Uber Eats is strengthening its position in the market for online food ordering and delivery by acquiring the number four in the market, Postmates in a USD 2.65 billion all-stock takeover. The deal is expected to result in more than USD 200 million in annualized savings after the first year, primarily through cuts in marketing and administrative expenses. Uber Eats is meant to reduce the loss of the mother company Uber Technologies which amounted last year to USD 8.5 billion. More important, the deals reduces competition and opens a door to an enhanced offering of groceries, alcohol and drug-store items in some of the 2,940 U.S. cities in which the company operates.
Uber Eats benefits from Uber drivers, who can quickly switch between passenger to food on their app. While demand for rides, which is by far Uber's biggest business, plunged 75% in the second quarter from a year ago, Uber Eats food delivery service doubled during the same three-month period due to social distancing rules and stay-at-home appeals during the COVID-19 pandemic. Uber even encouraged their drivers to switch from ride-hailing to food-delivery to give them another way to earn money.
Uber Eats is already the second-largest food delivery service in the US with a market share of 29%, and will increase its market share to 37% when combining with Postmates, thus narrowing the gap to market leader DoorDash which dominates 45% of the food-delivery market in the U.S, according to latest data from Edison Trends.
Just one month ago, after one year of intensive talks Uber failed to buy the number three in the market GrubHub, which hada market share of about 17% in April 2020 coming down from about 29% in January 2019. GrubHub was instead acquired by Europe’s market leader in this sector Just Eat Takeaway.com for USD 7.3 billion to create the "world’s largest online food delivery company outside of China."
“Like ridesharing, the food delivery industry will need consolidation in order to reach its full potential for consumers and restaurants,” an Uber spokesperson said. According to sources close to the deal, Uber Eats’ vice president Pierre-Dimitri Gore-Coty will lead the combined group’s businesses and Postmates Chief Executive Officer and Founder German-born Bastian Lehmann and his team will stay on to manage Postmates as a separate service.