As I expected and as I expect will continue to happen in the ever growing rideshare and gig delivery market, companies will consolidate and merge to become larger and more influential, as well as be able to stave off the continuous growth of rideshare and other gig service giants such as Uber, GrubHub and Amazon.
Postmates and DoorDash, two large delivery service companies have been negotiating a merger that would effectively create the largest food delivery service in the US. Which, in their opinion, would have enough power to maintain and grow their market share when facing stiff competition from real giants such as UberEats, Amazon and public traded GrubHub.
Tony Xu, CEO of DoorDash, and Bastian Lehmann, CEO of Postmates have been meeting for a while to discuss the merger options. Both are optimistic but there has been no concrete evidence of progress. The biggest issue that faces the merger is ego, which one of the two CEO's will lead the merged company? Since neither of them wants to be "under" the other, the way in which they will handle the organizational structure is key to success.
At the moment, DoorDash has a financial advantage over Postmates due to the massive infusion of cash SoftBank invested recently. This $535 million together with the fact that SoftBank is involved in the management of DoorDash makes this company a stronger competitor with greater market potential that Postmates. In fact, the difference between the two companies is much starker in reality, where Postmates has not raised any extra cash since 2016, they are the least capitalized of all the major players in the market when compared to their competition. UberEats is an Uber division, so this makes them the financially strongest of all food delivery services in the US. Amazon Flex is basically, well, Amazon, no need to add much there. They dwarf Uber so in terms of size, Postmates is an atom compared to a mountain. GrubHub is public, and owns Seamless and Eat24, in terms of market share, they are the largest food delivery service and have a market value of $8.5 billion.
The Future Outcome and Market
Market research suggests that by 2022 over 11% of all US restaurant and prepared food sales will come from door-to-door delivery services. Since the market is now around 6%, this is translated into a cash difference of $32 billion. So, the market potential is enormous.
DoorDash is a leader in food delivery services and has over 50 leading food chains partnered in their system, including Wendy's and the Cheesecake Factory. Postmates is older than DoorDash by 2 years but is mainly strong in California. Although, recently it expanded its services to include grocery deliveries.
If we combine the two companies, they would reach 23% of the market and as such would become second largest after GrubHub which currently has 52% of the market and Uber which has 20%.
Both companies are identical in operational procedures, they manage couriers via an app and allow merchant partners to manage their own menus and prices in the merchant part of the app. Postmates also offers a subscription service for monthly deliveries at a set price.
Postmates reported a $900 million gross sale in 2017, but losses of around $75 million.
DoorDash has declined to provide details.
GrubHub for comparison reached $3.8 billion in gross sales in 2017, and since this is a public traded company, you can access their financials and operations figures from their website or the SEC.
Pros and Cons for a Merger
Geographical strategy is the main reason for companies to merge. GrubHub owned the Chicago market while Seamless owned the NYC market, after the merger they owned much more, since the potential to grow became exponential when looking at markets in a converging map.
Once DoorDash and Postmates put their ego' aside and concentrate on what they can put in their pockets, they will emerge a much stronger company