As nervous consumers shunned supermarkets during the Covid-19 pandemic, tech entrepreneurs saw a once-in-a-generation opportunity to reinvent the humble grocery store.
By mid-2021, more than a dozen start-ups had launched in the United States and Europe, promising to deliver groceries by courier in as little as 10 minutes.
But in the summer of 2022, less than half of those companies were still around.
Now only a handful of bigger players – led by Istanbul’s Getir and Philadelphia’s Gopuff – are fighting. This is despite huge losses, a shortage of funding and increased competition from more established food delivery services including DoorDash, Uber and Deliveroo, as well as some traditional supermarkets.
Gorillas, one of Europe’s biggest operators, could be next to go: the Berlin-based company is in talks to sell to Getir after exhausting almost all of the $1.3 billion it had raised over the past two years.
Since 2020, investors have poured more than $5.5 billion into these “fast trade” companies around the world, according to funding tracker Dealroom.co.
But New York-based Buyk, Fridge No More and Zero Grocery have already closed. In Europe, Weezy, Fancy, Dija, Blok and Cazoo have been taken over by larger rivals. Even the well-funded Flink and Jokr were forced to backtrack on their expansion plans.
Some investors insist these start-ups were simply unlucky to be caught on the wrong side of a sudden shift in market sentiment earlier this year, driven by rising inflation and Russia’s invasion of Ukraine.
“The pendulum has swung from one extreme to the other: from growth at all costs to [investors wanting start-ups] be profitable from day one,” said Dominique Locher, who backed Jiffy, a London-based delivery startup that shifted 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 small warehouses or “dark stores” in urban areas, hiring dozens of couriers and showering local residents with discounts to boost economic growth. ‘use – can never be profitable, especially when most consumers feel the pinch.
“With cost of living pressures, consumers may increasingly shift away from impulse purchases towards more regulated purchasing regimes,” KPMG consultants said in a recent industry report. “Those who continue with [using] fast trading can become more ruthless when it comes to jumping between the best deals, making it even more difficult to make a profit.
Of the many companies chasing the quick grocery crown, few have gone further than Gorillas. Founded in Berlin at the start of the pandemic and led by former Bain consultant Kağan Sümer, Gorillas reached “unicorn” status – a $1 billion valuation – in less than a year, the fastest on record for a German start-up.
At the start of 2022, as the number of its “dark stores” exceeded 200, Sümer planned to raise an additional $700 million. But that funding has yet to materialize, and by the summer Gorillas was cutting hundreds of employees and abandoning markets such as Belgium, Spain and Italy. In May, the gorillas insisted he had “shifted our focus from hyper growth to a clear path to profitability”.
Soon after, he started looking for a buyer. The Gorillas figures shown to potential buyers show how costly this “hyper growth” has been. Over the past 12 months, he has lost on average more than €1.50 for every €1 generated in net income, according to people who have seen the figures.
Marketing spend averaged €8 for every order placed by Gorillas customers in the first half of the year. He burned more than 60 million euros a month in May, June and July, including what he described as “one-off” restructuring costs that recurred over several months.
In total, Gorillas’ cash burn in the 12 months to July was over 750 million euros, according to his presentation to potential admirers. Many who saw the numbers thought it couldn’t survive to the end of the year without new funding or a drastic reduction in losses. “I don’t think any sane person would ever buy this business,” one said.
However, one Gorillas investor insisted its burn rate was now several times lower than at the start of 2021 and was on track for an annualized rate of 200 million euros by the end of it. of the year, excluding the markets from which it exited, on annualized revenues of €450mn. “Even Uber didn’t hit over $500 million in revenue that quickly,” the person said.
Gorillas still has alternatives on the table if its merger talks with Getir fail, the investor added, including term sheets for new financing that would ensure its survival until at least the end of next year. The gorillas declined to comment.
Hate the game, not the player
Gorillas’ rivals are keen to distance themselves from a company that has become emblematic of the era of overspending and easy money for start-ups that came to an abrupt end.
“The model can absolutely work as long as you have the right strategy and the right proposition,” said Steve O’Hear, senior vice president of strategy at Zapp, a UK-based grocery app that has raised more of $300 million.
O’Hear said it was essential to attract customers “who value and are willing to pay for a high level of convenience,” something he said voucher distribution rarely achieves. Zapp’s focus on wealthier customers includes a high-end “Boutique” range that offers luxury handwash, candles and champagne, helping to boost the app’s average order value to more from £30.
Nonetheless, Zapp has pulled out of several markets in recent months to focus on London as, like all grocery delivery apps, it tries to conserve as much of its remaining capital as possible.
Toters chief executive Tamim Khalfa believes that venture capitalists in apps such as Gorillas and Getir bear as much responsibility as his fellow founders.
“VCs enabled some of that behavior,” Khalfa said. “When you’re given so much money and told to take over the world quickly before someone else does, that’s the root cause.”
Additional reporting by Dave Lee in San Francisco