Investments

Postmates Raises $100M As Online Food Delivery Heats Up

Postmates Raises $100M as Food Delivery Heats Up

The food delivery space keeps heating up — the latest news is that Postmates has scored a $100 million investment in advance of its initial public offering (IPO), expected with the first six months of 2019. And the coming months promise to bring more heat to this space as Uber heads toward its own IPO, and new delivery methods are tested.

But consolidation looms, according to some observers, and online food delivery services will eventually have to shift more focus away from consumers and toward restaurant operators in order to thrive in a crowded marketplace.

Postmates Funding

Here’s the news: On-demand delivery provider Postmates raised that $100 million worth of fresh capital in a funding round led by BlackRock, Glynn Capital and Tiger Global. Postmates’ valuation now reportedly stands at $1.85 billion.

Though it’s not an apples-to-apples comparison, the valuation for Uber — operator of Uber Eats, which covers at least 50 percent of the U.S. population and is striving for market dominance — now reportedly stands at $90 billion, $14 billion less than a previous estimate.

When it comes to funding, Postmates has not kept up with competitor — and long-rumored merger partnerDoorDash. It raised $250 million last year in a growth round co-led by Coatue Management and DST Global. That funding followed a $535 million investment from SoftBank, Sequoia Capital and Singapore-based sovereign wealth fund GIC earlier this year, bringing the food delivery company a $1.4 billion valuation.

Food Delivery Focus

Partnerships and technology are becoming increasing important in the delivery space.

For instance, DoorDash is partnering with Walmart to give businesses an option over Instacart. Instacart, for its part, keeps signing more grocers as it winds down its relationship with Whole Foods as Amazon takes greater control of the high-end grocery chain and handles its own deliveries. Meanwhile, the eCommerce operator and logistics heavyweight continues investing in its delivery fleet. Uber Eats is partnering with Starbucks for deliveries of its products in the U.S.

And that’s not all in the area of food delivery partnerships — some concepts blur the line between delivery service and restaurant. That’s because delivery services are rolling out brick-and-mortar operations that serve dual purposes.

Deliveroo, in one example, has created a space called the Deliveroo Food Market that serves both the customer walking in for a meal and the one looking to order online. The concept appears to be part food hall, with 15 dining concepts for diners to choose from, and part fulfillment center, with kitchen space for eCommerce orders.

Unmanned delivery technology — including drones — also promise to make a splash in the delivery space, and perhaps sooner rather than later.

DoorDash and General Motors are working on a project that involves Cruise, GM’s self-driving car, and its use for food and grocery shipments to consumers. Testing was set for early 2019 in the San Francisco area. Ford and Postmates were involved in similar self-driving tests. Uber is thinking about using drones for food delivery — an idea floated as the hype in advance of the expected Uber IPO gets more intense, to be sure, but one within the realm of possibility in the coming years, at least on a very limited — or experimental — basis.

Food Delivery Pivot?

But online food delivery operations have more important things to worry about than drones and self-driving vehicles. Premature obituaries for this space have been written for more than a few years by now — obituaries in the sense of predictions about smaller players shutting down and massive consolidation taking place. That still seems likely to happen — though smaller and regional delivery services are striving to find their niches in this space — but instead of talking about doom, let’s consider what has to happen for delivery operations to thrive in the coming years.

First of all, some restaurants are likely to have second thoughts about using third-party delivery service providers, given the bigger margins that usually result from inside dining. (Efficient delivery, of course, brings its own benefits, including an expanded customer base and increased order frequency, according to analysts.) Not all restaurants, of course, are equipped to efficiently handle their own deliveries — especially as the delivery market continues to grow, thanks in part to the eating habits of young consumers — but observers do anticipate more general pushback from restaurant operators.

That pushback also could help drive another trend in the delivery space, as the “the smartest and most agile of these companies … shift their attention to restaurants, offering services specifically designed to help operators increase sales and revenue,” according to an analysis from global restaurant consultants Aaron Allen & Associates.

“Most delivery service providers have focused on winning over consumers by offering discounts and coupons, multiple ways to access the service (via desktop, mobile, smart TV and so on) and, of course, the most popular restaurants,” the report said. “This makes sense, considering how sticky these apps are for customers: Some studies indicate that about three-quarters of consumers stick with the very first provider they try.”

Core Business

But now those delivery companies that want to thrive — especially amid all this fresh capital from private and, soon, public investors — will need to reconsider their core business and culture and, according to that analysis, “develop a deep understanding of the needs and concerns of restaurant operators or risk losing them to competitors or in-house apps.”

One possible, if very early sign, of such a pivot comes from Uber Eats.

Late last year, the service began allowing restaurants in India to bundle several food items together at a discounted price in exchange for placement in a featured section of local “Specials.” With the feature, restaurants can create a bundled meal (such as a sandwich, fries and a drink) at a discounted price point. Uber added that attracting more customers could offset the discount, while businesses could also use the feature to bundle high-margin items or get rid of overstock. Uber didn’t disclose whether it plans to bring the feature to additional markets, but it seems reasonable to expect more of such efforts from online food delivery service providers.

The general business of food and beverage — whether groceries, inside dining or delivery — involves ongoing significant technology changes as players try to catch up with the shifting ways that consumers interact with all types of retail operations. There are major challenges to that push, as recent PYMNTS research has demonstrated. But even at this sizzling time for online food delivery, the players in that space cannot afford to lose even a half-step to their competitors.

——————————–

Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. Check out our February 2019 B2B API Tracker Report 

TRENDING RIGHT NOW

To Top