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The company’s primary ride-hailing service struggles in the pandemic, so it turns to grow its UberEats division.

Uber agrees to purchase Postmates, a food delivery start-up, for $2.65 billion, aiming to expand further into on-demand food delivery as its core ride-hailing business struggles due to lockdowns. 

Uber seeks growth as people stay home in the pandemic. In May, the ride-hailing company reported a $2.9 billion loss and planned to lay off 14% of the workforce. However, UberEats saw a 53% increase in revenue.

In this all-stock deal, Postmates will combine with Uber Eats, though will continue to function under its own name. Bastian Lehmann, CEO of Postmates, will remain during a regulatory review of the deal, though long-term integration plans have yet to be hashed out. Dara Khosrowshahi, CEO of Uber, said Uber might take on a few Postmates services, such as the $9.99 monthly subscription to provide no-fee delivery for orders over $12. 

“You can expect to see some of these tactics at Uber Eats. We think it’s just a wonderful combination,” said Khosrowshahi.

Food delivery apps connect drivers, restaurants, and customers, offering similar services that lead to fierce competition and pressure to lower fees. Although demand has increased in recent years and especially in the pandemic, profits have been insignificant. 

Delivery app companies want to strike deals to gain scale. Postmates had previously discussed deals with DoorDash and Grubhub. Uber had also discussed buying Grubhub. Last month, Just Eat Takeaway, a European delivery company, purchased Grubhub for $7.3 billion. 

Edison Trends, which tracks credit card spending, reported that Postmates and Uber Eats combine to hold a 37% share of food delivery sales in the US. DoorDash holds the largest portion at 45%, and Grubhub maintains 17%. 

Postmates was last valued at $2.4 billion, with about 10 million customers. This company raised over $900 million in funding from investors such as Spark Capital and Tiger Global Management. It had filed to go public. 

Daniel Ives, an industry analyst with Wedbush Securities, said the deal was a “defensive and offensive acquisition in the food delivery space for Uber at a time with its core ride-sharing business seeing massive headwinds in this Covid-19 pandemic.”

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