Kroger Teams up with Uber

America’s largest standalone grocer Kroger (NYSE: KR) is following Walmart’s lead and tapping Uber for delivery.

Uber drivers are delivering grocery orders from Kroger subsidiary Harris Teeter in Newport News, Virginia, The Daily Press reported. So far the service is being beta tested in seven zip codes in Newport News, Hampton Roads and Norfolk.

Customers access the Uber delivery option through Harris Teeter’s Home Delivery feature. Harris Teeter started testing Uber last year and launched it in Virginia in January, a Daily Press article indicates. Customers get a one hour delivery window and the ability to track their orders.

The service gives Kroger the potential to greatly expand its delivery options without hiring additional drivers or buying or leasing vehicles. There are some potential problems including unions, Uber is famously anti-union outside New York but Kroger is a staunch union shop.

Kroger is apparently testing the service in a number of other cities, CNBC reported. The idea behind the service is to counter Amazon’s push into the grocery business and to help Kroger expand into the growing takeout meal market.

Why Kroger is working with Uber

Data indicates that Americans spent more on restaurant meals than groceries for the first time in 2016. Kroger is well aware of those trends, it has been adding cafes, and ready cooked meals to many of its stores. Combining grocery orders with Uber Eats would give Kroger a tremendous lead in the grocery and take out business.

Kroger is the second major retailer to tap Uber for delivery. Walmart (NYSE: WMT) America’s largest grocer by sales volume, started delivery with Uber, Lyft and another service called Deliv last year. Kroger is trying to counter Walmart’s move and competitors; like Whole Foods (NASDAQ: WFM), which are working with Instacart.

Expect to see many more grocers sign up with Uber because it can help them reach new customers. That includes Millennials who are less likely to own a car and more likely to live in urban areas far from suburban focused grocers like Walmart and Kroger.

A final reason why the grocers are tapping Uber is that it allows them to expand to new areas without building new stores. Instead of buying expensive land and investing a fortune to build a store in a fast-growing inner-city neighborhood, Kroger can simply use Uber to deliver groceries from its existing stores.

Grocery delivery by Uber should take off, and might become one of the app’s main functions. It will also give Uber an additional source of revenue that cannot be cut off by laws regulating taxi cabs.

 

 

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