US-based ride-hailing multinational Uber acquired American food delivery service Postmates in an all-stock transaction of $2.65 billion. The firm plans to run its own UberEats delivery service along with Postmates with integration taking places mainly in the backend such as drivers being able to take orders from both platforms.
Uber has been looking to expand its footprints aggressively in the last mile markets (delivering services to the end-use customers) like moving people or products especially since Dara Khosrowshahi took over as Uber ‘s CEO. The global company has been struggling with its ride-hailing services which is continuing to leak revenues.
Currently, increasing margins seem unreachable for its cab services because although Uber continually adds more drivers and reports more rides each quarter, its operating expenses remain high. In many markets and geographies, including China, Southeast Asia, Russia and the Middle East, this has prompted Uber to shut down or sell off its ride-hailing operations.
Though Uber’s most profitable segment is the Eats division, it is still losing considerable money. Earlier Uber had made its decision to focus on companies showing the potential of growth clear with Khosrowshahi’s comment “growth at all costs is over” during the company’s first-quarter earnings call.
Uber had earlier set its eye for acquisition on food delivery company GrubHub, a market rival publicly traded. Unfortunately, the deal fell through for Uber, as European food delivery major Just Eat Takeway.com bought GrubHub in June for $7.3 billion.
Although the recent purchase of Postmates should definitely not be called a knee-jerk reaction to its GrubHub fiasco, it is clear that Uber is trying to find a way to expand its footprint in the industry. The February report of Postmates suggests that it has completed 5 million deliveries and owns at least 5% of the food supply market in the US.
With COVID-19 in the picture, food delivery services are obviously in higher demand within cities than car rides. Uber experienced this first-hand as its ride-hailing gross bookings dropped over the first quarter, while UberEats’ gross sales shot up 54% from the fourth quarter of 2019. Given that the pandemic continues to play a major role in how societies function, this trend is likely to stay for a long time.
