Uber expanding 'dark stores' in Japan, as fast grocery is quickly growing into a battleground

TOKYO -- Uber Technologies will expand its network of "dark stores" in Japan as part of its effort to boost its rapid grocery delivery business, stepping further into a new frontier of online shopping that is quickly growing into a battleground.

Uber's meal delivery service, Uber Eats, opened two dark stores -- distribution centers for online shopping -- in Tokyo's Nihonbashi district and Setagaya Ward since December, making a move toward becoming a retailer itself. Dubbed Uber Eats Market, they are dedicated facilities stocked with fresh and frozen foods that are ordered via the Uber Eats app and delivered by registered couriers in as little as 30 minutes. Compared to listing products by supermarkets or convenience stores, running its own operation enables Uber to use data to predict demand and manage inventory efficiently.

Yukiko Muto, president of Uber Eats Japan, said in an interview that "gross bookings of those stores are extremely high" and that it plans to increase the number of stores in Tokyo. "We will focus on increasing use cases that serve the needs of all kinds of customers, through both partnerships and our own efforts." Muto said it aims to increase gross bookings for groceries by 3.5 times from 2021.

Groceries are becoming an important growth driver for Uber Eats, which launched in Japan in 2016 and has taken a lead in online meal delivery during the COVID-19 pandemic. It has signed up about 150,000 merchant stores and 100,000 couriers, and operates in all 47 prefectures. The company does not disclose order volume or its financials for Japan, but surveys often rank Uber Eats as one of the most popular food delivery brands in the country, along with by local app Demae-can.

Muto said it wants to double the number of merchants. "There are an estimated 600,000 to 800,000 restaurants in Japan. In some countries, 1 out of every 2 restaurants has online delivery. Uber is currently at 150,000, which means we could still have twice as many restaurants participating."

Increasing the variety of offerings is key to getting users to spend more time and money on Uber's apps -- globally, 46% of users engage in multiple services. Demand for quick grocery delivery has grown during the pandemic as people switched from dining out to cooking at home. In Japan, Uber Eats has been expanding its offerings beyond restaurants by listing products from retailers like convenience store chain Lawson and supermarket chain Seiyu. "Even the size of the market for grocery delivery within 30 minutes alone is comparable to online restaurant delivery," Muto said.

Capturing a slice of the grocery segment is also crucial for Uber because its ride-sharing business is heavily regulated in the country. But competition is quickly intensifying. Globally, companies specializing in the business, such as GoPuff in the U.S., Getir in Turkey and Gorillas in Germany, have raised hundreds of millions of dollars in venture capital.

Japan does not yet have a major specialized player, but internet group Z Holdings, a SoftBank unit that owns the Yahoo Japan and Line messaging app, launched a grocery delivery service in January. It has set up eight dark stores in Tokyo that accept orders through Demae-can and has pledged to cover all 23 wards in central Tokyo within fiscal 2022, ending in March next year.

The foray of tech-driven players into groceries poses a challenge for supermarket operators trying to build their own online delivery businesses. Muto said Uber does not intend to run everything on its own: "We are a new tool for retailers. We can generate new orders from people that they have not been able to reach, such as young, tech-savvy users that use Uber."

In 2021, Uber Eats' gross bookings in Japan increased 80% from the previous year, a slowdown from 2020, when they quadrupled. For its core meal delivery service, Muto said it plans to widen its nationwide reach by enabling restaurants in any location to sign up if they have their own delivery operation. The move allows Uber to tap users in areas where its couriers are currently not available.

While the penetration of online food delivery in Japan is lower than in other developed countries, the cash-burning battle is already showing signs of consolidation. German food delivery giant Delivery Hero in December said it would sell its Foodpanda business in Japan, citing "an increased number of players and a shortage of riders." Muto said she was "a little surprised" by the announcement and added that "the market may rationalize faster than we thought."

Risa Kawaba and Naofumi Nakamura contributed to this story.