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Business trends

Snacks the next frontier in Asia's rideshare battle

US startup Cargo teams up with Singapore's Grab to offer food and collect data

Cargo, which puts snack boxes in ride-share cars and splits sales revenue with drivers, has brought its model to Singapore from the U.S. (Photo by Elisabeth Rosen)

NEW YORK -- Seven months ago, Douglas Straebler put a plastic box filled with snacks in the car he drives for rideshare companies Uber and Lyft. Since then, he has made hundreds of dollars in extra income.

"On a five-mile ride, I might make $5 from the ride, but as much as $24 selling snacks," he said. "I've had nights where I've added $100 in pure take-home cash."

Straebler received the box and its inventory after responding to a Facebook advertisement for Cargo, a New York-based startup founded in 2016 that aims to turn rideshare cars into mobile convenience stores. Drivers get the boxes and their contents for free and take a 25% commission on sales, earning an additional dollar for every new customer and bonuses for selling a high volume of products.

Now, Cargo has set its sights on Asia, having entered a partnership with Singapore's Grab, which operates in eight regional countries. Cargo says its top U.S. drivers bring in $300 a month in revenues. Cargo makes money both from sales and through partnerships with brands that use the service to give away free samples to collect data about consumers.

While the company does not disclose exact usage, it aims to be in 20,000 U.S. cars by the end of the year. Founder and CEO Jeffrey Cripe said Cargo is on track. "In 2017, [people] spent 2 billion hours a year in rideshare vehicles, but no one has done much to change the experience of being a passenger," Cripe said. "We wanted to design a better passenger experience in a way that also benefited the driver."

After raising $8.5 million from venture investors, Cargo will now launch its services with 1,000 of Grab's drivers. The two plan to "gather feedback" from the Singapore launch and expand the relationship to other cities in Southeast Asia "as soon as [they] are ready," Grab said.

"You spend so much time in Ubers, the idea that you could make a purchase there seemed like a no-brainer. It's shocking there hasn't been more competition or copycats," said Michael P. Murphy, founder and managing partner at Rosecliff Ventures, which invested in Cargo during the company's recent $5.5 million seed round.

China's Gogo Cheba and MobileGo have also started offering snacks in their cars. But Southeast Asia has one of the fastest-growing rideshare markets, making it a logical next step for Cargo. The region's rideshare market has quadrupled since 2015 and is likely to reach $20 billion by 2025, according to a December report co-authored by Google.

Rides are also longer in Southeast Asia, making it more likely that customers will indulge. Customers spend about 40% longer in rideshare cars in Singapore than in the U.S., and as much as 300% longer in other major Southeast Asian markets, said Cripe.

Singapore-based Grab is the clear market leader, with a valuation of $10 billion and 2.3 million drivers. While Cargo had interest globally from "pretty much every rideshare company," Cripe said, Grab was "persistent" and "committed to working with a small startup."

Unlike in the U.S., where Cargo does everything in-house, it has a shared partnership with Grab in which the rideshare company takes care of the driver operations while Cargo provides the hardware and software.

Instead of the various payment solutions offered in North America, Southeast Asia customers will use Grab Pay, the company's proprietary mobile payment.

"This makes sense as a first stop given they can be a first mover there. Singapore is a showcase for the region, and Grab is active throughout," said Hunter Williams, a Chicago-based retail partner at Oliver Wyman who was previously based in China.

China's huge rideshare market also offers undeniable opportunities. "We would [consider China] if we found the right partner," Cripe said. But Cargo is better positioned to succeed in Southeast Asia than in China, where the company would face competition.

MobileGo has close ties with Didi, China's ride-hailing market leader: Its CEO previously ran the company's private car unit, and parent company Didi Chuxing was one of the investors in its January funding round, which raised 60 million yuan ($8.8 million) led by investment company Hillhouse Capital.

Gogo Cheba works with taxi drivers, while MobileGo products mainly go into the cars of Didi drivers. Both have adopted the same business model as Cargo, with a few logistical differences: Customers scan a code to make purchases, and drivers receive inventory from the company (for a small deposit, rather than for free, and at a public location rather than at their homes) and earn a commission and/or margin from each purchase.

One key difference is that the Chinese startups are focused on retail and do not offer free samples. Cargo, which counts Kellogg Company's eighteen94 venture capital fund among its investors, has made free samples and the sale of consumer data to brands a key element of its strategy.

"Chinese companies have typically been more focused on sales than marketing, which made sense given typical routes to market domestically," Williams said. "If that revenue stream is proven to work in a sustainable way by Cargo, I'm sure others will look to trial it."

Cripe said Cargo's data harvesting was "truly anonymous," protecting its business model from a trend toward tighter regulation of data privacy. "We respect and protect rider privacy and as we expand we'll do so in a way that is consistent with local regulation and our own ethical compass," he said.

While neither Gogo Cheba nor MobileGo has announced plans for international expansion, the latter could potentially be a part of Didi's overseas focus. The rideshare service will launch its first overseas expansion in Mexico this year, and recently bought a controlling stake in 99, a ride sharing company in Brazil. The company's 2015 investment in Grab also makes it a key player in Southeast Asia.

"It's easy for someone to beat you to bringing an innovative business model to market in China," Williams said. "It will be interesting to see if this deal with Grab, which is in the Tencent camp, is a prelude to bringing the concept to market in China." Tencent is a Chinese investment holding conglomerate.

In Southeast Asia, Cargo will also be able to tap into a boom in convenience store sales. Thanks to fast urbanization and a young population with increasing disposable income, this retail category is growing. In Vietnam and the Philippines, food and grocery research firm IGD forecasts that growth will increase by 37% and 24% a year, respectively.

"Convenience stores are doing well as a channel globally, especially in Asia where they fit the needs of dense cities," Williams said. "Cargo provides the ultimate in convenience."

Yet, the biggest returns ultimately may not lie in the sale of snacks but the collection of data. "In-car retailing will only ever be a small fraction of the convenience market," said Nicholas Farhi, a partner at New York-based OC&C Strategy Consultants.

Farhi said that even if 25% of passengers indulged, that would represent just 1% of the transactions in Singapore's convenience market. "The opportunities for passenger monetization will come more from the car becoming a highly-tailored digital marketing channel," he said.

But the Chinese companies' reluctance to use this tactic suggests that it may not work with consumers in Asia. Even in New York, many customers ask how Cargo can give away so many free samples without asking for anything in return, Straebler said.

The driver has a ready answer -- the company is collecting anonymous marketing data to find out the snack preferences of consumers. "The biggest challenge is convincing people there's no catch," he said.

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