Uber to buy US food delivery startup to extend its footprint

UberEATS delivery bike box in London, England, United Kingdom. Photo: Mike Kemp/In Pictures via Getty Images Images
UberEATS delivery bike box in London, England, United Kingdom. Photo: Mike Kemp/In Pictures via Getty Images Images
  • Uber has announced that it’s buying US food delivery startup, Postmates.
  • Postmates holds about 8% of the US food delivery market while Uber Eats holds roughly 22%.
  • The merger could see UberEats become the second largest US food delivery company after DoorDash which commands 45% market share.

Uber said on Monday it was buying delivery startup Postmates for U$2.65 billion in stock, in a move shaking up the sector which has seen surging growth during the coronavirus pandemic.

The acquisition steps up the effort by the ridesharing giant to diversify its business to meet growing delivery demands after failing to win a battle for US meal delivery giant Grubhub.

"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 COVID-19," Uber chief executive Dara Khosrowshahi said in a statement.

Khosrowshahi told analysts on a conference call he expects the takeover will "drive significant efficiencies and cost savings" and help "offer wider selection at lower prices for consumers."

He added that the deal would also "accelerate the path to profitability" for Uber, which reported widening losses in the first quarter of 2020 as the pandemic hit its rideshare operations but saw booming demands for meal delivery.

Postmates, a startup specializing in delivery of food, groceries and other goods, will be integrated into Uber Eats, which has seen its business double during the global health crisis.

The San Francisco rideshare giant made an unsuccessful US$6 billion bid for Grubhub, which ended up merging with Dutch-based Just Eat Takeway.

Postmates holds about 8% of the US food delivery market, making it the number four operator behind DoorDash (45%), Grubhub (23%) and Uber Eats (22%), according to the research firm Second Measure.

San Francisco-based Postmates, which reportedly had been on track for a public share offering this year, has also been testing robot delivery, tieing in with Uber's efforts to develop autonomous technology.

'Aggressive move'

"Clearly this is an aggressive move by Uber to take out a competitor on the Uber Eats front and further consolidate its market position, especially as the COVID-19 pandemic continues to shift more of a focus to deliveries vs. ride-sharing in the near-term," said analyst Daniel Ives of Wedbush Securities.

Ives called the deal "both a defensive and offensive acquisition in the food delivery space for Uber at a time with its core ridesharing business seeing massive headwinds in this COVID-19 pandemic."

Independent analyst and investor Benedict Evans said that in the low-margin food delivery business "reducing capacity and bolting customer pools together (hence paying in stock) instead of fighting for them has obvious logic," but added: "You still need the underlying unit economics to work."

The companies said the boards of both firms approved the transaction, and that they expect to close the deal pending regulatory approval early next year.

Postmates co-founder and CEO Bastian Lehmann said the tie-up would create a stronger player in the delivery segment.

"Over the past eight years we have been focused on a single mission: enable anyone to have anything delivered to them on-demand," he said.

"Joining forces with Uber will continue that mission as we continue to build Postmates while creating an even stronger platform that brings this mission to life for our customers."

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