Uber has agreed to acquire the food delivery start-up Postmates for $2.65 billion, as the company aims to grow its presence in on-demand food delivery while its core ride-hailing business struggles. The companies announced the all-stock deal Monday morning. Uber will combine Postmates with its food delivery subsidiary, Uber Eats, which has been growing during the COVID-19 pandemic.
Food delivery apps, which connect drivers, restaurants and customers, have grown quickly in recent years, fueled by venture capital and armies of contract workers. But the services they offer are not very different from one another, leading to heavy competition and pressure to keep fees low. While more people have been using delivery services during the pandemic, profits have been elusive.
As a result, delivery app companies have circled one another, aiming to make deals to gain scale. Postmates previously discussed possible deals with DoorDash, the largest service in the US, and another rival, GrubHub. In recent months, Uber also discussed buying GrubHub. But last month, GrubHub was instead sold to Just Eat Takeaway, a European delivery company, for $7.3 billion.
Together, Postmates and Uber Eats would have a 37 percent share of food delivery sales in the US, according to Edison Trends, which tracks credit card spending. DoorDash would remain the largest player with 45 percent, while GrubHub would have 17 percent.
Uber is banking on food delivery to help sustain its business during the pandemic, as demand for ride-sharing has plunged. In its first-quarter earnings call, Uber said gross bookings revenue for its rides segment was down 80 percent in April from a year earlier, while gross bookings revenue in Uber Eats was up more than 50 percent during the period.
In May, Uber posted a $2.9 billion loss for the first three months of the year and announced it was laying off 14 percent of its workforce. But revenue for its Uber Eats division rose 53 percent.
Postmates, last valued by investors at $2.4 billion, is smaller than the other players. Founded in 2011, it was among the first start-ups to use part-time “gig workers” to deliver customers whatever they wanted at the tap of a smartphone button. The company has had success in specific urban areas, like Los Angeles and Miami, but has struggled to compete nationally against DoorDash, GrubHub and Uber Eats.
Both Postmates and Uber have opposed a newly effected California labor law that could force the companies to reclassify their drivers from independent contractors to employees. The companies are backing a state ballot measure to change the law in the coming November elections.