With its $2.65 billion deal to buy Postmates, announced Monday morning, Uber is making it clear that it’s hungry for a bigger slice of the delivery pie than just ferrying meals from restaurants to customers. In announcing the all-stock acquisition, the ride-hailing giant signaled its interest in all sorts of delivery, including groceries, a market currently dominated by Amazon and Instacart.
“The way that we view this category is very broad,” said Uber CEO Dara Khosrowshahi on a conference call Monday discussing the Postmates deal.
Uber and its restaurant delivery competitors “are all looking to get into adjacent categories and really looking to power local commerce and delivery to the home,” Khosrowshahi added. “This is a business that Amazon is in. This is a business that Walmart is in. I do think that the category and the markets are going to start overlapping with a lot of players.”
The deal “complements Uber’s growing efforts in the delivery of groceries, essentials, and other goods,” the company said in its announcement of the Postmates acquisition.
A slide deck walking investors through Uber’s acquisition of Postmates lists Amazon and Instacart as potential competitors for the combined companies.
Uber has already begun testing grocery delivery through partnerships with stores in France, Australia, and the UK. Uber is also working with convenience stores in Spain and Brazil to deliver goods to customers. Some U.S. customers can order convenience store items through Uber Eats depending on their location.
The Postmates acquisition could help Uber expand grocery delivery and provide a financial cushion for the struggling gig economy company.
Restaurant delivery is a low-margin business at best, a money-loser at worst. The economics are difficult for companies to puzzle out, making delivery of groceries and other essentials an attractive vertical to chase. The new market could also help Uber offset losses from its core transportation business as fewer people are requesting rides during the pandemic.
With the Postmates acquisition and expansion into new categories, Uber is attempting to cast itself as one of many competitors, rather than a dominant player, a key question in any future regulatory review. The move comes as Uber and other large technology companies are under intense scrutiny from regulators and officials over the power they wield.
“We really believe that the market is much bigger than, let’s say, the traditional delivery players,” Khosrowshahi said on the conference call. “We look at grocery as a category, there’s a lot of hot food being delivered, we look at essentials as a category that we are going to go after as well. So make no mistake, when we look at the category, for us, it started with food but it’s much more expansive than that.”
Uber’s acquisition of Postmates comes just a few weeks after a European food delivery company acquired Grubhub for $7.3 billion. Grubhub considered selling to Uber before Just Eat Takeaway gobbled it up.
The restaurant delivery industry is consolidating as it faces a difficult financial landscape, growing demand from customers sheltering at home, and regulatory hurdles. In Seattle, officials passed laws capping the fees delivery companies can charge restaurants and requiring them to provide premium pay to couriers working during the pandemic. In California, Uber is locked in a legal battle over a law that could force the company to reclassify its drivers as employees rather than independent contractors.
Postmates will live on as a separate service following the acquisition, with Uber running a combined merchant and delivery network behind the scenes. Uber estimates that it will issue about 84 million shares of common stock for 100% of the fully diluted equity of Postmates. Uber stock is up 6% on the news,
