Why Rapid-Delivery Grocery Startups Couldn't Hack the US: Analysts
source link: https://www.businessinsider.com/why-rapid-delivery-grocery-startups-couldnt-hack-the-us-analysts-2022-7
Go to the source link to view the article. You can view the picture content, updated content and better typesetting reading experience. If the link is broken, please click the button below to view the snapshot at that time.
Rapid-delivery startups like Gorillas and Getir found success in Europe. Here's why analysts say they couldn't hack it in the US.
- Rapid-grocery-delivery startups in Europe like Gorillas and Getir tried to break into the US market.
- Promising groceries in less than 15 minutes, these startups grew quickly in big US cities.
- But several have ended operations. Analysts say they didn't understand the American shopper.
Days before launching his ultrafast-delivery business in New York City last year, Kağan Sümer, the CEO of Gorillas, based in Berlin, vowed to break US shoppers' habit of Costco-style bulk buying.
"Gorillas can give you the bulk purchases," he told Insider in May 2021, "but you will not need it, because we're giving you things when you need it."
But some habits are hard to break.
Ultrafast-delivery businesses are collapsing as fast as they built up. Fridge No More, Buyk, Jokr, and 1520 have shuttered or withdrawn from the US, while Getir, Gopuff, and Gorillas have cut staff. Gorillas scrambled in late July for $250 million in funding at a reduced valuation.
Many of their founders built their rapid-delivery businesses abroad and tried to replicate the model in the US. But the companies "did not fully appreciate nor understand" the differences between US and European consumers, said Gary Hawkins, a retail analyst who leads the Center for Advancing Retail & Technology.
Phil Lempert, a grocery analyst, said the so-called ultrafasts would never stick in the US. "It is an unrealistic business model that was impossible to reach for success," Lempert said.
Insider interviewed four analysts and insiders about the industry. Here's what they said went wrong.
The distinctly American love of bulk buying
By the end of 2021, express-delivery startups like Gorillas, Jokr, Fridge No More, Buyk, Getir, Food Rocket, and Gopuff had spread throughout New York, Chicago, Boston, and San Francisco. They hoped to seduce city dwellers with doorstep delivery of groceries in 15 minutes or less.
Since 2021, $10.9 billion in venture capital has been invested in last-mile-delivery startups globally, according to PitchBook.
Several ultrafast players had learned the business outside the US. Gorillas, for instance, perfected its model on the streets of Berlin, while Buyk's founders had run an ultrafast-delivery service called Samokat in Russia.
But analysts told Insider this may have led to blind spots when it came to the American consumer.
Shoppers in Europe tend to buy fresh groceries every few days. In the US, people with larger homes often buy goods in quantities that could last a week or more, Hawkins said. And persistent inflation has made bulk buying even more attractive.
"The economics of bulk buying are hard to ignore, and those habits are hard to change, especially as the economy has tightened up," Hawkins said.
Huge discounts and high burn rates made profits unattainable
To gain customers, ultrafasts burned cash.
A source told Insider in May that Getir was burning upwards of $60 million a month. And an insider told TechCrunch that month that Gorillas' monthly global burn rate was between $50 million and $75 million.
Robert Mollins, a Gordon Haskett analyst, wrote in a research note in February that ultrafasts' discounts of $20 to $25 for first-time customers were "very unsustainable."
Customers also weren't ordering enough. YipitData suggests the average order for Getir, Gorillas, Gopuff, and Jokr was $21 to $32 in May. That was about one-fourth the size of the average Instacart basket in April.
Surveys from Brick Meets Click suggest that sales of groceries ordered online in the US dropped by 18% from March to May. And Labor Department data indicates inflation has driven up grocery prices by 12.2% over the past year.
These pressures squeezed ultrafasts. The business model, Lempert said, "was doomed from the start."
Even experienced ultrafasts have struggled in the US
The ultrafast-delivery company that was perhaps best positioned to succeed in the US was Getir, founded in Turkey in 2015. It was an experienced player with $2 billion in funding and operations in eight European countries.
In an interview with Insider in February, its CEO, Nazim Salur, said Getir had battle-tested the model. "We know what we're doing," he said.
But Getir's expansion in Europe leaned heavily on acquisitions. The company acquired Blok, a delivery service in Spain and Italy, for an undisclosed amount in July 2021. In November, it bought Weezy, based in the UK, adding another European market to its roster.
By contrast, when Getir arrived in the US in November, it chose to build from the ground up — something it hadn't done outside of Turkey, a former corporate employee told Insider.
It hired hundreds of employees and planned to open thousands of US stores in 2022, but it reversed course in May and laid off 14% of its global workforce, or about 4,480 people, TechCrunch reported. Former employees said that at the time of the layoffs, the company was still unprofitable.
It has also struggled with its operations in the US. Employees said that some scooter- and bicycle-riding couriers had gotten into accidents on city streets and that snow in Chicago made scooters impossible to ride. Two former employees said the company hadn't reported their income to state tax authorities. Getir is now the focus of an investigation by the New York State Department of Labor.
The US "was the ninth country that Getir opened," one former employee said. "They had ample opportunity and resources to put together a design frame that could support what they were doing."
An American ultrafast founded on late-night snacks
Analysts said one ultrafast-delivery service, Gopuff, seems to have a better understanding of the American market than its rivals — but it's still struggling.
Gopuff got its start in Philadelphia in 2013 selling snacks and smoking supplies to college students, a group of consumers already accustomed to getting food deliveries quickly and at odd hours.
Almost 10 years later, it operates in about 1,000 US locations and sells a range of groceries, snacks, booze, and prepared foods.
Mollins predicted in May that Gopuff would emerge as the quick-delivery leader in the US. Since then, Gopuff has cut 10% of its workforce, in its second round of layoffs this year.
Brittain Ladd, a logistics expert who has been following the sector in Europe and the US, said the future is grim for ultrafasts.
Even Gopuff has yet to break even, Ladd said, suggesting that speed isn't everything.
"Grocery retailers and delivery companies understand that consumers don't necessarily want 15-minute delivery," he said. "Instead, what consumers want are options for receiving groceries when they want.
"There isn't a market for rapid grocery delivery," he said of the US.
Are you a rapid delivery insider with insight to share? Got a tip? Contact Nancy Luna via email at [email protected] or via Signal encrypted number 714-875-6218 and Alex Bitter via email at [email protected] or Signal at 808-854-4501.
Aggregate valuable and interesting links.
Joyk means Joy of geeK