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On-demand delivery service Postmates is reportedly raising $100 million in additional funding, reports TechCrunch.
Postmates had previously raised about $138 million at a $500 million valuation, and serves 4,000 businesses in over 200 US cities, according to its website. The latest funding round could help Postmates better compete in the crowded on-demand space, especially as it expands beyond restaurant delivery into retail.
Postmates' focus on retail provides the company with a new avenue for further growth. The company first partnered with Walgreens in September 2015 to offer same-day delivery on prescriptions and other consumer packaged goods. And this year, Postmates partnered with apparel retailer American Apparel and e-commerce platform provider Shopify to offer same-day delivery of retail goods in select cities. If this funding round closes, we expect that Postmates will look to retail to further grow its overall business.
In fact, when Postmates first launched in 2011, food orders were 99% of the company's deliveries. Now, that share has shrunk down to 80%, where the other 20% is made up of delivery orders for retail, health, and beauty products, reports Digiday.
New funding and expanded offerings could help Postmates gain market share against competitors. The on-demand meal delivery space is becoming increasingly crowded, with major players like Grubhub/Seamless, DoorDash, and UberEATS continually growing. This potential $100 million cash injection could give Postmates more runway with which to compete against others. Indeed, as Postmates continues to diversify its revenue streams, the capital would likely support its efforts to explore other services and offerings. Improving on its services should lead to a surge in new customers and, subsequently, order volume.
Postmates can also leverage its existing network of couriers to reach more online shoppers. Postmates' decision to expand outside of meal delivery is an attempt to capitalize on shifting consumer expectations around fast shipping. Providing same-day service can appease shopper demands, while giving the company a clear value proposition. In fact, 99% of US consumers consider same- or next-day delivery to be fast, according to Deloitte.
Meanwhile, just 63% consider 3-4 day shipping to be fast. As the company onboards new shoppers with its various offerings, Postmates' drivers will probably add more routes to their daily deliveries to reach more customers, in an effort to keep up with the likely surge in sales.
Pizza chains have long dominated meal delivery, but digital platforms are now enabling the entire restaurant industry to plug into online delivery. In the dominant on-demand meal delivery model, platforms like Grubhub serve as a middleman that connect people to food using the scalability of the internet.
Although some industry leaders are processing hundreds of millions, even billions, in annual food sales volume already, they're a drop in the bucket in terms of the total addressable market (TAM) for food delivery, which is valued at $210 billion, according to Morgan Stanley Research estimates.
Companies are adopting diverse business models in the market to deliver these meals; some, like Postmates, are focused on the logistics of delivering food, while end-to-end providers like Sprig cook, facilitate ordering, and deliver the food themselves. Ultimately, order-focused platforms like Grubhub/Seamless and Eat24 appear to hold the strongest positions in the market. The former controlled an estimated 59% of total order volume in 2015, while Eat24 held an estimated 7% share. Moreover, Grubhub/Seamless could pose a threat to the logistics companies DoorDash and Postmates if it pushes further into proprietary delivery services, especially in markets its competitors haven't expanded to yet.
Despite varying advantages and disadvantages, all stakeholders will have to navigate some challenges in the market, including cooling deal volume, consumer resistance to delivery fees, potential industry consolidation, and downward pressure on take rates, which measure the revenue a company actually earns out of the volume they process.
Evan Bakker, senior research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report for on-demand meal delivery that sizes the market for on-demand meal delivery, outlines the main business models, assesses which key players are in the best and worst position in the market, and also analyzes the underlying risks that all stakeholders will have to navigate.
Here are some of the key takeaways:
There is a massive unfulfilled market opportunity. As of 2015, about $210 billion worth of food is ordered for delivery or takeout on an annual basis in the US, according to Morgan Stanley Research. But two of the industry leaders, Grubhub/Seamless and Eat24, generated a combined $2.6 billion in food sales last year. This means the market is underpenetrated but massive, which will incentivize continued competition and, potentially, an influx of new entrants.
There are three main business models that companies adopt. The dominant business model so far has been platform aggregators whose primary function is to support online orders. These include Grubhub/Seamless and Eat24, which control a combined 66% share of the market so far. Other models include delivery-focused logistics models and full-service models in which companies cook the food themselves.
There are a number of risks that all players in the ecosystem will have to navigate. SpoonRocket, a once promising full-service delivery provider, shut down earlier this year in the face of insufficient capital and intensified competition. This, along with cooling deal volume, could signal upcoming consolidation in the industry. Other risk factors include consumer resistance to delivery fees and lowering take rates, which measure the revenue a company actually earns out of the volume they process.
In full, the report:
Overviews the on-demand meal delivery market and quantifies the opportunity for expansion.
Explains the three main business models meal delivery companies adopt.
Runs through the main competitors in the market and assesses which are in the best position to succeed.
Identifies the underlying market risks and how they might disproportionately affect certain types of competitors.
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