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Food from Pizzeria Delfina, one of the many restaurants from which Postmates delivers in San Francisco.  Courtesy of Postmates

Postmates CEO on faster deliveries and so-far elusive profits

Oct 15, 2015

Delivery startup Postmates is facing challenges from all sides. Deliv, Google Shopping Express, and, most recently, Uber, are fighting to bring you shampoo, food, and iPhone accessories within hours of you ordering it.

San Francisco-based Postmates, which debuted in 2011, is undaunted. After starting as a courier service for delivering virtually anything, it has found a niche with local restaurants that signed on so they could avoid the hassle and expense of delivering food around town themselves.

But as Postmates continued to grow, it became clear it would need to attract more than restaurants. Along with forging high-profile partnerships with Apple (aapl) and Walgreens (wba), it’s also building tools so that corporate customers can more easily arrange for Postmates to pick up and schedule deliveries.

Postmates is also hoping to expand beyond its food delivery base to handle more kinds of products. Doing so would help spread the demand for its drivers throughout the day instead of deliveries being concentrated around meal times. The company hopes this will ultimately lead to lower delivery prices, as co-founder and CEO Bastian Lehmann told Fortune this summer.

We caught up with Lehmann about some of the company’s latest news. On Tuesday, his company announced new partnerships to deliver products in New York City for retailer Kenneth Cole and e-commerce marketplace Etsy. Additionally, it introduced lower delivery prices and new features for merchants that use Postmates including the option to pick up multiple orders at once. The following is an edited transcript of the conversation:

Fortune: How is the API working out? [The tool that merchants can use to directly connect their websites and mobile apps to Postmates' delivery system.]

Lehmann: At the end of the year, the API will make about 5% of our traffic. Maybe eight or nine months from now, it will be about 20% of our traffic.

Tell me about Postmates Pop, your new 15-minute lunch delivery program. Why is it only in San Francisco's South of Market neighborhood for right now – is it a logistical thing? [Postmates Pop offers a limited menu from a few restaurants to make delivery faster].

Postmates Pop is an extension of our lunch specials. We had them in our app for our over year. The lunch specials were popular but we wanted to revamp the whole category. We wanted to have faster delivery times. Right now, the average time is seven minutes.

We’re starting in one neighborhood because we wanted to make sure that the food delivery is just right. We wanted to make sure the food is hot, the soup is piping hot, the packaging is just right. Our team has relationships with over 200 merchants on our platform, and that’s paying customers which means we take a commission on the gross merchandise volume. They basically sign up the merchants for the entire week, two or three items per day. They plan the whole week so it looks like a restaurant menu. Then they coordinate with the drivers. We will be in at least 10 more cities before the end of the year.

Do people really like only having a couple of options? Delivering everything seemed to make you different. But that's not the case with Postmates Pop. How are you going to compete?

That’s the beautiful thing, you can still order from the regular Postmates. Our average lunch delivery time is 34 minutes [via our normal service]. Around lunchtime, we see that people want actually prefer less choice as compared to dinner time when people seem to want more options, so Postmates Pop works for lunch.

What about longer distance deliveries? Like from one city to another?

As a company, I don’t think that’s the immediate thing we’re going to do. The original idea [when I was in Germany] was an inner city delivery service — so perhaps a delivery from San Francisco to Palo Alto [about 30 miles], which people do on their own all the time.

How far are you from profitability?

I love questions like this. We’ve had a positive growth margin almost since we started. We will be profitable in 18 months as a company. We like the idea of making money. Maybe for me, because I’m German, the first thing was to figure out if we could make a business out of this.

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