Most rapid grocery apps fail to deliver for investors
As nervous consumers avoided supermarkets during the Covid-19 pandemic, tech entrepreneurs spied a once-in-a-generation opportunity to reinvent the humble grocery run.
By mid-2021, more than a dozen start-ups had launched across the US and Europe promising to deliver groceries via courier in as little as 10 minutes.
But by summer 2022, fewer than half of those companies were still around.
Now, just a handful of bigger players — led by Istanbul-based Getir and Philadelphia’s Gopuff — are fighting on. This is despite huge losses, a funding drought and increased competition from more established food delivery services, including DoorDash, Uber and Deliveroo, as well as some traditional supermarkets.
Gorillas, one of the largest operators in Europe, could be the next to go: the Berlin-based company is in talks to sell to Getir after burning through almost all of the $1.3bn it had raised in the past two years.
Since 2020, investors have poured more than $5.5bn into these “quick commerce” companies globally, according to funding tracker Dealroom.co.
Bar chart of Investor appetite has waned considerably in 2022 showing The rapid rise and fall of 10-minute grocery apps
But New York-based Buyk, Fridge No More and Zero Grocery have already shut down. In Europe, Weezy, Fancy, Dija, Blok and Cajoo have been taken over by larger rivals. Even well-funded Flink and Jokr have been forced to reverse their expansion plans.
Some investors insist that these start-ups were just unlucky to be caught on the wrong side of a sudden change in market sentiment earlier this year, driven by rising inflation and Russia’s invasion of Ukraine.
“The pendulum went from one extreme to the other: from growth at all costs to basically [investors wanting start-ups] being profitable at day one,” said Dominique Locher, who has backed Jiffy, a London-based delivery start-up that pivoted to selling its software to other merchants, and Toters, a food app operating in Lebanon and Iraq.
However, others question whether the business model — which typically involved building out small warehouses or “dark stores” in urban locations, hiring dozens of couriers and showering local residents with discounts to stimulate usage — can ever be profitable, especially when most consumers are feeling the pinch.
“With cost of living pressures, consumers may increasingly turn away from impulse buys towards more regimented shopping regimes,” said consultants at KPMG in a recent report on the sector. “Those that continue with [using] quick commerce may become more ruthless about jumping between the best bargains, making it even harder to make a profit.”
Going ape
Of the many companies to chase the rapid grocery crown, few went harder than Gorillas. Founded in Berlin early in the pandemic and led by former Bain consultant Kağan Sümer, Gorillas reached “unicorn” status — a valuation of $1bn — in less than a year, the fastest ever for a German start-up.
In early 2022, as the number of its “dark stores” surpassed 200, Sümer planned to raise another $700mn. But that funding has yet to materialise and by the summer, Gorillas was cutting hundreds of staff and abandoning markets including Belgium, Spain and Italy. In May, Gorillas insisted it had “shifted our focus from hyper growth to a clear path to profitability”.
Shortly afterwards, it began to search for a buyer. Figures from Gorillas shown to potential acquirers demonstrate just how costly that “hyper growth” had been. Over the past 12 months, it was, on average, losing more than €1.50 for every €1 it generated in net revenue, according to people who have seen the figures.
Marketing spending averaged €8 for every single order placed by Gorillas’ customers in the first half of the year. It burnt more than €60mn a month in May, June and July, including what it described as “one-off” restructuring costs that repeated over multiple months.
In total, Gorillas’ cash burn in the 12 months to July was more than €750mn, according to its presentation to potential admirers. Many who saw the figures believed it could not survive until the end of the year without new funding or a radical reduction in losses. “I don’t think any sane person would ever buy this company,” said one.
However, one Gorillas investor insisted that its burn rate was now several times lower than in early 2021 and that it was on track for an annualised rate of €200mn by the end of the year, excluding markets it has exited, on annualised revenues of €450mn. “Not even Uber scaled to over $500mn revenue that quickly,” this person said.
Gorillas still has alternatives on the table if its merger talks with Getir fail, the investor added, including term sheets for new funding that would ensure its survival until at least the end of next year. Gorillas declined to comment.
Hate the game, not the player
Gorillas’ rivals are eager to distance themselves from a company that became emblematic of the era of profligate spending and easy money for start-ups that ended abruptly.
“The model can absolutely work as long as you have the right strategy and proposition,” said Steve O’Hear, senior vice-president of strategy at Zapp, a UK-based grocery app that has raised more than $300mn.
O’Hear said that attracting customers “who value and are willing to pay for a high level of convenience” is key, something he said that handing out vouchers rarely achieves. Zapp’s focus on wealthier customers includes a high-end “Boutique” range that offers luxury hand wash, candles and champagne, helping to boost the app’s average order value to more than £30.
Nonetheless, Zapp has pulled out of several markets in recent months to focus on London as — like every grocery delivery app — it tries to conserve as much of its remaining capital as possible.
Toters chief executive Tamim Khalfa believes that venture-capital investors in apps like Gorillas and Getir bear as much responsibility as his fellow founders.
“VCs enabled some of that behaviour,” Khalfa said. “When you are being handed so much money and being asked to take over the world quickly before someone else does, that’s the root cause.”
