(Bloomberg)—Postmates Inc. is expanding beyond food delivery from restaurants to bring customers groceries in 30 minutes or less. And the U.S. startup, which is backed by nearly $300 million, will use some of its venture capital to subsidize the cost, undercutting fees charged by Amazon.com Inc. and Instacart Inc.
The new service charges $3.99 for delivery on each order or $9.99 a month, under the brand Postmates Fresh. The name may sound familiar. AmazonFresh is the online shopping giant’s grocery program, which costs about $279 a year for the necessary Fresh and Prime subscriptions. Instacart charges $5.99 to $7.99 depending on delivery time, plus a service fee.
Postmates rolled out Fresh this week in New York, Los Angeles and its hometown of San Francisco to start. Deliveries will come from local and independently owned markets, bodegas and produce suppliers, like Urban Radish and Farmstead SF. The Postmates service is unique in its promise to fulfill orders in a half-hour. For the most part, AmazonFresh orders must be scheduled at least a day in advance to be delivered within a two-hour or so window. Instacart deliveries take at least an hour.
Bastian Lehmann, co-founder and CEO of Postmates, is confident his Fresh service will stand out from alternatives based on price alone. “We have the best pricing in the market, 100% guaranteed,” he said.
But Postmates can’t count on a price advantage forever. Amazon, No. 1 in the Internet Retailer 2017 Top 500, demonstrated in August that it’s serious about the grocery business when it acquired Whole Foods Market for $13.7 billion. Although Amazon recently scaled back Fresh, the marriage with Whole Foods threatens to eventually upend the way customers shop for groceries.
It’ll only be a matter of time before Amazon offers delivery from the more than 470 Whole Foods locations across the U.S. and Canada if people want it, said Jitendra Waral, an analyst at Bloomberg Intelligence. Amazon is notoriously aggressive on price and could use private-label goods, like Whole Foods’ 365 brand, to bring down costs, Waral said. “Amazon has leverage that competing businesses don’t have,” he said.
To stay competitive, investors gave Instacart $400 million this year—more than Postmates has raised in its entire life. Last month, Instacart started offering two-day delivery on condiments, cereals and similar items from Costco Wholesale Corp. (No. 9) and expanded fresh-food delivery with the chain.
Instacart and Postmates both generate revenue from delivery fees and commissions from retail partners like Target Corp. (No. 20) and Safeway. Postmates, which counts Peter Thiel’s Founders Fund as its biggest investor, will leverage the brands of grocery stores in the belief that people don’t want to get their fish and avocados from Amazon or any other technology company. “Our customers are millennials, and it’s not clear that millennials want their fresh food from a website that sells their parents sneakers,” Lehmann said.
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