Retail

Is Postmates Ready To Play In The Big Leagues?

Astute observers of payments and commerce will note that the “end of days” watch for the wave of delivery on-demand services that have launched in the last 12 to 18 months has been on for some time.

Predictions of doom have actually been rolling in for longer than things have been officially looking a bit grim. Even when investment dollars were still plentiful and it seemed just about every product or service — from toilet paper to Mexican candy — had an associated app dedicated to its timely delivery, naysayers, skeptics and parade rainers began wondering audibly if everything under the sun actually needed an Uberized extension.

Sure, organic meals, custom curated makeup and handwoven cotton shirts are all things that can be placed a mere finger-tap away from consumers, but the million (or in some cases billion) dollar question has never been about possibility, but rather about probabilities. Specifically, what are the odds that customers are going to keep up with the on-demand lives once the novelty wears off, and how many among the fleet of on-demand companies that launched last year are actually offering services that are:

  1. Broadly useful enough that it can grown to scale
  2. Unique enough that Amazon, Uber and Google don’t eat them alive with their recent interest and entrance into the marketplace.   

Early 2016 has started to see some answers roll in on those questions — and as they say in politics, the early returns are not wholly encouraging. Some services have folded up shop entirely, and others have been bought out at fire sale prices and stripped for technological parts. There have also been some notable changes of direction or business model updates, like Instacart increasing prices for example.  

However, with all the doom and gloom in the atmosphere, not everyone is feeling quite so down on the shape of things to come in the on-demand delivery marketplace. In fact some like Sean Plaice, co-founder and chief technical officer at Postmates, are feeling pretty upbeat about the future — and are kind of wishing the rest of the marketplace would buck up a bit as well.

“Postmates has always had strong unit economics and strong gross profit margins,” Plaice said. “I know there’s a lot of doom and gloom around the on-demand apocalypse, but we get lumped in with that, and it drives me crazy.”

The sentiment is shared by the team at Postmates. According to Kristin Schaefer, the company’s vice president of growth and strategy, the last year has seen the Postmates team working overtime to stand out in an increasingly crowded on-demand delivery field.

“You can see that with our partnership with American Apparel and Kenneth Cole to move more directly into apparel as well as with our new membership program,” Schaefer noted. “I think a lot of people tend to associate us as a food delivery platform — and while meals are always going to be a big part of what we offer, Postmates’ future is as a full service delivery platform.”

The membership program Schaefer alludes to was formally announced last week and will for the first time give Postmates users an opportunity to order unlimitedly, for a flat monthly fee of $9.99. As long as orders are over $30, users get to pass on the 9 percent usually assessed on orders. The program, unsurprisingly, drew many, many comparisons to Amazon Prime.

Schaefer thinks those comparisons to Prime are a little off the mark, despite the surface similarities between the services. The imperative for Postmates was not to build a direct competitor for Prime so much as it was about evolving the platform in such a way that it both fosters and rewards regular usership

“Postmates is really invested in building local supply networks in the cities it serves, as opposed to the Amazon model, which is all about using warehouses as hubs.”

In his remarks to Bloomberg, however, Plaice was a bit more direct in referencing Amazon.

“The great thing about Amazon Prime is it centers everyone’s default eCommerce to Amazon, and on Amazon, you default to products on Prime. That’s the same thing we’re looking to have here. Why use any service but Postmates to get your food delivered? You have a subscription. It gives you the best, most affordable delivery.”

Becoming a default service, so to speak, is not without its challenges. Postmates membership is already more expensive than Amazon Prime Now, which Amazon is increasingly pushing as a central part of its service (giving it a home on the Amazon.com homepage) and offering in an ever expanding list of venues.

Plus, offering unlimited free deliveries for a flat fee — and wiping out those revenue-generating service charges — is not expected to be a money maker for Postmates out of the gate. They will in fact likely lose a bit of money on the deal, according to Schaefer.

“Obviously we don’t think this will do critical damage to our margins, but we know we are going to take at least a small hit at first. However, this is a short-term cost for a long-term gain, because we know that ultimately this is the right strategy for a customer experience that we are always enhancing but also offering to customers at a reasonable cost.”

There is also the hope that with its membership program, Postmates can stimulate a virtuous cycle wherein a stable (and regularly ordering) member base inspires an increasing number of retailers and restaurants to sign on to Postmates’ partnership program. Partners pay Postmates 15 to 30 percent of sales to receive the cheaper delivery fee and more prominent placement within the app. About 40 percent of Postmates’ delivery bandwidth is taken up by partner merchants.

Today, Postmates has a few thousand partner merchants. The aim by the end of the year is to see that number increase past 10,000.

It’s a lofty goal — and a difficult one to attain with power players like Amazon breathing down their neck on one end and a plethora of similarly premised startups looking to scoop up their customers at a moment’s notice.

But, according to Postmates, all that competition waiting in the wings from players big and small means that Postmates must attain those goals to remain competitive in the field.

We’ll keep you posted on how well they get there.

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