eResearch | This week, Uber Technologies Inc. (NYSE: UBER) announced a US$2.65 billion acquisition of Postmates Inc., an on-demand food and grocery delivery company with operations in 4,200 U.S. cities.
Uber‘s stock price was higher on the news, and is up 9.5% year-to-date but down 21.0% on a yearly basis.
Uber is buying Postmates to diversify its food delivery business, as Postmates provides a wide array of products including groceries, pharmacy items, and alcoholic drinks, unlike Uber Eats, which focuses mainly on restaurants.
Last year, Postmates raised US$100 million in an investment round led by BlackRock Inc. (NYSE: BLK), which valued Postmates at US$1.85 billion. This investment round followed a US$300 million raise the prior year, which valued Postmates at US$1.2 billion.
The Postmates acquisition comes after Uber’s failed attempt to acquire Grubhub, which would have given Uber the largest market share for food delivery services in the U.S.
Grubhub ended up being acquired for US$7.3 billion by Just Eat Takeaway.com NV (AMS: TKWY), a food delivery giant created through a US$7.8 billion merger earlier this year between Just Eat and Takeaway.com
In a press release, Dara Khosrowshahi, CEO of Uber, said,
“As more people and more restaurants have come to use our services, Q2 bookings on Uber Eats are up more than 100 percent year on year. We’re thrilled to welcome Postmates to the Uber family as we innovate together to deliver better experiences for consumers, delivery people, and merchants across the country.”
New On-Demand Grocery Delivery Service
A day later, Uber announced the launch of its on-demand grocery delivery service in partnership with Cornershop, a Chile-based online grocery delivery company that Uber has held a majority stake in since last year.
Online grocery orders surged in demand as consumers were given stay-at-home orders due to the Covid-19 pandemic, pushing Uber to quickly launch its on-demand grocery delivery service. The service launched in Montreal, Toronto, and 17 cities in Latin America, and is expected to be available in U.S. cities Miami and Dallas later this month.
Uber created partnerships with over 9,500 merchants to deliver groceries across 35 countries on its Uber Eats platform. The launch of the service came after much testing, with Uber reporting a 197% increase in orders from grocery and convenience stores on its platform since March.
In Uber’s demonstration for its new on-demand grocery delivery service, several large franchise retail partnerships were presented, including Costco Wholesale Corporation (NASDAQ: COST), Longos Brothers Fruit Markets Inc., Metro, Inc. (TSX: MRU), PetValu Canada Inc., Rexall Pharmacy Group Ltd., and Well.ca.
PHOTO 1: On-Demand Grocery Delivery Available on Uber and Uber Eats Platforms
Uber plans to support the grocery delivery service through a partnership with Cornershop, a Chile-based grocery delivery start-up with operations in Brazil, Canada, Columbia, Chile, Mexico and Peru. Last year, Uber announced a majority stake investment in Cornershop, which is expected to close this month, after being held up by antitrust regulators in Mexico.
In 2018, Walmart Inc. (NYSE: WMT) attempted to acquire Cornershop for US$225 million, however antitrust regulators in Mexico blocked the transaction.
In the press release, Uber stated,
“Over the last six months, it’s become increasingly clear that grocery delivery is not only popular, but often a necessity. We expect to see this trend continue as people across the world look for new ways to save time and stay safe”.
COVID-19 Impacts
In the Q1/2020 earnings call, Dara Khosrowshahi said global gross Uber ride bookings decreased by 80% at the peak of the pandemic, as lockdowns severely impacted the ride-sharing industry.
However, Uber’s food delivery business, Uber Eats, experienced a 57% increase year-over-year as more people stayed at home and ordered food online.
As a result, Uber is now focused on scaling its delivery businesses, which have higher demand due to the lock-downs, such as on-demand food and grocery delivery.
Seeing how the pandemic is getting worse in the U.S., Uber may have made the right decision.
In an interview on CNBC, Uber CEO Dara Khosrowshahi said that the company would become profitable in 2021. In 2019, Uber lost US$8.5 billion on revenue of $14.1 billion.
In May, eResearch published an article highlighting Uber’s Q1/2020 earnings called “Uber and Lyft Report Q1/2020 Financials as California Sues for Violations of Bill 5”
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