Postmates: Logistical Winners in the On-Demand Sharing Economy

Postmates is a food-delivery service that is winning because of its intricate logistical reliance on third-party couriers

Company Overview
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Postmates is an on-demand delivery service founded in December 2011. Headquartered in San Francisco, the company operates in 28+ markets in the US with over 13,000 couriers. Currently, their business focuses primarily on restaurant takeout with an underlying delivery logistics model that takes advantage of Uber-like service sharing. Postmates is a privately held company and has raised $138 million to date, most recently $80 million in its Series D offering earlier this year.

Business and Operating Models

Postmates, similar to some of its competitors like Door Dash and GrubHub, provides this on-demand food delivery for a fee. The ecosystem is housed within mobile applications for iOS and Android (and recently, web), beginning with a list of all restaurants, liquor stores and other delivery services available. They have non-food delivery options including household items from what they call “The General Store”. Once the user has selected her items, the application prompts a checkout and payment option, after which a “Postmate” is dispatched to retrieve and deliver the item to the customer within a short window of time.IMG_2807

The beauty of the application is its simplicity of the user interface – the customer can see menus, prices, and even track the Postmate on the delivery journey. There are also options to select back up orders in case something is not available, and you can save food preferences.

The business model is relatively simple: Postmates charges a delivery fee based on distance between pickup and delivery. Fees start at $5 and can go upward of $20 depending on the city and travel time, similar to a taxi cab’s fare system. Postmates also marks up the price of the items, charging up to a 9% convenience fee. Tips for the couriers are customary, but not included in the order. These fees are dynamic, and can be increased or decreased depending on popularity and time of day, similar to Uber’s surge pricing model. The company pays its couriers 80% of delivery fees and tips, retaining 20% for itself. On average, Postmates collects approximately $4-$8 per order.

In addition, Postmates has several strategic partnerships with large fast casual retailers like Chipotle. For these partnerships, Postmates charges a lump sum fee for premium placement within the application, and for reduced delivery fees for the customers.

Underlying this business model is a detailed web of logistics that keeps the process operating. To become a Postmate, one must undergo an hour or two of training at the company, after which the courier is eligible to sign up for a shift on the company’s scheduling application. Trained Postmates are allowed to turn on their delivery availability at any time, but couriers with pre-scheduled times are given preference. Postmates are then assigned to deliveries based on current location and priority, and can accept or reject the opportunity. That courier is dispatched to place the order and pick up the food, and then deliver the food to the customer’s requested location. There is no limit to how many Postmates can be on the road accepting deliveries, which makes the supply and demand of the market maximally efficient.

Payment is also a tricky part of the operating system. Postmates couriers are given pre-loaded debit cards on which to pay for the food. If Postmates has to pay for the meal up front before receiving money from the recipient, they charge an additional fee to offset the Stripe processing fees. Couriers are also expected to pay out of pocket for travel costs, fuel, gas, etc.

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Why Postmates is winning

This business model only works when there is a crowdsourced ability to get civilians to leverage their transportation mechanisms and location to get food for others. In order to have a decentralized delivery system that focuses on a whole territory instead of one retailer, the logistics part of the operation must run smoothly. As a result, Postmates is able to retain its competitive advantage because it takes advantage of the mobilizing a 13,000+ person courier base in a synchronous, organized fashion. By utilizing a collaborative workforce model, Postmates can service deliveries from an extremely diversified base of restaurants and deliver to customers far and wide.

Its competitors, like Seamless and GrubHub, instead take advantage of restaurants’ own delivery services, and therefore, not all restaurants can participate in those offerings. By tapping into a community and operating its own courier services, Postmates is not limited to servicing the universe of restaurants that already employ delivery workers. While Postmates might be more expensive, the company transfers the economic burden to the customers, who are signed up and willing to pay the added cost.

 

Feedback and customer service

In addition, Postmates stands out as a winner in this logistical operating model because of its emphasis on communication and transparency. Many of these frameworks are built directly into the application: once an order is placed, the customer is able to track the entire delivery process on the application. In addition, Postmates couriers are encouraged to call or text whenever there is a discrepancy or a question. Finally, by having a two-way feedback loop within the application, the customer and Postmate are able to rate their experiences. This rating ensures customer satisfaction for future experiences, keeping customers loyal to the service.

 

Sources:

https://www.postmates.com
https://www.quora.com/Could-anybody-explain-the-business-model-of-Postmates-in-detail
https://www.crunchbase.com/organization/postmates
http://www.businessinsider.com/what-its-like-to-use-postmates-2015-1
https://medium.com/@mattmaloney/not-all-that-glitters-is-gold-847c81e211b#.mnx5dzfed

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7 thoughts on “Postmates: Logistical Winners in the On-Demand Sharing Economy

  1. Very relevant choice of company, Ellen, and at an exciting stage in their journey. I’d like to explore one aspect of Postmate’s business model further and that is the fact that Postmates can help deliver almost anything. I think this horizontal approach actually works better than, say, a food-only delivery service because operating this way lends itself to faster scalability — the more deliveries (of anything) that are requested, which always be greater than the number of food deliveries, the more “postmates” are out there.

    I do think that the price point still remains quite high and as a result, it’s usually a nice-to-have and not a must-have. How can they tweak their operating model to help their business really scale and succeed at providing quick and affordable deliveries? At scale, will this mean a change in the way postmates are compensated? Or will power users help subsidize the long-tail of orders? Or will it be a mix of both or other things? Since orders tend to be smaller dollar amounts, it’s hard to get enough dollar contribution from each order to justify whatever they’re paying for customer acquisition. What will really help them take off is by encouraging larger dollar items and higher repeat usage. What are they doing to encourage that kind of user behaviour?

  2. Great post Ellen, very interesting to learn the business model details behind this company! To add on to the first comments, the most interesting areas to watch will be how competition and pricing evolve in this space. Amazon, Google, Uber, and even Instacart are all pursuing the local delivery space. Does it make sense for Postmates to expand non-food delivery services and compete head to head or is it better to dominate their vertical? I also wonder what Postmates projects as a market size given their current pricing as well as how they think scale will lower costs and attract more users.

  3. Thanks for writing about this interesting company Ellen. Hadn’t heard of it before, so was a refreshing read. I remember reading an article that mentioned how Instacart and Uber are experimenting with part-time employees vs. contract workers. The logic seems to be part-time = better employee benefits = better/more stable service from workers = happier end customers = higher ability to charge and/or justify existing high price. What’s your take on this as a potential change to how the supply chain of Postmates currently works? Would it truly drive better service, or simply end up costing the company more?

  4. I love Postmates and am so glad you wrote about it. Even though we’re not in the same section, I wanted to ask a couple quick questions! 🙂

    – Following up on the first question, do you see the Postmates model as flexible enough to be able to be repeated across other business models/industries — and if you do, which are most obvious?
    – I wonder about the growth model for Postmates or any other on-demand delivery services companies outside of densely populated cities like NYC, San Francisco, Chicago, etc. Can this business scale without eventually establishing some kind of central shared infrastructure? Reminds me a little of the early days of Munchery, where chefs would just make food in their homes independently and work out their own drop-offs to customers’ homes. They’ve sense pivoted to a model where they have a central “kitchen” where chefs pull together daily menus and the food comes out of one hub as a more scalable growth tactic. I wonder if this is something Postmates would have to do to truly take their business to the next level.

  5. Thanks for the post Ellen! This is one of the things I love about HBS: here I was happy with GrubHub and now, bam!, a brand new option I wasn’t familiar at all with! Comments above are great and my two cents revolve around the inherent overlap between today’s segregated shared-economy tech companies. In essence, as you articulated perfectly, the one key asset is the individual who is willing to become a carrier. Whether he/she delivers food, an amazon package (Amazon Flex), your grocery shopping (Instacart), yourself! (Uber), etc, is really up to him / her. I am curious to understand, as this model scales up, when overlaps begin to materialize and when if/ there are true opportunities, as Vez pointed out, for horizontal consolidation and more of a winner(s?) takes all business model.

  6. As someone who dislikes inconvenience, I’ve tried a bunch of on-demand food delivery services – Postmates, Favor, Caviar, etc. – to order what I want when I want it and have experienced varying levels of satisfaction. As a consumer, I really like being able to order food from restaurants that don’t normally offer delivery, although I’m definitely aware that I’m paying a somewhat hefty premium for the service. However, I’ve been hearing a lot about restaurants being less than thrilled about being included in Postmates’ services. My understanding is that Postmates generates a comprehensive list of restaurants based on the address that users provide. Interestingly, because of how Postmates curates its listings, restaurants that don’t want to have their food delivered don’t have the option of opting out of Postmates. But what about restaurants that made the conscious decision not to offer delivery? One common concern has been that Postmate couriers might not know how to handle the food properly or may take too long to deliver food that just wasn’t meant for delayed consumption, resulting in less-than-optimal food delivery. Unsatisfied customers sometimes attribute that to restaurant quality, and bad publicity for the restaurant ensues. It seems like Postmates should put some effort into working with restaurants who are concerned about delivery in an effort to not anger key players in the operating model moving forward.

  7. Super relevant choice and of course as the defender of GRUB I am obligated to chime in!

    You articulated the business model very well – and I think Postmates’ User Interface is much better than Grub’s and their service is inherently ‘cute’ which may explain why all the wealthy techies of SF are so into it 😉

    I do wonder about their alignment of their operating model throughout the ecosystem — the anecdote Carol points to of restaurants being forced to accept Postmates orders is troubling to say the least. It seems arrogant to force someone to be a customer; and thinking about the model, I wonder about the sustainability of the ‘flywheel’ if major stakeholders in the ecosystem feel used or rankled.

    The pricing issue is also tricky – as is discussed on this medium post. the https://medium.com/@mattmaloney/not-all-that-glitters-is-gold-847c81e211b#.xavoa8iqj

    My final question my just be one we will have to watch play out – but I wonder how ripe for disruption the delivery business really is considering Uber exists with first mover advantage and a deep, re-purposable fleet on one side while Amazon Prime and their distaste for profit margins sit on the other (with many an upstart in between). Given this landscape, I wonder if the ‘Horizontal’ approach will really yield the returns many are hoping for.

    Especially when the ‘poster-boy’ (pun intended!) can’t seem to turn a profit even at current, seemingly elevated prices.

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