Doubling down:
Uber diving into food delivery with purchase of Postmates
By buying Postmates, Uber is doubling its bets on food delivery since ride hailing has plunged during the pandemic amid shelterinplace orders.
The $2.65 billion allstock purchase announced Monday gives Uber two meal delivery services, which it said are complementary, with different geographic focuses and customer demographics. Costsaving synergies could work out to more than $200 million annually within a year after the deal closes and should help Uber turn a profit sooner, Uber said.
The boards of both San Francisco companies have approved the transaction, which is expected to close in the first quarter of 2021.
The Uber Eats meal delivery service has provided a bright spot for Uber in recent months with homebound consumers ramping up their ordering of restaurant meals even while they eschew rides.
Postmates, while the smallest of the mealdelivery services, has tried to establish itself in other forms of delivery, too — store purchases, groceries and alcohol, for instance. Those are areas Uber wants to explore also, as it seeks ways to keep bringing in revenue during difficult times.
“Uber and Postmates have long shared a belief that platforms like ours can power much more than just food delivery — they can be a hugely important part of local commerce and communities, all the more important during crises like COVID19,” Uber CEO Dara
Khosrowshahi said in a statement.
In September, private investors valued Postmates at $2.4 billion. It has raised $906 million from investors.
Uber came close to buying Grubhub in May, but instead the Chicago meal delivery service was acquired by Just Eat Takeaway.com of Amsterdam for $7.3 billion in early June.
“Like ride sharing, the food delivery industry will need consolidation in order to reach its full potential for consumers and restaurants,” Uber said at the time.
Postmates operates in 3,000 U.S. cities, but its sales lag those of competitors by a wide margin.
As of early June, DoorDash had 44% of the U.S. market, with Uber Eats and Grubhub in a virtual tie at 24% and 22%, respectively, while Postmates had just 9%, according to data from Second Measure, a San Mateo data analytics firm that scrutinizes billions of anonymized credit card, debit card and bank transactions to track consumer behavior and sales at individual merchants.
That implies that Uber and Postmates together would have about a third of the market, making the combined company second after DoorDash.
All four services saw sales surge during the pandemic, but DoorDash and Uber Eats had the biggest growth compared to a year earlier, according to SecondMeasure. Uber said secondquarter bookings at Uber Eats doubled compared to a year ago, while those at Postmates were up 67% year over year.
In a presentation Monday morning to investors, Uber said that Postmates had more than 10 million active customers and 115,000 partner restaurants in the first quarter, during which it brought in $107 million in revenue. Uber Eats has 400,000 restaurant partners and 111 million active customers, it said.
Lusiron Silvira, 56, of Brisbane has been driving full time for Postmates since midMarch when shelterinplace orders took effect.
“Oh, my goodness, it is busy, busy, busy all the time,” he said.
While most of his work is restaurant deliveries, there are also orders from liquor stores, 7Eleven, Safeway and Walgreens. The grocery and drugstore orders can be timeconsuming as he has to scour shelves for items that may not be in stock.
He has mixed feelings about Uber buying Postmates. He was a Yellow Cab driver for 18 years.
“For me, Uber is the one who killed my job; they killed the cab industry,” he said.
But on the other hand, he thinks its deeper pockets might make for some improvements, such as issues with the app not knowing that some restaurants are closed, credit cards being declined, and incorrect addresses for deliveries.
Alvin Garcia, owner of Popsons Burgers in the Mission, said it doesn’t matter that much to him whether the services merge or not.
Initially Postmates was the best service because most of its couriers were former bike messengers, he said, but now most services have couriers who can be a bit clueless and rude.
“They put a phone in my face, saying, ‘Here’s the order.’ I say, ‘I’m so sorry; I can’t read that. How was your day, what can I get you?’ I try to train them to be a little bit more kind.”
He contracts with all the major services and said he thinks that prepandemic they somewhat cannibalized eatin sales. Before the pandemic, they accounted for about a third of his business. Since he reopened for outdoor dining in midMay, the delivery services account for twothirds of business.
He appreciates that San Francisco temporarily capped deliverycompany commissions at 15% during the pandemic to help restaurants stay afloat. His regular commissions are about 25%, somewhat lower than many restaurants because he’s been using the services for five years.
Postmates filed confidential papers for an initial public offering in February 2019 but never followed through. Reuters said that the boost from pandemic sales and recent acquisition interest sparked it to reexplore going public. Besides Uber, investment banker Michael Klein was leading a potential acquisition, Reuters said.
Uber and Postmates have already joined forces seeking to combat AB5, California’s gig work law that could force them to reclassify their drivers and couriers as employees. Both companies, like other ondemand services that use gig workers, say an employment model would devastate their business models.
The two jointly sued California in December, seeking to halt AB5 enforcement against them. A federal judge denied their initial attempt in February, but the case is continuing.
Along with Lyft, DoorDash and Instacart, Uber and Postmates are backing a measure on the November ballot to ask California voters to keep their drivers and couriers as independent contractors who would be entitled to some benefits and minimum earnings floors.
“Uber and Postmates have long shared a belief that platforms like ours can power much more than just food delivery — they can be a hugely important part of local commerce and communities.” Dara Khosrowshahi, Uber CEO