Super-fast delivery has been all the rage during the pandemic. Now these startups are trying to survive

Getir, a Turkish startup founded in 2015, had recently raised $768 million in funding, valuing it at $11.8 billion, “consolidating its decacorn position” even in the face of a “volatile” market, according to a company representative at the time. The representative suggested that a reporter speak with Getir’s CEO about the future of the industry amid the “demise” of two smaller competitors.

This sudden change reflected the broader turbulence in this sector. Backed by billions in venture capital and a surge in demand at the start of the pandemic, a long list of on-demand companies promised to deliver ice cream, toilet paper, vodka or even a single apple in as little as 10 minutes. These startups opened offices and micro-distribution centers in cities across the country and quickly recruited couriers.

Then the music stopped. Soaring inflation, rising interest rates, fears of an impending recession and a war in Ukraine have forced much of the tech industry to rethink its spending. Perhaps nowhere has this setback been more severe than this flashy, very expensive corner of the on-demand industry – an industry that was born out of the Great Recession of 2008 and had never experienced a prolonged downturn.

“This is the model we saw with Uber a decade ago of prioritizing growth over profits so that we can quickly capture first-mover advantage,” said principal analyst Alex Frederick. specializing in emerging technologies at PitchBook, a data analytics company. This model “requires high consumption and high capital investment to continually expand into new markets, attract customers and retain them,” he said. Now investors may have less appetite for it.

Gorillas, a super-fast delivery startup founded in Germany, launched in the United States in May 2021.
This year, Fridge No More and Buyk ceased operations altogether; jokr said it would close its operations in the United States and focus on its business in Latin America; and Gopuff, Gorillas and Getir have each had at least one round of layoffs. Together at least 8,250 jobs were lost, according to a tally by CNN Business based on a combination of media coverage, publicly available information and confirmations from some companies. Many of those affected worked as couriers or front-line workers essential to completing missions for speed and convenience.

The fallout created a boost for some of the many workers who bet on it. One of the thousands of employees laid off by Getir told CNN Business that they felt a sense of security because of something they had heard from the seven-year-old company: she had no never been fired.

The worker, who joined in late 2021 as Getir ramped up its US presence in Boston and Chicago, said that while they rationally understood that it was common for startups to lay off employees, or even fail, they thought Getir would be the exception. . “I really believed they just didn’t fire and I thought they were going to be a very different startup,” said the former employee, who asked not to release his name for fear of retaliation. “I believed in the dream they were selling. I’m disappointed.”

In an email response to CNN Business, Getir CEO Nazim Salur said his company “decided to extend the runway” through layoffs “due to deteriorating market conditions.” Salur added, “Layoffs are something we try not to do unless absolutely necessary. This is the first time in Getir’s seven-year history that Getir has suffered a downsizing of this size. magnitude.”

He declined to provide further details about the series of cuts in May, including which part of his US business was affected. The company said it was the first case of widespread layoffs as opposed to specific store closures.

Like Getir, the remaining super-fast delivery startups have largely indicated the cuts were intended to help them ride out the economic downturn. As they adapt, however, other companies seem to be seeing opportunities to gain a foothold in the market and perhaps change the way they operate.

The rise and fall of delivery startups in 15 minutes

When Gopuff, considered the first to leverage its own stores for super-fast deliveries, was founded in 2013, Uber and the app-based gig economy were only a few years old. Gopuff’s original pitch was to offer hookah deliveries and later food to students with sudden cravings.
Instacart wants to help grocers tap into the 15-minute delivery craze
Less than a decade later, Gopuff was valued at $15 billion and then reportedly raised a convertible note at a valuation cap of up to $40 billion. It also operated in over 1,200 cities and caught the eye of a more established gig company, Uber, in the form of a partnership. Gopuff had 450 micro-distribution centers spread across college towns and major cities to supply customers with everything from food to alcohol and medicine almost instantly. In March 2022, it had 15,000 employees.

But in a note to investors in July, he outlined a number of changes he was making, including a second round of layoffs within months and the closure of 76 micro-distribution centers, to prepare for the next two years. , date on which he projects it can be profitable. He said he was bracing for “what could be a much bigger macro-economic downturn than what we are currently experiencing.”

Gopuff, founded in Philadelphia in 2013, is the most popular super-fast delivery startup.

“The instant commerce industry created by Gopuff is at an inflection point,” the company said in the memo, a copy of which was viewed by CNN Business. “Gopuff was among the last hyper-growth technology companies to lift a significant turn in the previous economic environment and among the first to cut costs to focus and optimize the unit economy,” the company said, citing revenues and costs associated with each. delivery.

Even with the cuts at Gopuff and other startups, some industry watchers have doubts about the long-term viability of their key offerings, especially in a more restrained economic environment.

Brittain Ladd, a supply chain consultant who has advised a number of companies in the space and previously worked in strategy at Amazon, told CNN Business that the premise of 15-minute delivery is a ” thing”.

“It hooked people, it generated a lot of publicity, it became something weird,” he said. “The goal was to get consumers to ask, ‘Why can I shop in 15 minutes, but I can’t buy cosmetics, shoes, clothes, etc. [in 15 minutes]?'”

“That’s where the next phase of growth was going to be,” he added. Then came the slowdown and fears of a recession. “Investors collectively said, ‘How are we going to make money investing in this?'”

Slower progress for some

While some of the biggest names in the super-fast delivery industry are stumbling, others are looking to gain traction.

Instacart, which in May filed documents to be made public, launched a super-fast delivery offer for certain Publix customers In Miami. Instacart declined to share metrics on the partnership, but a company spokesperson said it saw interest in the Publix offering, called Publix Quick Picks. A Publix spokesperson did not respond to a request for comment.

In December, DoorDash began offering a super-fast delivery option in New York from a DashMart, one of the stores it opened in 2020, and has since begun to expand.

Meanwhile, more under-the-radar companies have taken what they call intentionally slower, more methodical approaches to lightning-fast delivery. Paul Stellatos, who has run grocery stores in the Chicago area for two decades, told CNN Business that his company, Go Grocer, developed an app to offer fast deliveries from its stores — without VC support. This process took several months, during which gorillas and Getir stormed the market.

Getir, a Turkish startup founded in 2015, launched its operations in the United States in November 2021.

“We were just sitting down and saying, ‘Okay, Mr. Gorillas or Mr. Getir, how do you plan to make money by capturing the audience and getting a loyal customer, someone who will order more than once?” said Stellatos, who said Go Grocer relies on employees companies like DoorDash and Uber to deliver orders from its stores.” I’m such a money maniac because we don’t have the ability to burn cash. We can only be profitable.”

Vitaly Alexandrov, CEO and founder of San Francisco-based startup Food Rocket, which offers 10- to 30-minute grocery delivery with a focus on fresh foods, said it has only six so far. outlets in San Francisco and Chicago.

“It’s not because we’re a super slow business,” said Alexandrov, who noted that Food Rocket grew out of the remnants of his earlier restaurant-focused business that closed due to the pandemic. “That’s because we tried to build a really sustainable business model. It couldn’t scale without such huge losses.”

Alexandrov said the extra 30-minute delivery time allows for a “more sustainable unit economy” because it provides more opportunities to consolidate multiple deliveries for a single worker. Food Rocket, which has raised $30 million to date, hopes to raise another round of funding by the end of the year. “We always think people like to get everything really fast,” Alexandrov added.

One of the most valuable companies in the world apparently thinks so too. Amazon recently started testing drone deliveries in one city. The goal: fulfill orders in 30 minutes.

Leave a Comment