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Postmates launches on-demand grocery delivery to take on Amazon and Instacart

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Starting with local, and pricey, organic options

Image: Postmates

Postmates today announced the official launch of a new grocery delivery service, called Postmates Fresh, that puts the company in more direct competition with Amazon and Instacart. Postmates, one of the longest running on-demand and logistics starups, has allowed its users to order items from grocery stores in the past. However, this new product, which will exist under a new grocery tab in its iOS and Android apps, is Postmates’ first official foray into grocery store partnerships. The company is also revealing a full app redesign today to mark the launch.

Postmates Fresh is starting in San Francisco, Los Angeles, and New York City, and it’s partnering with local organic farms and grocery stores to provide everything from meat, vegetables, and dairy to alcohol, deserts, and home supplies. Postmates is guarenteeing 30-minute delivery times, compared with two to three-hour reserved windows for Instacart and Amazon Fresh. The company is charging only $3.99 per delivery, lower than Fresh’s $15 a month subscription and matching Instacart’a lowest possible fee.

The difference with Postmates is that your selection right now is far more limited than with those competing services, and its prices appear to be relatively high as a result. In San Francisco, the company works with local organic grocery delivery service Farmstead, meaning all its products are sourced from the company’s local partners. In LA, Postmates is working with Urban Radish, a high-end organic grocery store that similarly has local partners with above-average prices on items like meat, cheese, and vegetables. (For San Francisco residents, it seems like it’s cheaper to just order direct through Farmstead if you’re intent on only eating organic, locally-sourced foods.)

For Postmates, which specializes more in on-demand meal delivery, expanding to groceries with a small and relatively pricey selection is in line with its more free-spending user base. The app has historically been best enjoyed by high-earning, metropolitan yuppies — tech workers in San Francisco, entertainment industry types in LA, and banking and media employees in New York, for instance.

So asking those same users who already pay high premiums for instant meal delivery from their favorite pricey restaurant isn’t that much of a leap. For everyone else who’s too busy (or lazy) to grocery shop, it’s probably best for now to rely on Instacart or Amazon Fresh, which offer a wider selection with more reasonable price markups and, in some cases, pricing that matches the in-store cost.

That said, Postmates’ business model, which focuses on urban areas with high costs of living and high earning residents to match, may be more sustainable in the long run. Amazon in October slashed seller fees to expand its non-perishable grocery selection and just last week the company stopped offering Fresh service in parts of nine states. It turns out that grocery delivery at massive scale, outside the largest metropolitan areas where built-in logistics networks exist and car-less residents are more willing to pay for grocery delivery, is a hard market to make a profit in.