As nervous consumers shunned supermarkets during the Covid-19 pandemic, tech entrepreneurs saw a golden opportunity to reinvent the humble grocery store.
By mid-2021, more than a dozen startups had formed across the US and Europe promising to deliver groceries by courier in just 10 minutes.
But in the summer of 2022, fewer than half of those companies existed.
Now only a handful of bigger players – led by Istanbul’s Getir and Philadelphia’s Gopuff – keep fighting. This is despite huge losses, a funding crunch, and increasing competition from more established grocery delivery services including DoorDash, Uber and Deliveroo, as well as some traditional supermarkets.
Gorillas, one of the largest operators in Europe, could be next: the Berlin-based company is in talks to sell it to Getir after using up almost all $1.3 billion it raised over the past two years.
According to funding tracker Dealroom.co, investors around the world have poured more than $5.5 billion into these “quick commerce” companies since 2020.
But New York-based Buyk, Fridge No More and Zero Grocery have already closed. In Europe, Weezy, Fancy, Dija, Blok and Cajoo were acquired by larger competitors. Even the financially strong Flink and Jokr were forced to reverse their expansion plans.
Some investors insist these startups were simply unlucky to be on the wrong side of a sudden shift in market sentiment earlier this year, fueled by rising inflation and the Russian invasion of Ukraine.
“The pendulum swung from one extreme to the other: from growth at any cost to fundamental [investors wanting start-ups] to be profitable from day one,” said Dominique Locher, who has backed Jiffy, a London-based delivery startup that sold its software to other merchants, and Toters, a grocery app operating in Lebanon and Iraq .
But others question whether the business model — which typically involved building small warehouses or “dark shops” in urban areas, hiring dozens of couriers, and showering rebates on local residents to stimulate usage — can ever be viable, especially if the most consumers feel the pinch.
“Faced with pressures on the cost of living, consumers may increasingly turn away from impulse buying and towards more regulated shopping regimes,” advisers at KPMG said in a recent report on the sector. “The ones who keep going [using] Fast trading can become more ruthless when it comes to jumping between the best bargains, making it even harder to turn a profit.”
Of the many corporations chasing the fast food trade crown, few cracked down harder than gorillas. Founded in Berlin at the start of the pandemic and led by former Bain consultant Kağan Sümer, Gorillas achieved “unicorn” status – a valuation of $1 billion – in less than a year, faster than any German start-up .
In early 2022, when his dark stores exceeded 200, Sümer planned to raise another $700 million. But that funding is pending, and by the summer, Gorillas had shed hundreds of employees and exited markets like Belgium, Spain and Italy. In May, Gorillas insisted it had “shifted our focus from hyper-growth to a clear path to profitability.”
The search for a buyer began shortly thereafter. Numbers of gorillas shown to potential buyers show how costly this “hypergrowth” has been. Over the past 12 months, it’s lost an average of more than €1.50 for every €1 in net sales, according to people who’ve seen the numbers.
In the first half of the year, Gorillas customers spent an average of €8 on marketing for every single order. It burned more than 60 million euros a month in May, June and July, including what it described as “one off” restructuring costs repeated over several months.
Overall, gorillas’ cash burn in the 12 months to July was more than $800 million, according to his presentation to potential admirers. Many who saw the numbers believed that without new funding or a radical reduction in losses, it might not survive to the end of the year. “I don’t think any sane person would ever buy this company,” said one.
However, one Gorillas investor insisted its burn rate is now many times lower than it was in early 2021 and that it is on track to hit an annualized rate of $200m by the end of the year. “Not even Uber has that fast.” generated over $500 million in sales,” said this individual.
Gorillas still has alternatives on the table if merger talks with Getir fall through, the investor added, including term sheets for new financing 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 keen to distance themselves from a company that became emblematic of the era of lavish spending and easy money for start-ups that ended abruptly.
“The model can absolutely work as long as you have the right strategy and the right offering,” said Steve O’Hear, senior vice president of strategy at Zapp, a UK-based grocery app that has raised more than $300 million Has.
O’Hear said it’s crucial to attract customers “who value a high level of convenience and are willing to pay for it,” something he says is rarely achieved with the issuance of coupons. Zapp’s focus on wealthier customers includes a premium ’boutique’ range offering luxury handwash, candles and champagne, helping to push the app’s average order value to over £30.
Nonetheless, Zapp has pulled out of several markets in recent months to focus on London as — like any grocery delivery app — it tries to conserve as much of its remaining capital as possible.
Toters boss Tamim Khalfa believes venture capital investors in apps like Gorillas and Getir have as much responsibility as his fellow founders.
“VCs enabled some of this behavior,” Khalfa said. “When you get that much money and you’re asked to take over the world quickly before someone else does, that’s the root cause.”
Additional reporting by Dave Lee in San Francisco
This article has been amended to clarify that one of the European delivery startups acquired is Cajoo and not Cazoo