End of Uber Eats: Has iFood become the monopolist in Brazil?

RIO DE JANEIRO, BRAZIL – According to the company, the brand will operate on two fronts: through Cornershop by Uber, for grocery delivery intermediation services, and through package delivery by Uber Flash.

Following its exit from the restaurant delivery sector, Uber Direct will be expanded. The platform enables businesses to take orders or make sales and ask an Uber partner driver to make the delivery.

UBER EATS

The company’s announcement marks yet another dropout of a company from the food delivery sector in Brazil. In February 2019, it was Spanish Glovo that announced it would no longer operate in Brazil. At the time, the reason was that Brazil is “an extremely competitive market” and that “to be successful […] we would need more investment and time to penetrate, lead and achieve profitability.”

The Brazilian Association of Bars and Restaurants (ABRASEL) and even Rappi lamented Uber Eats’ exit from the market. ABRASEL chair Paulo Solmucci said he “was very surprised and saddened” by the news about Uber Eats. He also recalled the closure of Delivery Center’s services, which performed delivery for marketplaces and storeowners.

“The greatest damage of these exits is that the Brazilian market will be left with few options of full service platforms, i.e., from the collection to delivery,” Solmucci said. According to data from App Annie, Uber Eats ranked second among food delivery apps with the most monthly users in Brazil in 2021, behind only iFood.

With the exit of such a big player in this strong economic sector, the question remains as to what lies ahead in the segment. After all, what are the market conditions, which represented a turnover of R$60 (US$10.8) billion in 2021, causing companies in the sector to announce their exit?

THE DELIVERY APP MARKET

Currently, the food delivery app market in Brazil is basically dominated by iFood, Rappi, and Uber Eats. According to research by Measurable AI, a market reporting company, iFood is “taking big strides,” dominating 83% of the segment, according to June 2021 data. Meanwhile, the Uber Eats app has a 13% share, with Rappi taking only 4%.

Between January 2020 and June last year, the lowest market share that iFood achieved was 69%, an impressive figure.

With different parameters, a report produced by Statista, a data company focused on apps, shows that 68% of app food orders in 2021 in Brazil were placed through iFood.

iFood’s dominance of the Brazilian market has drawn attention and troubled other brands and representative entities. It was this concern that led ABRASEL and Rappi to file a lawsuit against the market leader in 2020 at the Administrative Council for Economic Defense (CADE).

COMPETITION LAWSUIT

In Public Case No. 08700.004588/2020-47, CADE states that irrespective of the metrics used, iFood’s market share always exceeds (and far exceeds) 20%, which is required by law for a company to be considered as holding a “dominant position.”

The lawsuit considers that iFood enjoys the so-called “pioneer advantage,” since it was the first company to explore the online food delivery and ordering market. “iFood ‘created’ the market by capturing a sizeable portfolio of restaurants on one side of the platform, which attracted a large amount of consumers on the other side. These two sides feed each other: the more restaurants the platform has, the more consumers are interested in joining it, and the more consumers use the platform to place their delivery orders, the more restaurants are interested in hiring the platform’s services,” according to an excerpt of the lawsuit.

Despite considering this a natural economic trend, CADE explains that it created an obstacle to the entry of new competitors, since, to compete with iFood, the “newcomers” need to conquer a good restaurant network to attract consumers.

Thus, it was precisely on this point that CADE considered that iFood employs practices that hinder competition. The app has an exclusivity program with restaurants, i.e., by becoming a partner of the app, restaurants receive benefits such as lower billing rates to use the services, but cannot offer their menu to competing apps.

Despite recalling that the practice is not illegal in Brazil and much less exclusive to iFood, CADE points out that the “adoption of exclusivity clauses by agents with dominant position has the potential to (i) cause market closure, (ii) increase entry obstacles, (iii) raise rivals’ costs by restricting their operations in that market or relegate them to less attractive suppliers (in this case, restaurants).”

In addition to the exclusivity with smaller restaurants, iFood also has partnerships with large chains in the country. This is the case with the Coco Bambu, Habib’s, China in Box, The Fifties, Oakberry and Si Señor brands, which, at least until 2020, only sold their food on the red app.

Through these and other arguments, on March 11, 2021, CADE ordered iFood to cease signing exclusivity contracts with restaurants. The public institution determined that at the end of the current contracts in force, the app and restaurant may only renew them for up to 1 year.

IS IFOOD A MONOPOLY?

Lawyer Eduardo de Avelar Lamy, a specialist in competition compliance, explains that a monopoly means an exclusive control of a single supplier in relation to a market, product or service. In Brazil, the competition legislation prohibits monopolies, except for exceptional situations. With this in mind, he argues that iFood is not a monopoly in Brazil.

“What does exist is a very significant control of the market by iFood. However, we need to separate and understand that controlling a market is not the same as monopolizing it,” Lamy said.

The lawyer also argues that there is no lack of competitors to iFood in the market. According to him, the company has several competitors that are affected by decisions such as the exclusivity of the restaurants and long-term contracts.

Lamy argues that CADE’s decision is important to equalize competition among delivery apps. Nevertheless, the injunction, by itself, should not be enough to balance the sector.

“CADE may still implement a program to monitor iFood’s conduct in the market, for example, through monitoring practices, including competitive compliance efforts and the submission of periodic reports, which will encourage the company to compete through quality and price, and not through practices that may be considered anti-competitive,” the lawyer said.

FIGHTING EXCLUSIVITY

ABRASEL’s Paulo Solmucci is eager to praise iFood and says that the app has “operational excellence” and that it was “fundamental during the pandemic.” However, he warns that the platform’s growth has raised concerns.

“iFood states that only 10% of registered restaurants have exclusivity contracts, arguing that the number is low, but it is not, because we are talking about an elite portion in its hands. These businesses ultimately receive resources, financial conditions, better services, and all this creates great distortion,” Solmucci explained.

Solmucci says that ABRASEL’s main principle is to fight against exclusivity actions. He recalls that the entity worked against the expansion of Ambev’s measures in this direction. The Brazilian beverage company also has exclusivity contracts with bars and restaurants, and the representative said that ABRASEL managed to equalize the issue in order not to make this “negative dynamic” a rule in the beverage industry.

A source familiar with the food delivery app market who preferred to remain anonymous raised other issues about iFood’s dominance. It was recalled that this economic sector offers good conditions for performance and is also attracting investments from other companies, despite the exit of others.

MARKET MOVES

This is the case of Shipp, a delivery company created in 2017 and acquired last year by B2W (owner of brands such as Americanas and Submarino). Magazine Luiza, another national retail giant, also acquired the food delivery ventures ToNoLucro, GrandChef and AiQFome in the past 2 years.

The source also points out that other market players, such as Rappi itself, adopt the exclusive partners strategy and that the comparison of iFood’s market share disregards important variables. “iFood is in more than 1,500 Brazilian cities, while other apps operate in, at most, 300 cities,” the source said.

In addition, the source recalls that Uber Eats – which is a North American company – recently closed its operations in several countries, such as India, Uruguay, Argentina, Colombia and Egypt. The closures are part of the brand’s new commercial policy of closing offices in countries where the delivery app is not a leader.

RESTAURANT OWNERS SEEK ALTERNATIVES

São Paulo restaurant owners who use delivery apps expressed their views. Igor Lima runs a hamburger restaurant in the Penha neighborhood, in the East Zone of São Paulo, and confesses that he won’t miss Uber Eats that much because he always considered the app poor. He says that the service provided by the company is more expensive than iFood, for example, which forced him to raise the price of hamburgers.

“Customers open Uber Eats and see that the price of hamburgers is much higher than on iFood. So they end up choosing to order from iFood anyway. Consumers see the final value, they are not interested in the platform,” Lima explained.

Despite hardly using Uber Eats anymore, the owner of the hamburger restaurant is concerned about the app’s exit from the market. “The less competition, the better for iFood. If one day they want to raise the restaurant fee, they will be able to do that, since they will be alone in the market,” Lima said.

Lima says that iFood alone accounts for over 80% of the orders placed on the site. Dependence on the app worries him and leads him to look for alternatives.

Alex Sandro Dias is another example. He owns a home-cooked food restaurant and uses only iFood when it comes to apps. However, he decided to adopt a strategy of favoring orders coming through WhatsApp and phone. “The fees charged [by apps] are very high for the restaurant and, with WhatsApp and the phone, I don’t have to bear these charges,” Dias said.

The entrepreneur also says that this planning led his customers to become accustomed to ordering on site, either by message or by the traditional phone call. Today, the two methods represent the largest order volume in the restaurant. “Anyone who invested only in apps will eventually become very dependent on them,” he added.

HOW TO IMPROVE COMPETITION IN THE INDUSTRY?

With the many discussions that take several factors and variables into consideration, the fact is that one alternative is virtually unanimous in the food app industry: Open Delivery. Despite the name borrowed from Open Banking, the inspiration came from elsewhere.

“In the old days, a shopkeeper needed to have 6, 7 card machines because each had a different system. Open Delivery works as the standardization of the card software, that is, it will enable all the food delivery apps to be unified and work on the same platform, allowing the retailer to avoid having all the different apps installed,” explained ABRASEL’s chairman.

Solmucci says that restaurant owners will benefit because they will know which order came first, have uniform menus, data about deliveries in the same environment, and more. The reduction in complexity will lower operating costs for entrepreneurs, according to the bars and restaurants entity.

“It is a revolution in the industry that will also benefit customers. From the moment that the cost for restaurants is reduced, lower prices are generally passed on to consumers, as the food sector in Brazil is highly competitive. And delivery drivers will also be greatly benefited, because when this relationship between customer and platform improves, they will also be impacted by better working conditions and salaries,” Solmucci said.

The first order from the Open Delivery platform was placed in the last days of December 2021, in Rio de Janeiro, at a bakery. Although the sector’s major apps have not yet adhered to the system, this is expected to happen soon. “We are working to make this integration happen this year and I believe it will,” concluded ABRASEL’s chair.

WHAT DO DELIVERY COMPANIES SAY

RAPPI

Rappi said it follows the market news and laments the exit of Uber Eats from the food delivery sector. “Rappi believes in a fair market, with free competition, where there are opportunities for all players to exercise their role and conquer their share.”

Still on this subject, the company recalled the lawsuit it filed with CADE against iFood. Rappi reported that the case is still pending and CADE’s decision to prevent new exclusivity contracts is preliminary (temporary).

“The decision brought undeniable positive impacts to the market. Nevertheless, in light of relevant changes, such as the one we have witnessed, Rappi places its full confidence and expectation in the body’s best competitive assessment in favor of the market as a whole, in order to ensure the efficacy and effectiveness of its decisions when faced with events such as the departure of the second most relevant player in terms of market share,” Rappi said.

However, the brand did not reply about Open Delivery and when it is expected to join the platform.

UBER EATS

Uber Eats declined to comment in further detail on its future exit from the food delivery sector and its relationship with other players in the Brazilian delivery market.

CADE

CADE explained in a statement that it “monitors the markets, but does not issue opinions outside of public proceedings in progress at the agency.

IFOOD

About the Uber Eats case, iFood said it “does not comment on business decisions of other companies.”

“With respect to the food delivery market, iFood clarifies that the online delivery industry is constantly evolving with the frequent entry of new competitors and the emergence of new business models. This fierce competition favors restaurants, delivery companies and consumers, promoting further innovation for the entire ecosystem,” the company added.

About Open Delivery, iFood reported that it has supported the project since its inception, including financing the platform’s implementation. The company says that the novelty will add “standardization and transparency” and, despite not saying when it will join the system, says that the future of the delivery apps sector lies in Open Delivery.