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Is a major delivery merger inevitable?

A report last week said Postmates was considering a sale, rather than an IPO. That could further shift the dynamics of third-party delivery, says RB’s The Bottom Line.
Photograph courtesy of Postmates

the bottom line

In February, third-party delivery provider Postmates confidentially filed documents for an initial public offering.

Last week, however, a report suggested that Postmates is considering a different route: a sale, perhaps to one of its rivals.

Vox reported that the company has held talks with potential acquirers, including DoorDash, Walmart and Uber, though Postmates disputed the publication’s reporting. The publication said that Postmates is still working on its IPO, which has been slow going, but prefers a sale at this point.

Consolidation in the third-party delivery business has already begun. Waitr late last year bought regional player Bite Squad, shortly after going public in a reverse merger.

But further consolidation is inevitable, and probably necessary.

Though Postmates is growing faster, it is considerably smaller than any of those companies, with a 10% penetration rate, according to a study released last month by Second Measure.

By comparison, DoorDash and Grubhub are both around 32%, and Uber Eats is just under 20%. (Uber really should buy Postmates based on this data alone, for what it’s worth.)

Investors have been questioning the economics of some of these services. Both Uber and Lyft have had disappointing debuts on Wall Street this year, and so another, similar service in Postmates might not quite receive the welcome it hoped for.

The existing publicly traded delivery provider, Grubhub, has lost half of its value over the past year, meanwhile.

Delivery providers already face difficult economics. But the race to generate growth at all costs has led to some intense competition between the largest players.

Executives of Domino’s Pizza this week, for instance, suggested that “investors are willing to lose a lot of money to drive trial and market share in those businesses.”

Some restaurants are taking advantage. As it is, more chains are charging higher prices on delivery orders, something third-party providers frowned upon as the service first emerged. And now some chains are getting a lot tougher in their negotiations.

McDonald’s, for instance, has only worked with a single provider, Uber Eats, since it first introduced delivery in the U.S. in 2017. This year it renegotiated that deal, getting a lower commission and also ending its exclusivity arrangement. And this week, the company said it plans to offer delivery through DoorDash.

That seems to be a major win for McDonald’s, illustrating that big brands can win concessions from delivery players eager to have those names and their marketing strength on their respective platforms.

There is some sense that delivery providers are getting their own customers as they’ve grown and won market share.

But consolidation could tip the scales further. The larger and more well-known a delivery aggregator is, after all, the more important it will be for restaurant chains to deal with them. At the moment, however, brands can play the competitors off one another and drive better deals.

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