Last week, on-demand food, drink and grocery delivery service Postmates announced that it raised $100 million in Series F funding, led by BlackRock (a first-time investor in Postmates), Tiger Global Management and Glynn Capital Management, reports Recode. The company is now valued at $1.85 billion, just ahead of the company’s planned IPO, which is likely to happen in the first half of 2019. This was the company’s 11th round of funding, bringing the grant total raised to date to $678 million.
This investment comes just four months after Postmates raised $300 million in a funding round, led by Tiger Global Management. As part of this round, Scott Schleifer of Tiger Capital joined the board of directors of Postmates. When this announcement was made in September, Postmates also shared its impressive growth:
- Postmates’ average annual growth was over 250 percent over the past four years, with gross margins now close to 50 percent.
- Postmates makes millions of deliveries each month, generating more than $1 billion in gross merchandize volume per year.
- Postmates saw record adoption of its Unlimited subscription model in 2018, doubling the number of total subscribers from 2017.
- The Unlimited subscription plan’s growth has been 300 percent, year-over-year, with one of every two orders coming via the Unlimited subscription program.
“The transformation of how commerce moves in cities demands that we build the most innovative tools for businesses to keep up and distribute their products to the modern consumer – efficiently and cost effectively,” said Bastian Lehmann, Postmates CEO and co-founder, in a September 18 statement. “Postmates is proud to be the first and largest on-demand network that is enabling the growth of retail across the country, and today’s investment accelerates our ability to pair technology with the vitality of our neighborhoods.”
It seems the Postmates subscription program, which launched in 2016, is contributing significantly to the company’s success. After a free, seven-day trial, members can sign up for $9.99 a month, or $95.88 per year. For that membership fee, they get free delivery on restaurant deliveries from more than 300,000 restaurants over $15. Also, member orders get preferential treatment and are “never surged,” so they aren’t subject to peak pricing. According to Postmates, Unlimited members save an average of $90 per year. For Postmates customers who don’t want to subscribe, they pay delivery fees starting at $1.99 per order.
Despite Postmates’ success, it isn’t the only game in town. It competes against Uber Eats, DoorDash, Grubhub, Amazon Restaurants and similar services. The differentiating factors are who each service serves, what cities they are available in, and fees and membership options.
Though the company is eight years old, it has grown steadily over time, and we are pleased to see that the company has had so much success with its subscription model. Considering how consumer shopping and dining habits have changed in recent years, that shouldn’t come as a surprise. It seems we are willing to pay more for a membership in exchange for something free. Look at Amazon Prime. We pay $119 a year to get free shipping and have items shipped door-to-door.
Postmates Unlimited subscription utilizes a similar concept. For $9.99 a month – or $7.99 a month if paid annually – members save the delivery fee. Even if the cost works out to be the same, customers may perceive a cost savings if they don’t see a delivery charge. With an IPO in the offing now and steady growth, 2019 could prove to be a very good year for Postmates.