Uber Eats Postmates for $2.6B, Bolsters Ground Game

Being able to pick up the phone and order food — and not just pizza — used to be one of the little luxuries of life. These days, as the pandemic ravages the U.S., it’s become almost routine.

“Contactless commerce and delivery have skyrocketed over 70 percent,” Ray Wang, a principal analyst at Constellation Research, told the E-Commerce Times. “Most consumers are enjoying the convenience of not having to ever walk into a store or pick up a takeout.”

Food delivery is a US$120 billion market, Wang said. “The food delivery apps market is worth about $20 billion in 2020.”

Uber is looking to food delivery for rescue from falling revenues caused by people staying at home because of the pandemic.

Gross bookings for Uber Rides fell three percent year over year, Uber noted in its Q1 2020 financial report.

In response, it is reducing its customer support and recruiting teams by about 3,700 full-time people. In addition, Uber CEO Dara Khosrowshahi will waive his base salary until December 31, 2020.

The company also recently exited eight unprofitable markets for its Uber Eats food delivery service. Nevertheless, belt-tightening is not necessarily enough to keep a company afloat. Better business opportunities are a vital part of the equation.

On July 6, Uber announced that it was acquiring on-demand food delivery service PostMates in a $2.65 billion all-stock transaction. Uber will issue about 84 million shares of common stock for 100 percent of Postmates’ fully diluted equity.

Gross bookings for Uber Eats grew 54 percent year over year during the first quarter, and Khosrowshahi said the company is focusing additional resources on the service.

“As more people and more restaurants have come to use our services, Q2 bookings on Uber Eats are up more than 100 percent year on year,” Khosrowshahi disclosed in the announcement.

Uber’s acquisition of Postmates has been approved by both companies’ boards of directors and received a commitment of support from stockholders representing a majority of Postmates’ outstanding shares.

The deal is expected to close in Q1 2021, subject to the approval of Postmates stockholders, regulatory approval, and other customary closing conditions.

Postmates’ Proven Presence

Postmates “has shown particular strength in communities where Uber Eats has not been as strong, including Los Angeles, Las Vegas, Orange County (Calif.), San Diego and Phoenix,” Canaccord Genuity analysts Maria Ripps and Michael Graham wrote in a note to investors on July 7. This foothold comes as a result of Postmates’ partnerships with popular local brands.

“Two factors — population density of its markets and popular restaurants — have led to an industry-leading three trips per hour for its couriers,” Ripps and Graham stated.

The acquisition “is about gaining scale and giving drivers more work and creating more loyalty,” Constellation Research’s Wang remarked.

Postmates offers pickup and delivery service from more than 600,000 restaurants and retailers, with 41 percent of those exclusive to its platform. It is the market leader in Los Angeles and operates in all 50 states.

Postmates had eight percent of meal delivery sales in the United States, according to Second Measure, a technology company that says it analyzes billions of anonymized purchases.

The market leader is Door Dash, with 44 percent. Uber Eats placed second with just over 23 percent, excluding purchases made with Uber Cash and purchases made by corporate customers. GrubHub was a close third, with just under 23 percent.

The Postmates acquisition will help Uber “gain the number two spot overall in the U.S., and help them gain the number one or number two spot in cities such as Los Angeles, Miami, Phoenix, Washington, D.C., and Atlanta,” Wang observed.

“Uber Eats will be battling GrubHub to be the number one or two player in each market as they all go after Door Dash,” Wang said. “We see continued growth amidst the post-pandemic environment.”

Uber said it will keep the consumer-facing Postmates app running separately, supported by a more efficient combined merchant-and-delivery network.

Competing With Lyft

In the long run, the acquisition will be good for Uber because “its goal is to make sure every driver has a passenger or order,” Wang said. “The company that can do this the most efficiently and frequently wins.”

That should help Uber fend off Lyft.

Nearly 75 percent of ride-sharing consumers in the United States will use Uber this year, and 54 percent will use Lyft, eMarketer predicts.

However, Lyft will grow its share faster than Uber over the next three years and will account for 59 percent of ride-sharing consumers by 2023.

Criticisms and Antitrust Concerns

Uber’s acquisition of Postmates is “one failed company buying another,” Global Equities Research told clients in a note about the deal. Uber Eats “will never be profitable,” the business is not durable, and it will decline steeply as the pandemic fades away.

Concerns have also been voiced that the purchase might breach antitrust laws.

The Open Markets Institute said the major delivery apps’ business model relies on monopolization and warned that the acquisition would violate the Clayton Act and result in an oligopoly that controls 99 percent of the market.

In April, three consumers filed a class action lawsuit alleging GrubHub, Door Dash, Postmates and Uber Eats use their dominance in restaurant meal deliveries to impose exorbitant fees that are passed on to consumers.

Antitrust concerns helped scuttle Uber’s previous attempt to purchase GrubHub. Opponents included Sen. Amy Klobuchar, D-Minn., and three colleagues, who urged the U.S. Department of Justice and the U.S. Federal Trade Commission to launch an investigation if the companies agreed to merge.

However, opposition to the Uber-Postmates deal may not prevent the inevitable.

“The food delivery space is consolidating,” Ray Wang noted. “These are the newest digital giants in the age of duopolies in the post-pandemic model. Less ride-hailing, more food delivery.”