How On-Demand is Supporting — Not Hurting — Local Businesses
I recently joined Postmates to lead our Merchant team, which is focused on fueling growth for tens of thousands of local businesses in communities around the country. By putting tools in the hands of these merchants — such as the Postmates platform itself — our on-demand marketplace is able to grow the brick and mortar businesses in our towns at a point in history when e-commerce goliaths threaten their existence. Before I joined, I’d read about how the once much-hyped on-demand sector had lost its luster — at least among some analysts and press. But from the inside, there are two big reasons why quite the opposite is true.
First, with more than 2.5 million deliveries being made per month on Postmates across 250 cities, we’re seeing that on-demand is becoming a way of life for more and more people. Morgan Stanley’s recent industry research report confirms this growth trend, noting that the long term addressable size of the market for Restaurant delivery alone is $220 billion which is 42% of today’s overall restaurant industry (1). And PriceWaterhouseCooper also underscores the rapid growth of the on-demand and sharing-economy — where a private asset, like one’s car or bike, can be used to earn additional income — will grow by over 2,000 percent, from approximately $15 billion in revenues today to $335 billion by the year 2025. (2)
Secondly, we’re seeing that our merchants, tens of thousands of small, medium, and large-scale businesses across sectors, are moving quickly to incorporate on-demand into their models. We see this both quantitatively, through Postmates data reflecting growing merchant revenue, as well as qualitatively when talking with business owners of all kinds — from large chains to mom-and-pop operations.
After meeting so many business owners, what has stood out to me is how powerful Postmates can be for businesses looking to expand — especially smaller businesses where our platform acts as a “leveler” that helps them better compete against retail and chain store behemoths.
After conversations with a representative set of our app, 20,000 Partner businesses on the Postmates platform, we have a number of observations:
1. Nearly every merchant has seen their percentage of take out orders increase dramatically over the last 12 months. A restaurant that had 10 percent “on demand” business from third-party platforms a year ago is now seeing 30–40 percent of their business flowing from these new platforms. When a merchant moves to become a Partner merchant on the Postmates platform, they see on average 4x increase in sales.
2. The orders flowing to these businesses are mostly incremental. Merchants are rightly wary of new disruptive technologies. However, Morgan Stanley’s survey confirms that the majority of online orders are indeed incremental. In addition, for certain newer Postmates categories, 96% of jobs travel six city blocks beyond their storefronts. This means that almost every Postmates order was made from a customer outside of a 10-minute walk radius, helping to not only expand a merchant’s customer base beyond the average passer-by, but to also build bridges between geographically disparate neighborhoods with goods throughout the city.
3. Businesses are not being hit with a commensurate increase in costs even as on-demand has grown — making the value proposition of using such services even more attractive. Most on-demand services today provide an in-store tablet which creates some additional workflow process, but the tablet has a dramatically better order acceptance rate and lower cancellation rate than calling in and placing an order on the phone — the old way of delivery receipt. In addition, many merchants that were previously providing delivery are exiting this, because companies like Postmates do it more efficiently, enabling businesses to focus on enhancing their product and inventory.
4. Data is the life’s blood for these merchants but remains little utilized today. Limited by arcane Point-of-Sale systems and their in-house scorekeeping, merchants, in general, have not yet pursued the advantages that the proliferation of digital data has provided. The on-demand space will generate a treasure trove of actionable information, like the profile of a recurring and high long-term value customer. We will be able to leverage these information assets and make it easy for our merchant partners to see data that is informative and actionable. Order-volume data, for example, is already enabling Postmates merchants to be more mindful of how they stock their shelves when assessing the supply of their inventory — yielding smarter financial decisions.
In the past few months, some of the largest companies in this space like Postmates have shown profitable growth, but we’re still in the very early innings of this game. The on-demand space is poised for explosive growth in the next few years, not only because of how consumer preferences are changing — but because the value proposition to merchants is unbeatable.
Notes:
(1) Morgan Stanley Research Report. “Is Online Food Delivery about to get Amazoned” June 25, 2017
(2) Price Waterhouse Coopers Consumer Intelligence Series. “The Sharing Economy” 2014. https://www.pwc.com/us/en/technology/publications/assets/pwc-consumer-intelligence-series-the-sharing-economy.pdf
