Can the Mad Rush to Deliver Your Groceries in 10 Minutes Be Profitable?
(Bloomberg Businessweek) -- In New York, London, and other big cities, a new breed of couriers with names such as Gorillas, Getir, and Gopuff is promising to have basic groceries—bananas, six-packs of beer, Doritos, and such—at your front door in as little as 10 minutes.
For venture capitalists on the prowl for businesses that might benefit from a lockdown, these ultrafast grocery deliveries were an obvious outlet. In 2021 alone, investors pumped $3 billion into 13 such startups—an eightfold increase in cash from the previous year, according to research from PitchBook Data Inc. Getir’s July valuation of $7.6 billion means it’s worth more than Macy’s Inc. or Nordstrom Inc.
But can these companies, many of which are less than two years old, sustainably turn a profit? In search of an answer, Giles Thorne, an equity analyst at Jefferies Financial Group in London, and his team spent a week sitting outside a “dark store” operated by Getir. Unlike a delivery service such as Instacart, which sends its couriers into a nearby Walmart or Costco, rapid grocery deliveries come from locations the startups themselves operate—usually small warehouses located away from the high rents of Main Street.
Thorne, who’s done jaunts as an Uber Eats deliverer to understand that business better, counted how many couriers came and went over the course of a week. Just six months after opening in London, Getir was a lot more popular than he’d expected, averaging about 340 orders per day from one site.
That led him to estimate that each store could conservatively make from €3 million to €5 million ($3.6 million to $6 million) in annual sales. Because their rent is cheaper and each store serves a wider area than the classic neighborhood bodega, dark stores may be even more profitable. Thorne anticipates they could enjoy an effective profit that represents from 5% to 10% of sales. That would be a real challenge to convenience stores, whose profit margins are typically from 2% to 4%.
Of course, there’s a hitch. Those numbers assume a steady growth trajectory. As people return to offices and factories, they may order less online. What’s more, the current level of competition is unsustainable. London alone has a dozen rapid-delivery companies spending heavily on marketing. And the big supermarket chains, whose economies of scale mean they can charge less for groceries, are ginning up their own rival offerings. If they all decide ultrafast delivery is an attractive business, the ensuing price war will rapidly undermine the industry’s prospects.
All of this also points to a change in venture investment. Gone is the penchant for consumer platforms such as Uber Technologies Inc. or Airbnb Inc. Those companies have low overheads and connect people to services in return for a commission. Flush with cash, VCs are increasingly looking at more capital-intensive businesses. All that money may be about to eat your local corner store’s lunch.
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