At the end of March, Postmates announced on their blog they will be rolling out Postmates Plus Unlimited. The program is a new subscription model that offers unlimited free same-day delivery for just $9.99 a month.
Let me repeat. Unlimited free deliveries for just $9.99 a month. The blog was posted on March 31st so I thought it was an April Fools’ Day joke because this sounds more like a going-out-of-business plan than a new product launch.
But once I read the details of this new model, I realized it was serious. The new service offers free delivery for orders over $30 made from the 3,000 retailers partnering with Postmates. The 9% service fee will be waived. And orders are instantly accepted because it is through partnering retailers and prices will “never surge” (I believe they are talking about Blitz Pricing here).
I was very curious how couriers would be compensated under this model but the blog post did not shine any light on this. However, Catherine Clifford wrote an insightful piece about this on Entrepreneur.
Retailers will subsidize payouts
The retailers that partner with Postmates will be subsidizing the delivery cost. Retailers will pay between 16% and 30% commission on the purchase cost and hope that in return they will benefit from increased sales long-term.
But why is Postmates moving toward this subscription model? Was the old model not working?
Clifford also provides insights into this in her piece.
Economy of scale
Under Postmates’ old model, customers pay $8-9 per delivery but long term Postmates wants to be an affordable utility rather than a premium product. Lowering price is an appropriate way to achieve this and Postmates can afford to lower the price of their service. The company has reached the point of delivering one million orders each month. The economy of scale will let Postmates operate on thinner margins and still compete.
First mover advantage
Founded in 2011, Postmates is one of the first Uber of X on-demand delivery startups. They have figured out the logistics of moving people and burritos across a city and other startups are still playing catch-up. First mover advantage means nobody raises up an army of educated and well able 20-year olds to bring people froyo better than Postmates.
Taking on a giant
Of course, Postmates is not the first to offer a subscription model. On-demand food delivery startups Sprig and Munchery beat them to this long ago. But Postmates is not exclusively an on-demand food delivery company. They are a logistics companies that wants to use cities as their warehouse. The distinction is important. Other on-demand food delivery companies like DoorDash and Caviar will probably stick to delivering food from restaurants. Postmates delivers food because that’s what most people use it for but their product can also be used to deliver flowers, gifts, and anything allowed by law (cannabis and alcohol aren’t allowed on the platform).
This subscription model is a bold move because Postmates just effectively took another step forward in its war with Amazon. Last fall, Postmates CEO Bastian Lehmann said that Postmates is the anti-Amazon. Fighting words.
