Postmates and DoorDash Might Merge to Combat UberEATS, GrubHub and Amazon

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.

Income Comparison

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

DoorDash needs to merge since GrubHub and UberEats all have billions behind them and in fact, GrubHub is the market “Uber” of food with 52%. DoorDash wont disappear, but size is key to profits since the business models that these companies use are so tight, every delivery is important. The history of courier services only took a popular route due to the use of Gig apps in the hands of megalomaniacs. However, when you consider all the local alternatives, local courier services that don’t want to grow up, they like being local, earning their owner and couriers a good income, the larger ones need to fear the local ones more. Not because they pose a threat, but because local ones tend to get more sympathy and “steal” market share. Local gig economies are starting to emerge ever since entrepreneurs realize that the cost of “buying” a developed app is around $1,500-$3,000 ! Yes, fully researched by me ad double checked. I can get an “Uber Eats” Or even an Uber app for $2,000. where is the catch? There is only one concern you need to have and that is bandwidth and server storage size. The larger the community the more bandwidth and server storage space you need to manage the data stream, other then that, there is no difference.

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It doesn’t matter how much doordash tries, GrubHub is the Uber of food delivery in the US and it will continue to expand and retain its market share. Bottom line, price and service are the deciding factors, and as long as the pricing is similar, the more saturated market holders will control the market.

The beauty of a competitive market is that you never know what will happen and when it will happen even if it does get media micro-coverage. DoorDash’s merger will set it up as another biggie with 25% of the market, which means that UberEats 23%, DD 25% and GrubHub’s 52% basically seal up 99% of the market. This means that any other delivery companies are basically taking the small or local income, or will grow alongside these giants. The real question is; are delivery contracts non-competitive, that means can McDonalds work with more than one delivery service or not? Also, how long are these contracts on for and if a newbie comes along with a cheaper and similar quality service, can they steal the contract?

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