mart has announced it, is a lot like the same-day service that Amazon has rolled out in some places. You order online, groceries, it's specifically for groceries. You order online, you choose a two-hour delivery window, and then whichever of these services is active in your city brings the stuff within that window, your groceries.

With respect to how it plays with some of the other stuff Uber has done, Uber is doing its own testing. They have this program, UberEATS, where they'll deliver your dinner. It's running in 16 U.S. and Canadian cities, I think, or maybe some in Europe, too. Then there's this little thing they've got going that they just started, UberRUSH. It's courier service. It's just in three cities right now, New York, San Francisco, and Chicago. Interestingly, it includes bike couriers as well as cars, but this is business courier service. We got to run the documents to the courthouse, we got to run this package to, these samples to our client, that kind of thing. It's within a city, it's fast delivery, mostly for businesses it sounds like.

Like I said, there's a lot of experimentation going on right now. Uber is experimenting, Wal-Mart is experimenting, we know Amazon is experimenting, although not with these services. Lyft is part of this experiment as well. What will get steam? What will people really dive into to adopt? Do Amazon Prime members really need same-day delivery, or is tomorrow fine? These are a lot of the things that are being explored right now. Jeff Bezos with Amazon seems determined to have the thing pop out of the computer the moment you click order, or as close to that as he can possibly get. I think Wal-Mart needs to figure out how close to that do they need to get to stay competitive in a retail world that's increasingly dominated by Amazon.

Shen: Yes, and in general, the theme it seems now with retail, and I've touched on this many times on the show, is that these companies want to get their customers whatever they're buying, as quickly as possible, if that is able to allow them to differentiate themselves and their services or their products in any way whatsoever. You're right. Do people absolutely need that within that two-hour window so soon, or is the next day or even two-day delivery, that's standard with Amazon Prime, for example, enough, but I'm curious to see what the results are from this initial testing and, just to add on to that, the cost, by the way; I think it's around $7 to $10 additional per order, if you're getting your groceries through Uber or Lyft through this testing. Then, it's charged from Wal-Mart as if it's their shipping and handling, and then they pay the ride handling services on the back end.