Uber agrees to buy Postmates for $2.65 billion

17 Jul 2020

Uber will expand its food delivery business with a $2.65 billion acquisition of the Postmates delivery service. The financial transaction will be done in an all-stock deal, putting the pressure on both companies to continue delivering growth and become profitable outside of their subsidized investor-funded lifelines.

A merger of this dynamic duo would mean that the entity would control a total of 37% of the food delivery sales in the U.S. according to Edison Trends figures reported by the New York Times. DoorDash currently dominates the market, capturing a total of 45% of U.S. food delivery orders.

Uber agrees to buy Postmates for $2.65 billion

In the deal, not much will change for either company logistically. Pierre-Dimitri Gore-Coty will remain the Uber Eats' vice president and Postmates will continue to be under the guidance of the current CEO Bastian Lehmann. Both apps will remain separate but TechCrunch reported that the backend technology and the army of delivery drivers that each service employs will overlap. There will also be a larger userbase for restaurants to tap into, which will reduce the competitive pressure that has made these delivery services dependant on the benevolence of investor funds for years.

This agreement comes on the heels of Uber’s bid to acquire GrubHub that failed due to security and anti-trust concerns. Just Eat Takaway, Europe’s largest food delivery service, acquired GrubHub in June for $7.3 billion.

Business for Uber Eats has been booming since lockdowns and quarantine went into effect this spring. Forbes reported that the Eats division of Uber saw a 53% revenue increase in the three months to March. While this did not offset the $2.9 billion loss that the company posted for the first quarter as a result of dropping rideshare numbers, it does indicate that food delivery is a service that is in-demand.

E-commerce and direct-to-consumer delivery has expanded rapidly in recent months. This broad shift can be seen across all retail channels, but it has been especially notable in the consumer packaged goods sector where, prior to the pandemic, online grocery orders were not the norm. Only 1.4% of consumers used direct-to-consumer services from CPG firms in 2014. By 2018 that number had risen to 5.8%, according Global Data. Then, e-commerce sales of specialty foods were up 132.5%. in 2019, per the data released in the annual State of the Specialty Food Industry Report by the Specialty Food Association. This year, Nielsen data reported e-commerce sales of alcohol doubled from the week ended March 7 through April 18 when compared to the same period a year ago.

Clearly hungry consumers are not willing to forgo their preferred restaurants or foods, even when confined to their four walls. Perhaps this merger that expands the reach of both Postmates – which delivers more than just take-out food – and Uber Eats will prove to be a winning combination.

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