Uber revs up for the business of ‘everything’ with Postmates

When hurried customers on Apple’s website opt for its rapid “courier delivery” service, they are often unaware that the third-party outfit that rushes to get their goods to them within just two hours is Postmates — the on-demand delivery company soon to be acquired by Uber for $2.65bn in stock.

Wall St has mainly viewed Uber’s Postmates deal as the latest step in the consolidation of the US food delivery market. But according to a source familiar with the deliberations, Uber’s board was also attracted to what Postmates refers to as its “delivery-as-a-service” platform — the white-label service for retailers wanting to offer same-day delivery.

The move comes as the company pushes to turn Uber Eats into Uber “everything”, shifting away from just restaurant deliveries and into products that could offer greater margins and better efficiencies. In the process, the company is also pitting itself against a more formidable competitor: Amazon.

“The vision for us is to become an everyday service,” said Uber’s chief executive, Dara Khosrowshahi, in a call with investors this week announcing the Postmates deal. “If you want anything delivered to your home within a couple of hours, you can come to Uber Eats. And if it’s food, it’s great, but if you want groceries, pharmacy . . . any other category, you can have it delivered to your home as well.”

Beyond food

The Postmates acquisition is just one of a number of moves Mr Khosrowshahi has made recently in his quest to deliver everything. This week Uber said it had completed a deal, first announced in October, to spend $459m on a controlling interest in the Latin American grocery delivery service Cornershop.

Column chart of Net revenues ($bn) showing Uber builds up its business outside of rides

Founded in Santiago, Chile, in 2015, Cornershop has grown to become a dominant grocery delivery service in markets such as Rio de Janeiro and São Paulo. On Tuesday, Uber said it had started integrating Cornershop merchants into the Uber Eats app, adding a “groceries” button that takes users to a listing of participating supermarkets nearby.

It added that Cornershop will soon launch in a small number of US locations, having been trialled in Dallas and Miami since May.

In other parts of the world, Uber has partnered directly with supermarkets, such as Carrefour in France and Galp in Portugal. In the UK, Asda announced this week it would trial offering Uber delivery from two of its outlets, with a view to adding more sites later. Uber’s delivery rival in the country, Amazon-backed Deliveroo, already has deals in place with several other supermarket chains.

In moving aggressively into the broader delivery business, the company is gaining itself some powerful competitors.

“This is a business that Amazon is in, this is a business that Walmart is in,” said Mr Khosrowshahi, speaking to investors on Monday. “So I do think that the category and the markets are going to start overlapping with a lot of other players. The total addressable markets are huge.”

Taking on Amazon, with its vast delivery infrastructure built up over years at huge expense, might seem unwise. But connecting drivers with local brick-and-mortar locations, rather than out-of-town delivery stations and fulfilment centres, could allow Uber to offer faster delivery times than its bigger rival.

What is more, argued GlobalData Retail analyst Neil Saunders, other retailers might be drawn to a service like Uber because, unlike Amazon, it is not trying to sell its own products as well.

“Uber can probably capture a much greater share of retailers that want to be part of its platform because they’re really only doing the fulfilment part,” he said, though he cautioned that its Achilles heel would be making money.

“Even if they do try to find a way of really reducing costs, Amazon will just come out and do it cheaper because it has other businesses it can use to cross-subsidise cheap delivery.”

Uber is not alone in chasing this opportunity. It faces growing competition from fellow gig-economy rivals, particularly in the US, where DoorDash and Instacart have already moved in the same direction.

Instacart would not divulge specific deals, but said the “majority” of the more than 400 retailers it offers through its app were there exclusively. Meanwhile DoorDash, currently the market leader in US restaurant delivery, also has its own white label offering, DoorDash Drive.

‘The pricing works’

The Postmates deal, expected to be completed in the first quarter of 2021, will greatly expand the potential range of businesses beyond restaurants can operate via Uber’s platform.

And when Postmates is handling higher-value items than a takeaway meal, customers are more prepared to pay for fast delivery.

Line chart of market share in the US (%) showing battle over food delivery heats up

Rumby, an LA-based start-up that provides customer management software for dry cleaners, today uses Postmates to handle pick-ups and deliveries of clothing.

“When you’re looking at a $7 sandwich, you’re looking at $7 delivery for that $7 sandwich,” said Ben Cantey, Rumby’s chief executive. “Our average orders are between $45 to $65. The pricing works. It’s a convenience and people are willing to pay for that.”

Quite how much of a boost Uber’s bottom line will see from Postmates’s white label business is unclear, however. A spokeswoman for Postmates would not share details on how much of the company’s total revenue — $107m in the first quarter — came via delivery-as-a-service clients, only to say that there are now “thousands” of merchants making use of the Postmates application programming interface.

In 2019, there was a 170 per cent increase in merchants, year-on-year, driving a tripling in the number of orders from consumers.

Postmates has also partnered with ecommerce platforms Shopify and Square to allow their merchants to integrate delivery-as-a-service into their own brand stores. Neither Shopify nor Square would share how many of their merchants had taken up the offer — though analyst John Blackledge, from Cowen, predicts added opportunity in a post-Covid era for a combined Uber-Postmates company.

“Uber could be a friend to brick-and-mortar retail,” said analyst John Blackledge, from Cowen.

“People are going to be nervous about going into stores. [Uber] will get the domain knowledge from Postmates and Cornershop — and the technology apparatus to to pursue this.”