Image source: Wikimedia Commons
The trunk of the silver Volkswagen Jetta opens to reveal its bounty: white and orange boxes, stacked five high, an $8,000 delivery of 10,000 biscuits that the owner is eager to share with his millions of followers. “What’s going on y’all? It’s Postmate Malone and these are my Popeyes biscuits,” the singer (stage name, Post Malone) says into the camera from the music festival Coachella in 2017, a clip that made his taste for carbs—and the name of the delivery service—go viral.
The celebrity megaphone helped Postmates survive the early shakeout among food delivery startups by broadcasting an image of hip affluence to Millennials in cities like L.A. and Miami. Unpaid shout-outs from model Chrissy Teigen, who tweeted about ordering five limes on the service, and actress Sophia Bush, who loves to buy Shake Shack through Postmates, helped the app gain a 40% market share in Los Angeles. Investors including Founders Fund, Spark Capital and Tiger Global sank nearly $700 million into the San Francisco startup, now valued at $1.85 billion. It booked a reported $400 million in revenue last year. (The company declined to comment on its financials.) “The only thing that we did is we tried to make something that’s cool. We always wanted to be cool at Postmates,” says Bastian Lehmann, the company’s cofounder and CEO.
As Postmates prepares to go public, Lehmann, 42, will need this early traction to override two daunting forces. In the months since February, when it filed confidential paper work for an initial public offering, investors have savaged consumer tech IPOs, taking tens of billions in market value off Uber and Lyft offerings. And its three larger competitors—$12.6 billion valuation DoorDash; Uber Eats, part of Uber, which is worth $55 billion; and $5 billion market cap Grubhub, which dominates New York—can easily outspend it. Postmates increased its national market share to 11.5% in the last year, according to credit-card-receipt analyzer Second Measure, but at a cost: It ramped up on discounts and TV ads to grow nationally and hang on to key markets like the Southwest.
“When you look at scale and ambition of Uber Eats, DoorDash and even Grubhub, I think holding on to regional dominance is going to be difficult over time,” says Andy Hargreaves, an analyst at KeyBanc, of Postmates. “Those guys, all three of them, are going to want the whole country, and they have a lot of capital.”
Lehmann always had a taste for Hollywood, but he chased another California dream when he left his native Germany: startups. Raised in Munich, he dropped out of college and toyed with becoming a filmmaker before launching a flash deals website in 1999 amid the dot-com boom. In 2010, he made it to the U.S., joining a San Francisco startup incubator to build Curated.by, which organized tweets and social media around specific topics.
Potential investors hated the idea, so Lehmann and cofounder Sam Street switched gears, teaming up with a third cofounder, Sean Plaice, to start Postmates. Lehmann originally envisioned a local courier service that would pay people with extra space in their car to make deliveries, like ride-sharing for items.
“We couldn’t wrap our head around the fact that it was easier to look up something on Amazon, click a button and have it delivered two to three days later—keep in mind this is 2009-2010 that I'm talking about—versus finding that same product in a store in your city,” Lehmann says.
The company started delivering furniture for stores in San Francisco, then expanded to restaurants, manually uploading hundreds of menus while allowing people to order anything else they could imagine. They did. In New York, a customer ordered a designer fanny pack from Alexander Wang. In Los Angeles, someone spent $4,000 on alcohol, chasers, ice and Solo cups from convenience store Pink Dot.
When Postmates launched in L.A. in 2014, its sixth market, it went after both creative and affluent users, mimicking Tesla’s strategy of starting upmarket. Also, wealthy clients were less likely to balk at a $10 service charge (it’s now as low as 99 cents.) “It was really a product targeted by design right from the start to an affluent customer base, in the hope that if they find and adapt the product, it helps us bring down the price over time,” Lehmann says.
The other part was guerilla marketing. Because it wanted to attract artists and writers, Postmates started making its way into the pop culture lexicon. Avid users like Pitch Perfect singer Anna Kendrick, Blink 182’s Travis Barker and Selma director Ava DuVernay began to share orders, from vegan fine dining to junk food indulgences, with their millions of followers on Instagram and Twitter. Singer Malone dropped it into his hit “Spoil My Night.” In Postmates’ early days, none were paid to do this—it just happened because A-listers liked the service.
In the last two years, Postmates began to double down on that early celebrity buzz, starting to pay influencers like makeup mogul Kylie Jenner to share what she’s ordered publicly.
“You don't want to have Kylie Jenner amplify your messaging when you have 4% market share in L.A.,” he says. “It’s a lot cooler if you have 45%. Everybody sees it and is like ‘I get it.’”
There’s a tongue-in-cheek YouTube series with Martha Stewart, who tells people to give up on her cooking instructions and “Postmate it.” The Chainsmokers cut a quid pro quo deal where fans could get free delivery if they entered the title of the duo’s new song “Takeaway” in the app. It compensates others like actress Cara Delevingne to participate in The Receipt, a corporate blog that reveals how much celebrities have spent on the service. Lehmann maintains the endorsements don’t cost that much because its famous customers already know the product. “It’s peanuts. Maybe it’s a percent from everything that we’re investing goes to influencers,” he says.
Any extra savings helps as the company starts spending more on national advertising, its main weapon to gain a bigger slice of a growing market. Online food delivery in the United States will be a $28 billion market by 2023, estimates Statista, and online platforms are the fastest growing revenue segment (more than 21% in 2019, according to Statista). As food delivery grows, the companies have been partnering with retailers for other deliveries, like convenience chain 7-Eleven’s deal with DoorDash and Postmates.
“Postmates and DoorDash have longer shelf life than I would have originally expected because investors understand that the online restaurant delivery market is big and growing fast, and companies like Walmart are leveraging these delivery startups to offer faster delivery,” says Tom Forte, an analyst at D.A. Davidson.
Yet like stardom, it’s easy to have 15 minutes of fame and harder to maintain a career. Despite being a growth story for Uber, Uber Eats remains unprofitable and is dragging margins on Uber’s deliveries and trips down to 8%. Grubhub, while profitable, has lost 40% of its stock market value in the past year as the company spends more to fend off competition. DoorDash, which raised over $1 billion in capital in 2019 alone, has opened the marketing gushers to beat Grubhub in national share.
If all else fails, Postmates’ presence in L.A. has helped position it as an acquisition target. In July, Recode reported that companies from Uber to DoorDash had looked at buying Postmates. In response to the acquisition rumors, Lehmann paraphrases a Kanye West lyric, dismissing it all as idle gossip: “People talk so much shit about us at the barber shop, they forget to get a haircut,” he says.
Los Angeles has been good for Postmates, but now the company has to convince investors it’s a good bet for them, too. Even Lehmann isn’t sure how it will go.
“It is not necessarily 100% clear to me if national market share is really the number one metric that is important to drive forward,” he says. “The metropolitan areas could actually be the bigger prize.”