Ultrafast delivery explosion in NY City 'Selling a dollar for 99 cents'
A wave of ultrafast delivery companies has entered New York City and turned the city into a test ground for how fast consumers want groceries and other goods.
Gopuff, a veteran in the “instant needs” category, launched in the city on Wednesday.
Retail analysts say that the companies have to prove they can change shopping patterns — and turn the quick deliveries into a profitable business.
“The expectation of speed and convenience are through the roof.”
From the Upper East Side (New York) to Williamsburg, delivery company names are plastered on subway turnstiles, bike docks, bus shelters and backpacks of cycling couriers zooming by. They promise to get milk, frozen pizza, diapers and other online purchases to customers’ doors almost instantly.
The explosion of ultrafast delivery services has turned New York City into a testing ground. Gopuff, a pioneer in the “instant needs” category, launched Wednesday in New York City. International players, including Russia-born Buyk and Berlin-based Gorillas, have launched in the city over the past few months. And more are coming, including Turkey’s Getir.
All are making a similar bet: consumers want their goods faster and without leaving home. Yet, they still have to prove they can stand out in a crowded field and turn a profit.
“When Amazon came out with two-day Prime [delivery], that was the most revolutionary thing,” said Yakir Gola, co-founder and co-CEO of Gopuff. “Now, people want it in 20 minutes. In 10 years, people are going to want it in five, 10 minutes. At the end of the day, people value time, so you have to keep innovating.”
The companies could challenge grocers, drugstores, convenience stores and big-box retailers — especially those in dense, urban markets. Many have already rolled out ways to get online purchases to people faster. Walmart has a two-hour or less express delivery option. Target owns fast-growing, same-day delivery service Shipt. And Ulta Beauty and LVMH-owned Sephora recently announced plans for same-day delivery of lotion, lipstick and other beauty goods in select markets.
If ultrafast delivery companies win more customers, they could chip away at competitors’ baskets and reduce shoppers’ trips to the store, said Laura Kennedy, a retail analyst at CB Insights. This happened before, as people began ordering one or two items at a time from Amazon.
“It adds up to a lot of items and then it adds up to not just wallet share, but mindshare,” she said. “It’s death by a thousand cuts.”
No need for a stock-up
The wave of companies operate differently from third-party delivery services like Instacart, DoorDash and UberEats — and act more like retailers.
Across the city, they have opened “dark stores.” They resemble mini warehouses with central locations for quick deliveries to different parts of town. The stores are closed to customers, but have aisles of fruits and vegetables, coolers filled with yogurt and milk, and shelves stuffed with snacks.
When a shopper hits the “buy” button, pickers grab items off the shelves. A fleet of delivery workers — some who are gig workers and some who are employees, depending on the company — strap on a backpack and pedal to the customer in as little as 10 or 15 minutes after the purchase is made.
Buyk CEO Slava Bocharov said the delivery service is not only faster, it changes how people shop. Instead of stocking up on a week or two of groceries, people can buy what they need in the moment — such as fresh fruit, a loaf of bread or a single steak.
Buyk is a U.S.-based spinoff of St. Petersburg-based delivery company, Samokat, which was founded in 2018. It launched in New York City last month and plans to expand to Washington, D.C., Chicago and Boston.
Bocharov said the company has about 800 dark stores in 25 cities and delivers about 7 million orders each month. In Russia, he said, some of its shoppers don’t have a refrigerator and use the service to buy the perishable items they need each day.
He said the company wants to make getting groceries as instant as turning on the faucet.
“We are building this pipeline with goods, which means easy and continuous access to goods without the necessity to stock up products like it works with water at your home,” he said in an interview, through a Russian translator.
Alina Pedraza, an area manager for Buyk in Manhattan, said she has seen that new approach catch on in her family. She places orders as needs pops up, such as buying flour to make pancakes on the weekend, berries to toss into her 10-year-old daughter’s lunch or a cup of soup to heat up for dinner.
“The biggest thing we give to people is time,” she said.
Ripe conditions
The coronavirus pandemic created ripe conditions for the ultrafast delivery companies, said CB Insight’s Kennedy.
Consumers embraced online shopping and delivery as a safe and convenient alternative. Rising vacancies and a temporary dip in commercial rents in dense, pricey cities like New York City allowed companies to sign leases and snag more favorable terms with landlords.
Investors, noticing shifting trends, have poured money into the companies. Gopuff has raised the two-largest rounds of funding in the category so far this year, bringing its total venture funding to nearly $3.4 billion to date, according to CB Insights, which tracks private companies and start-up funding. Gorillas announced Tuesday a nearly $1 billion round of funding, with the round led by Germany’s Delivery Hero. And others, including Getir, Barcelona, Spain-based Glovo and Jokr have raised rounds of $170 million or more.
Funding in the dark convenience store space alone has more than quintupled over the past two years to $5.76 billion as of mid-October, according to CB Insights. This is against the backdrop of strong interest in retail tech. Funding in the broader sector has soared to $82.5 billion so far this year, a significant increase from $51.1 billion in 2019 and $47.9 billion in 2020.
Plus, Kennedy said, even before the global health crisis, shoppers already expected faster deliveries — a race she credits Amazon for starting.
“The expectation of speed and convenience are through the roof,” Kennedy said.
Yet the venture-backed ultrafast delivery start-ups must prove they can build a lasting business model that not only wins customers, but makes money.
“It [the market] is oversaturated, which might even be too kind of a term,” Kennedy said. “You are just flooding the marketplace. How does anybody stand out in this?”
Kennedy said Gopuff has shown a way that may play out. The company has expanded to more than 1,000 cities in the U.S. and Europe since it was founded in 2013. It recently acquired Dija and Fancy, two delivery companies based in Europe to accelerate its international expansion.
She said she expects more consolidation, as some companies struggle and others succeed.
Orderow, goPuff, Just Eat, Door Dash, Uber Eats, Wolt, McDelivery, Bolt, Glovo, Deliveroo, EASI, Jumia Food, Lidl Plus, Deliveries, Lalamove and Grub Hub logos are seen displayed on a mobile phone screen with an image of a food delivery courier displayed on a computer screen.
‘Selling a dollar for 99 cents’
In a crowded field, the companies are competing on speed, selection and prices. Jokr, for instance, is offering 30% off customers’ first orders. Others, like Fridge No More and Buyk, have been emphasizing no delivery fees and purchase minimums.
Gopuff has stressed its wide variety of merchandise. It sells more than 4,000 items from pet food to baby products. Although it’s not available in New York yet, in some markets, Gopuff also delivers alcohol and hot food, such as coffee and breakfast sandwiches. It struck deals with New York-based companies with fan followings, such as Levain Bakery, Van Leeuwen Ice Cream and Mike’s Hot Honey to carry and deliver their items.
Jokr does deliver alcohol, along with groceries and household items. Those include locally brewed beers, along with hard seltzers and ciders. That brings its variety of items to about 2,500.
Buyk’s Bocharov said the company is focused on building a customer base in the U.S. first, and said the profits will follow. He said the company’s dark stores in other parts of the world have become profitable after operating for eight months.
Plus, he said, the business model eliminates some line items — such as wages for cashiers and the need for more spacious stores with wide aisles. It also allows the company to locate stores away from heavily trafficked areas, where rents tend to be higher.
Gopuff is making money from advertising, along with deliveries. It uses a combination of employees and automation to fulfill orders in a quick and cost-efficient way. It promises orders in 30 minutes or less. Its delivery fee is $1.95 per order, with an up to $2 additional charge for orders including alcohol. It also has a subscription service that costs $5.95 per month for free delivery.
Gola said he welcomes competition, but is skeptical that some rivals will have staying power.
“A lot of these other players, from an economics perspective, are not building a sustainable business,” he said. “They’re sort of selling a dollar for 99 cents.”
