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Competition keeps heating up in the wars over food delivery. Uber today announced it has acquired Postmates in a $2.65 billion, all-stock deal in the latest development. It plans to run the business alongside its own food supply business, Uber Eats, keeping the Postmates app running while merging some of the tech and delivery operations at the back end — for example, having drivers delivering orders for both businesses.

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The deal confirms reports that emerged last week and that Postmates and Uber were in negotiations, reported last night with more financial detail. That deal itself emerged in the wake of Uber’s failure to acquire another competitor, Grubhub, instead of acquired for $7.3 billion by Europe’s takeover game Just Eat Takeaway.

Uber and Postmates, particularly for our couriers, have been great partners working together to promote and build best practices around our industry. Together we can ensure that as our industry continues to grow, it will do so to the benefit of all in the communities we serve, “said Bastian Lehmann, co-founder, and CEO of Postmates, in his statement.

In his news release, Uber described Postmates as “highly complementary” to Uber Eats, citing the different regional focuses and target markets of the two companies and mentioning that Postmates has close partnerships with small to medium-sized restaurants and other businesses that are loyal to the Postmates brand, which not only includes food but also other products.

On the other hand, Uber noted that they will build better tools and technology for their merchant and restaurant partners together and that they will now have a broader user base to tap. That last point is somewhat at odds with the lack of overlap between the two, so we’ll have to see how that plays out.

Uber’s all-stock deal valuation is a slight bump on Postmates’ last valuation of $2.4 billion, which it reached on the back of a private equity round in September 2019 (it had raised just over $900 million over 10 years altogether). But with the “money” all in the paper, it’s putting a lot of pressure on both Postmates and Uber to keep delivering on growth — pun intended.

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The Uber Eats company increased 52 percent in its last quarterly earnings results and helped to overcome a marginal decrease in its ride-hailing revenues. In both cases, you can draw a line from the outcomes to the social distance requirements that people around the world have been following: consumers stayed more at home and ordered food to be delivered to them; and at the same time they stayed away from shared, small spaces, such as those that you might encounter on an Uber ride. However, the organization lost $3 billion last year, despite the help at Uber Eats.

The pattern of these figures is one of the reasons Uber tried to grow its food distribution business. The other is the one that has motivated the greater consolidation trend in food delivery, and that is the principle of economies of scale and how this plays out in terms of operating expenditure, with single drivers capable of covering more restaurants and orders, and also the operating costs of the business.

Conclusion:

The broader business model requires a lot of subsidizing to grow, so taking out a competitor reduces that kind of expensive competitive pressure somewhat. However, it doesn’t eradicate it: DoorDash and Grubhub are both there and would provide good options for both customers and restaurants searching for partners in distribution.

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Anshul Sharma
Author

Being the Co-Founder of Fluper, one of the Leading App Development Companies, Mr. Anshul Sharma has a wide-ranging experience in Business Growth. He has paved his own path as an extremely intensive product strategist and user experience proficient entrepreneur. His keen interest in the tech updates urges him to write about the latest tech news and make other businesses or enterprises aware of the changing market scenario.

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