Postmates is betting on more people wanting food delivered to their doorsteps.
The delivery company announced on Tuesday that it has added 1,000 more cities to its service, bringing the total number of cities in its universe to 3,500 across 50 states. With the expansion, Postmates says it’s available to more than 70% of U.S. households up from 26% in mid 2018.
The news comes as Postmates prepares for an initial public offering—it confidentially filed for an IPO in February—joining a growing list of Wall Streets debutantes this year including Uber, Lyft, and Pinterest. Postmates also faces heated competition from large on-demand food delivery services like DoorDash, Uber Eats, and Grubhub.
The fourth-largest food delivery service by consumer spending, Postmates has kept a relatively low profile in recent years. But two big investments, totaling $400 million, in the last seven months has enabled Postmates to expand.
“We weren’t able to spend that much money in 2018 because we weren’t the most capitalized player,” said Postmates CEO Bastian Lehmann, referring to DoorDash and Uber Eats. “We are now putting the money we have raised to great use.”
After its most recent round of funding in December, Postmates reportedly had a private valuation of $1.85 billion. DoorDash’s most recent valuation, in February, was $7.1 billion.
Most of Postmates’ growth comes from its food-delivery business, Lehmann said while declining to provide any financial details. Postmates also delivers everything from iPhones to groceries and alcohol.
“We wanted to enable anyone to have anything on-demand,” said Lehmann, who co-founded Postmates with Sean Plaice and Sam Street in 2011.
In the past few years, Postmates has debuted new services that helped to increase the number of orders, improve efficiency, and attract new customers. Postmates said its service is particularly popular among millennials, who represent about 75% of its customers.
The first new service was a membership program called Postmates Unlimited, which debuted in 2016. For $9.99 monthly, customers get free deliveries for orders that cost more than $15. Lehmann said Postmates Unlimited accounts for more than a third of all orders and triples the average frequency of orders per user.
Unlimited users spend an average of $3,000 annually, which is reportedly about double the average amount spent by Amazon Prime users on Amazon in 2018. Postmates views Amazon as a competitor, as they both aim to be the delivery service for all items.
In March, Postmates introduced Postmates Party, which now represents about 12% of orders. The new delivery option gives customers the chance to get free delivery from restaurants from which people around them are already ordering. The point is to give drivers a chance to make more money by giving them multiple stops on the same trip while providing customers free delivery and helping Postmates reach more people.
But Postmates faces a major challenge in overtaking its larger competitors, according to some of the latest data. Data research firm Second Measure says that Postmates accounted for just 10% of total consumer spending in the food delivery space in March. Meanwhile, Grubhub had 33%, DoorDash had 30%, and Uber Eats has 22%.
But that doesn’t include Postmates Unlimited purchases.
Second Measure says that even though Postmates’ sales have increased 73% in the past year, its market share is relatively unchanged.
Brandon Liverence, data analyst at Second Measure, said all food delivery companies are benefiting from increased demand. Postmates just isn’t growing as quickly as some of it’s larger competitors, he said.
“They’re definitely still growing,” Liverence noted. “It’s just when you compare it to DoorDash, which has the highest growth in the industry, [Postmates’] growth definitely looks less impressive.”
Lehmann responded to a question Postmates battling against bigger rivals by saying that he isn’t too worried. He pointed to his company dominating in coastal cities like Los Angeles and the company’s continued growth overall.
Postmates also has been able to avoid some of the scrutiny facing payment of on-demand workers. Amazon Flex, Instacart, and DoorDash were among companies that sometimes used tips to cover drivers’ minimum payments. Drivers complained that these companies were stealing their wages by pocketing some of their tips. Lehmann said he’s against this practice and believes state legislators should pass laws across nationwide that would make such a payment scheme illegal.
“I think it’s horrible to subsidize the earnings with tips,” Lehmann said. “We have never even entertained the thought that we could disguise the pickup fee from you, so we can subsidize it with the tips you’re getting.”
As for Postmates, expanding to 1,000 more cities was a strategic move. The company is going into cities like Park City, Utah; Santa Cruz, Calif.; and Myrtle Beach, S.C. where Postmates thinks it can become one of the top services because there is little competition, is already strong in a nearby town, or has partnerships with local businesses.
