Starving Uber Gobbles Up Postmates, But Can It Save The Company?

Uber will merge Postmates with Uber Eats. The combined business will own a third of the U.S. food delivery market.

Uber will merge Postmates with its own food delivery service, Uber Eats. Horacio Villalobos#Corbis/Corbis via Getty Images

With its ride-hailing business slumping and the economy shutting down again as the COVID-19 pandemic surges, Uber (UBER) is going all-in on food delivery, making what was once an unremarkable subsidiary business, a centerpiece of its plans. On Monday, Uber announced that it has agreed to acquire Postmates, the fourth largest on-demand delivery platform in the U.S., in an all-stock deal worth $2.65 billion.

Through the acquisition, Uber will merge Postmates with its own delivery service, Uber Eats. The combined entity will own about a third of America’s food delivery market, according to market analytics firm Edison Trends.

The Postmates acquisition is the latest move in Uber’s pandemic survival plan. Since the coronavirus outbreak in the U.S. in January, Uber’s revenue from ride-sharing has plummeted more than 80 percent, forcing the company to slash 25 percent of its workforce (not including contract drivers) and put a hold on expensive, innovative projects, including self-driving vehicles.

On the bright side, Uber Eats has given a ray of hope to the ride-hailing giant as demand for food takeout and delivery surges during the coronavirus lockdown. In the second quarter, orders placed through Uber Eats jumped 100 percent from a year ago, according to Uber CEO Dara Khosrowshahi. And, expecting partial quarantine measures to stay in effect across the nation for the foreseeable future, Uber may soon expand delivery services to more categories.

“Uber and Postmates have long shared a belief that platforms like ours can power much more than just food delivery—they can be a hugely important part of local commerce and communities, all the more important during crises like COVID-19,” Khosrowshahi said in a statement on Monday.

See Also: Despite Promise, Uber Eats Still Charges Black Restaurant Owners Big Fees

On-demand delivery service is a relatively new industry in the U.S., but the space is already saturated by an oligarchy of a handful of players who are constantly eyeing each other to form a true monopoly.

Not long ago, Uber was reportedly in talks to acquire Postmates’ rival, GrubHub, for as much as $6 billion. The deal fell apart last month after GrubHub sold itself to Europe-based Just Eat Takeaway.

Separately, Postmates had discussed possible mergers with GrubHub, too, as well as Doordash (DASH), the largest food delivery service in the U.S., before striking a deal with Uber, multiple people familiar with the talks told The New York Times.

As of 2019, DoorDash owned 35 percent of the U.S. food delivery market, followed by Uber Eats’ 25 percent and GrubHub’s 23 percent, per Edison Trends.

Starving Uber Gobbles Up Postmates, But Can It Save The Company?