Postmates, one of the earlier entrants to the billion-dollar food delivery wars, has raised an additional $100 million in equity funding at a $1.85 billion valuation, as first reported by Recode and confirmed to TechCrunch by Postmates. The round comes four months after the eight-year-old startup drove home a $300 million investment that finally knocked it into “unicorn” territory.
New investor BlackRock has joined the funding round alongside Tiger Global, which served as the lead investor of Postmates’ September financing. Led by co-founder and chief executive officer Bastian Lehmann, the company has garnered a total of $681 million in venture capital funding from investors, including Spark Capital, Founders Fund, Uncork Capital and Slow Ventures.
In line with several other tech unicorns, Postmates has begun prep for an initial public offering that could come this year, including tapping JPMorgan to advise the float. As Recode pointed out, the $100 million capital infusion was probably less of a necessary funding event but rather an opportunity for existing investors to liquidate stock ahead of an exit.
Postmates, which completes 3.5 million deliveries per month, reportedly expected to record $400 million in revenue in 2018 on food sales of $1.2 billion. The company has not confirmed that figure nor disclosed any other 2018 revenue numbers. The company currently operates in more than 500 cities, recently tacking on another 100 markets to reach an additional 50 million customers.
It will be interesting to see how Wall Street responds to a Postmates public listing. Though it was an early player in what has become an extremely crowded market, Postmates never emerged as the leader in food delivery. Now, with supergiants like Uber dominating via Uber Eats and SoftBank funneling loads of capital into Postmates competitor DoorDash, it shouldn’t count on an oversubscribed IPO.
While DoorDash, Postmates and other apps are looking to reimagine what the food delivery experience looks like, Ray Reddy says he wants to figure out what the next generation of a food court looks like. Sort of.
Reddy’s startup, Ritual, aims to remake the whole process of leaving your office and walking around five minutes to a nearby deli or cafe to pick up food for lunch. But Reddy and his founders Larry Stinson and Robert Kim wanted to focus first on getting that experience right for a single building that leaves to go pick up coffee or food — and has that daily ritual of getting lunch with the team, or something along those lines. The whole process boils down to an app for consumers to order food or drinks as well as have coworkers piggyback onto that order to create a more socialized experience around getting up and going around the corner for a snack. Ritual said it has raised a new $70 million round led by Georgian Partners, with existing investors Greylock Partners, Insight Ventures, and Mistral Venture Partners all participating.
“If we [couldn’t] build something that is compelling for the 300 people who work at this single building, it’s not gonna work period,” Redddy said. “That helped us define the problem narrowly. We thought, here are the 12 or 14 spots within a five minute walk of this building, let’s focus on simulating what would happen. Let’s not worry about financials or economics, let’s prove this works. Just like Uber’s a remote control for the real world, we viewed this in a similar way where ultimately the app is a remote control for a real world experience.”
Ritual’s main flow is probably something the typical user is accustomed to at this point when it comes to food. They pick a place they like, place an order for food (or coffee), and then go pick it up. But the whole background process involves not only getting restaurants on board with the specific things they want while still trying to calibrate a consistent experience that users at this point expect when it comes to ordering something online after being trained on that simplicity for years by Postmates, DoorDash, or even apps by companies like Starbucks.
But over the past year or so, the company has increasingly tuned itself to employees jumping aboard the same order when considering what to pick up for a snack or a meal. The whole process aims at emulating that experience of figuring out where you want to eat in a Slack channel or arguing over a Seamless order, and in the end whoever has time to run out and grab something will be able to bring things back for teammates (or, of course, everyone can leave at the same time). That whole process is called “piggybacking,” a feature the company introduced around 18 months ago. The company has around 44,500 teams using the app, Reddy said.
All this is aimed to help restaurants adapt to the same changes in user behavior that retail has seen in the past decade, Reddy said. Amazon trained users to buy things online, forcing retailers to shift their strategies, just as Postmates and DoorDash have trained users to order food delivery through apps and immediately have access to a ton of options. With all that comes more and more data, which has helped those industries slowly tune their models over time and try to keep up with the increase in demand that has come with reducing friction around the whole experience.
“What restaurants are seeing are right now the same challenges retailers saw 10 years ago,” Reddy said. “What does it mean to become omni-channel, how do you go from one customer segment to dealing with walk-ins plus digital orders. Retailers faced a lot of those challenges 10 years ago, they faced challenges around pricing, fulfillment, and how do they build new capabilities. They are dealing with a new source of demand, and fundamentally the problem was a lot of stores weren’t designed for accepting multi-channel origins.”
While an order-ahead app might be one way to connect online users to a physical location, there’s still plenty of work to do as most restaurants, coffee shops or typical stores aren’t tuned for a digital-first experience, Reddy said. That extends to even not having enough counter space to hold coffee cups that customers have ordered ahead of time, much less including things like NFC readers or QR codes — the latter of which has proved wildly popular and effective throughout Asia thanks to services like Alipay and WeChat. And that’s largely a result of iOS and Android, the main platforms in North America, not really doing a lot with QR codes for a very long time. Reddy said that North America was making some progress, especially when it came to NFC, but for now the company still has to figure out unique ways to connect users to those restaurants.
That can take a lot of different forms. While Ritual has to figure out how to create a seamless experience that covers a lot of different restaurants or shops, Reddy said the startup still has to offer those same stores some kind of control over the experience. That means giving those customers some value proposition beyond just telling them to sign up for another order-ahead app. Ritual, for example, lets restaurants who onboard Ritual customers themselves keep the full transaction for a purchase, while it takes a small slice off other transactions. That, in addition to other marketing options, helps restaurants control their own destiny, he said.
Of course, at its heart, it’s an order-ahead app — even with that social experience on top of it. And if you’ve ever looked at where to eat nearby with coworkers, you’ve probably checked Yelp or a few other places, and possibly even settled the argument with a giant order on an online ordering platform like DoorDash or Seamless. All these have already tapped that user experience, and it’s not clear if Ritual would be able to clear enough room should any one of them go after a similar experience while already having that customer and user relationship, in addition to being the spot customers go already. In the end, Reddy says that it’ll come down to users having a few apps, and hopes that by offering restaurants flexibility and focusing on the hyper-local idea of just a single office building will help build up that moat.
“The way that things have played out in Asia [with platforms like WeChat] is exactly striking the right balance between a platform and giving stores control,” Reddy said. “When you think of the consumer view, people — for the same reason you don’t have 10 retail apps — don’t have 10 food apps. You’re not gonna download an app for every neighborhood spot. It’s not that these apps are bad or don’t work well, people are just not gonna download 10 apps. There’s gonna be a handful of platforms people are going to use to access their neighborhoods. We have to have a unified platform, but give restaurant partners enough control, not only over being able to speak with their customers, but control for the look and feel of their storefront. That’s the middle ground we’re looking to find, which we think is a win for customers and our storefronts.”
DoorDash is about to make a huge move into grocery delivery, but instead of going all out as a delivery service on its own, it’s instead going to be working behind the scenes to power delivery networks for larger companies — with Walmart as its first big partner.
While Instacart looks to control the end-to-end customer experience for grocery delivery, and Amazon is off doing Amazon-y things with its Whole Foods delivery system, DoorDash is hoping it can build a network that any company that needs some delivery network can tap without giving up its direct relationship with their customers. DoorDash is rolling out grocery delivery with Walmart in Atlanta in the first of what may be a major move to become a back-end platform for companies like Walmart, which want a delivery button on their website but don’t want to build the entire network themselves. By doing that, it offers DoorDash a potentially nice neutral niche as grocery delivery heats up.
“You can use the term white label, but our drivers still will often wear the DoorDash shirt and have the DoorDash bag,” DoorDash COO Christopher Payne said. “But if you go to Walmart.com, and order from Walmart in Atlanta, you’ll have no idea it’s from DoorDash. We’re very supportive of that scenario, that’s the DoorDash Drive scenario. We’re excited to build a business with them and provide this capability.”
Payne said he hopes this will be one of the first of a major expansion of that DoorDash Drive initiative to become a tool that businesses can start tapping for local delivery. And while DoorDash may partly be giving up that direct relationship with users, it can start getting a lot more data when it comes to deliveries. That data then helps it become more and more efficient, ensuring that it can get deliveries done in the best matter and attract more customers, leading to the need for more drivers, and so on.
DoorDash also basically started the whole last-mile delivery business on hard mode with restaurant delivery, Payne said. What DoorDash loses in that direct user experience is paid back in data, Payne says, and that’s more than valuable enough.
“It turns out restaurant delivery is probably one fo the hardest delivery use cases you have — you have to get a pizza somewhere in 20 or 30 minutes or it won’t be crisp, and you have to get an ice cream cone somewhere before it melts. Grocery delivery tends to be delivered earlier in the day, which is before dinner or before you go to work,” he said. “That works out perfectly for us, actually, because our drivers aren’t busy or are less busy than they would be otherwise. It’s a delivery window, as opposed to one that’s getting something to you at an exact moment and time. That’s actually much easier and less demanding than a real-time delivery.
It’s still a significant step beyond its core competency, which is restaurant delivery. But while that has the potential to be a big business, it’s also going to top out at some point. GrubHub, for example, has a market cap of nearly $9 billion — but Amazon, the backbone of how many consumers engage with physical goods through the Internet, is a $700 billion-plus company. If DoorDash is going to continue to grow, it has to start expanding into new lines of revenue, and figuring out how to take all the data and tools it’s built and bring them to new businesses is going to be critical.
Amazon changed the calculus of last-mile grocery delivery, and it pretty much did it overnight — or at least over the span of a few months, which is the equivalent of overnight for a $700 billion company. Amazon acquired Whole Foods, and all of its locations in major metropolitan areas, for $13.7 billion and very quickly began offering two-hour delivery for prime customers for Whole Foods. On top of that, the company quickly started offering a credit card with an absurdly good reward system that’s tied directly to Prime purchases and Whole Foods (assuming you stay within the Prime ecosystem).
That’s meant that larger companies find themselves trying to figure out how to make such an agile move, and do it as soon as possible. For Walmart, getting this partnership with DoorDash allows it to just add a small segment to its typical customer flow without having to build out a full-on logistics delivery system. The opportunity to expand that to other businesses is pretty natural, and that’s the theme behind the Drive platform, and in theory offers businesses a way to quickly ramp up a delivery network without having to hand off the customer relationship to DoorDash. That may, in the end, be much more palatable for businesses.
“One of the other advantages of partnering with a company like Walmart isn’t just that they’re a leading grocer in the US,” Payne said. “They’re in a lot of other lines of businesses. As they want to expand and deliver more to their customers, they have physical assets to do that, so it provides a nice solution for us to test other items in the future. I would say grocery delivery is very much in its early days, it’s roughly equivalent to where food delivery was four years ago. We’re all going to be learning together, and it also means there’s gonna be a lot of other competition as there is in food delivery. But we believe our merchant operational excellence and quality of delivery will set us apart, and that’ll be proven in time.”
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