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Daily news and analysis about the food tech revolution

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The Case for 15-Minute Grocery Delivery is Questionable. So Why Did It Raise So Much Capital?

For about as long as I’ve been seriously watching the Internet industry, companies have been trying to make a business of home grocery delivery.

It started back in the late nineties when companies like Webvan and Homegrocer raised massive amounts of capital after convincing investors that food shopping would be largely done online in the future.

Webvan would raise almost $400 million in venture investing and another $375 million through an IPO. HomeGrocer raised $440 million in venture capital and almost $288 million going public.

None of it was enough. The two companies would eventually merge and went bankrupt less than a year later.

Of course, some online grocers survived, including some originating in the early days of the Internet. Ocado, conceived in the year 2000, continues to this day and is one of the biggest online grocers (and grocery automation technology companies).

But despite the occasional success story like Ocado, the reality is online grocery shopping is a tough business, one that seems to possibly work as part of a broader omnichannel market approach where grocers like Walmart, Kroger and now, yes, Amazon offer both in-person and online shopping experiences for the consumer. And even Ocado.com is essentially an omnichannel model, partnering in the early days with Waitrose.

Which brings us to the 15-minute grocery category, a model built around hyper-local delivery with distributed micro-fulfillment centers placed in dense urban markets like NYC, Philadelphia, and other locations. Startups in this space focus on convenience, offering a limited set of items, not unlike you might find in a convenience store like 7-Eleven (but usually with a little more fresh food sprinkled into the mix).

The market, which in some ways kicked off with GoPuff’s founding a decade ago, witnessed a whole bunch of new entrants enter the market over the past couple of years, including companies with similarly weird names like Gorillas, JOKR, Fridge No More, Weezy to name a few. These companies feasted on a downright frothy venture capital market, raising a breathtaking $4 billion last year alone:

However, with the worldwide economic climate facing significant uncertainty in the face of decades-high inflation, rising interest rates, and a war in eastern Europe, the easy money spigot has been shut off. As a result, some of these companies are either falling into the deadpool, getting scooped up by other competitors, or like JOKR and Gorillas, attempting to cut costs through layoffs and market pullouts to preserve capital runway as they try to survive what looks to be a long economic winter.

Of course, all of this begs the question: Why did all these startups get so much funding in the first place? As the early online grocers demonstrated, building out a network of stores and warehouses and a delivery infrastructure to get a basket of goods to consumers is an extremely expensive business.

Don’t believe me? This chart from a recent McKinsey report on online grocery shows just how tough the margins are for a standard online grocery business before we even consider the extra costs of accelerated delivery.

For a typical e-grocery business, COGS (cost of goods – i.e. groceries – sold) are the biggest expense, around 70% of a total order. The leftover 30% is eaten up by in-store and pick-and-pack labor, last-mile delivery expenses, and associated e-commerce fees. When it’s all said and done, a typical online grocery order has a negative 13% margin.

Of course, fast-grocery startups might offer slight markups in pricing and also make money through delivery fees (which range from $1.80 to $5 per order) and membership subscriptions, but what’s somewhat surprising in retrospect is that fast-grocery companies don’t have drastically different pricing or fee structures compared to that of traditional e-grocery prices.

Beyond the negative marginal profit of each order, the biggest expense driver for these companies and what likely ate the lion’s share of the billions of dollars in the collective capital runways is the buildout of their fulfillment centers and dark store networks. Being fast requires lots of points of presence to be within a 15-minute delivery window (or shorter, since fulfillment and delivery driver load-in takes at least a few minutes once the order comes through), which means lots of construction, equipment and technology costs.

Indeed, the venture community must have seen something here in a business – online grocery delivery – that has shown itself to be historically unprofitable. My guess is the rationalizations for writing these large checks fell in the following categories:

Customers will pay for convenience: We’re living busy lives and sometimes we just want what we want. If someone can get me a six-pack of beer, a steak, and a bag of chips to my house in 15 minutes, I’ll choose that option.

The pandemic changed the game and converted us into an e-grocery nation: In the early days of the pandemic and throughout 2020, we saw unprecedented conversion rates to online grocery as many consumers were forced to use it for the first time. Surely once they went e-grocery, customers wouldn’t return to the old way of doing things.

The siren song of the giant TAM: Food is a huge industry. I’m sure pitch-deck-making founders convinced investors they could convert a large enough percentage of food shopping customers to their business to take home a healthy percentage of the total available market (TAM) in the long run.

Long-term, technology & automation would drive costs down: I am sure many fast-grocery startup founders thought if they could just amass a large and loyal user-base, they could apply technology and automation to bring down the costs and increase margins as they moved past the large-scale infrastructure buildout of the early years.

These rationales for the fast-grocery business may make sense in a vacuum, and I am sure the impressive growth of early-growth pioneers like GoPuff helped convince many startup founders and eager investors there was some long-term gold to be found in those fast-grocery hills. But therein lies the problem: a closer look at these prospective businesses and anticipation of changing environmental factors – both in the form of the global macro-economic situation and the rise of competitors with built-in cost advantages – should have been enough to turn away some of the investors who jumped into this space.

Consider the e-grocery boom of 2020. While many of us thought that the rapid adoption of e-grocery would likely have some staying power even as the pandemic faded, it was never clear how just how much an average e-grocery shopping consumer would buy online once they had the opportunity to head down to their corner grocery store or load-up on staples at their warehouse store. From the looks of it, many consumers are returning to their local stores.

As for the promise of convenience, even if we assume sub-hour delivery time does offer some value to consumers, that value is reduced if there is a convenience store on the corner where one could just go pick up the goods instead.

And, say, a customer did occasionally use these services, was there any reason to assume they would continue to be that impatient? Amazon and Walmart often can usually deliver within an hour or two. Customers who want something quicker can always use a DoorDash or another food delivery app to get something to you quicker.

In reality, these adjacent competitors should have been the most significant reason investors stayed away from this space. These companies are all logistics-optimized, well-capitalized businesses that are eyeing the same TAM of the newer entrants. They also have legacy businesses with which they’ve built customer lists in the tens of millions in some cases.

We’ll see more consolidation of this market, and my guess is one or two of these startups have a chance to emerge on the other end as long-term survivors. With its early start and a warehouse network that’s largely built out, GoPuff looks like it could have enough of a customer base and capital in the bank to weather the storm. Gorillas, having just raised $1 billion late last year, may have sufficient runway if they can manage their burn rate through the downturn.

But no matter how this market shakes out, investors will be much more hesitant to sink capital in this market, particularly for companies with no discernible differentiation. Long-term, my guess is we might be talking about the fast-grocery boom of the early 20s for the next decade or more as a cautionary tale of a venture-capital fever investing, at least until the next boom cycle causes us to forget the lessons of the past once again.

Is The Regulatory Tide Turning Against Ultra-Fast Grocery’s Dark Store Model?

Every week last year, it seemed a new story dropped about a tens millions of dollars funding round going to an ultra-quick store concept.

These startups, often with funny names like Gorillas, JOKR, Buyk and GoPuff, utilize networks of dark stores nestled into residential or mix-used neighborhoods to ensure deliveries can get to consumers within the promised time.

Not surprisingly, as these apps have risen in popularity, existing brick and mortar stores like NYC bodegas have not been happy. Not only are these news apps taking away business, but the addition of new delivery riders are adding traffic and sometimes leading to confrontations with locals.

The pushback by store owners and some residents has been heard by local politicians. According to the New York Post, a New York politician named Christopher Marte is introducing legislation that would ban these companies from advertising 15 minute delivery times.

Another politician, NYC councilwoman Gale A. Brewer, thinks they’re illegal. “They’re going to kill the wonderful Latino restaurants, the wonderful bodegas, the wonderful delis, every single wonderful mom-and-pop supermarket,” Brewer said at a recent press conference. “These Gopuffs and JOKRs and Gorillas gotta go!”

And it’s not New York where there’s pushback. In Amsterdam, where there are 31 dark stores, citizens have started to launch petitions against the dark store networks and to track their behavior on Instagram. A recent story in Ars Technica details how one dark store startup named Zapp disrupted life on one narrow street in a neighborhood called Fagelstraat.

Alex, who has lived on the street for seven years and requested anonymity to avoid further conflict with riders, says there are now 10 to 15 deliveries each day, and giant lorries regularly block the narrow road. “It’s a 24/7 business,” he says, “so riders are coming in and out late at night and early in the morning. At 2 am, I often have people standing in front of my window, smoking and talking really loudly while they are taking a break.” After a month of this, riders and residents started squaring off as tensions boiled over, Alex says.

The growing push for legislation and pushback by consumers had led some investors to become more skeptical of the model. Kunal Lunawat, co-founder and managing partner of Agya Ventures, points to thin margins and the commitment to medium to long-term leases signed using venture funding.

“There appeared to be no consideration given to the economics of these leases over a 1-3 year period,” Lunawat said.

In some ways, the dark store startups are using the same ‘move quickly, break things, ask for forgiveness later’ model pioneered by other disruptive startups (think Airbnb and Uber) over the past decade. And just like home share and rideshare apps eventually saw a wave of new rulemaking at the state and city level, I expect that NYC and Amsterdam are both a sign that a similar wave of legislation and potential bans around dark store models is underway and could take years to iron out.

It will be interesting to see if consumers (and investors) will continue to believe in these new companies as they come under increasing fire.

DoorDash Enters Ultra-Fast Grocery Market, Hires Couriers in Break From Gig Worker Model

Today DoorDash announced it is entering the hyper-competitive ultra-quick grocery delivery market with the launch of a new DashMart location in New York City. According to the announcement sent to The Spoon, the new location will stock up to 2000 items and complete deliveries within 10-15 minutes of a customer’s order.

The new initiative follows the launch of DashMart, DoorDash’s own branded dark grocery network, in 2020. The expansion into hyper-fast is a logical next move, especially for a company with as robust a nationwide logistics and delivery network as DoorDash.

DoorDash’s new effort also represents a significant departure from the company’s traditional gig worker model. Instead of using freelancers to deliver groceries for its new effort, DoorDash will hire its own couriers for the first time. The company plans to hire sixty workers to staff the effort, each getting paid $15/hour plus benefits and tips to start. The new couriers will work for a new DoorDash subsidiary named DashCorp.

The move to hire a courier workforce is, in part, due to pressure from states like New York, which have begun to pass legislation placing greater protection on gig workers. The move also makes sense in that the ultra-fast grocery model requires a ready stable of couriers to deliver goods to consumers as they come in.

“Millions of people across the country turn to platforms like DoorDash to earn supplemental income when, where, and how they choose, providing them with unique flexibility and choice that is so valuable,” said company president Christopher Payne. “We’re proud to be a leader in providing economic opportunities that fit the lives of so many people. And now, we’re excited about the new employment opportunity that DashCorps offers for a different type of work.”

DoorDash’s latest moves follow discussions by the delivery giant to invest in Berlin-based fast-grocery pioneer Gorillas. The talks, which would have given DoorDash a buy option on the Berlin-based company, eventually fell apart, and it’s unclear how much of DoorDash’s newly launched fast-grocery initiative was a direct result of the fizzling effort between the two companies. Whatever their intention, it’s clear now with the launch of its first fast-grocery outpost and the launch of DashCorp that DoorDash is building infrastructure for roll-your-own strategy in this nascent but fast-growing market.

For Gorillas, JOKR, Gopuff, and others in this new space, DoorDash will undoubtedly represent a potentially significant new competitor. The delivery company commands a 55% market share in the US food delivery market and a year ago had 20 million monthly active users. While JOKR, Gopuff, and others have had no problem raising eye-popping amounts of venture funding, these companies have to invest much of their venture funds into user acquisition and logistics, areas which already have been well-developed by the more mature DoorDash.

Buyk Launches 15 Minute Grocery Delivery in NYC

Buyk, a new ultra-fast grocery delivery startup, launched operations in NYC this week.

The company announced this week that they’d launched delivery in Manhattan. Buyk, which was founded by Rodion Shishkov and Slava Bocharov – the same founding team who started Russian fast-grocery store Samokat – announced early this year that they’d raised $46 million for a US launch.

Buyk’s model utilizes hyperlocal dark stores sprinkled around different neighborhoods to ensure delivery within 15 minutes. Once customers put their order in, items are pulled within 2 minutes and then delivered by bike courier (“buykers”) to the customer within 5-10 minutes.

Buyk’s service is available today in Manhattan, and the company says they plan to expand to all NYC boroughs by the end of the year. In 2022, the company plans to expand to other major US metro areas, including cities in California, Florida, Massachusetts, and Illinois.

Buyk is just the latest fast-grocery player to launch in via New York. Just this year, we’ve seen JOKR, Gorillas, Fridge No More. Throw in goPuff’s 500 city blitz, and that’s a total of five dark store/fast grocery players to take a bite of the Big Apple in 2021.

With all the new entrants, it will be increasingly tough for these players to make a name for themselves. But a crowded market isn’t always bad; if ultra-fast grocery becomes a strategic must-have that forces bigger players like Walmart, Amazon, or even a 7-11 to look at launching their own offering, chances are one of these companies will become acquisition targets.

Gopuff Confirms Latest $1B Funding Round

Gopuff announced today that it has raised another $1 billion in funding, confirming reports from last week of just such a round. New investors Blackstone’s Horizon platform, Guggenheim Investments, Hedosophia, MSD Partners, and Adage Capital joined with existing investors Fidelity Management and Research Company, Softbank Vision Fund 1, Atreides Management, and Eldridge in the round.

The new money comes just months after Gopuff raised $1.5 billion, in March of this year. With this new haul, Gopuff has now raised $3.4 billion in total and has a $15 billion valuation.

According to a press announcement emailed to The Spoon, Gopuff will use the new money fuel its geographic expansion across North America and further into the UK and Europe. Gopuff currently operates 450 facilities operating in more than 850 cities across the U.S.

Here in the U.S., Gopuff’s massive fundraising this year far surpasses the comparatively paltry sums raised by its speedy grocery delivery competition. JOKR is a distant second with $170 million, Fridge No More raised $15.4 million, Food Rocket raised $2 million and 1520 has raised an undisclosed seed round.

Gopuff will face more stiff competition as they spread across Europe. The speedy grocery delivery scene there is a little more mature — and better funded than their U.S. counterparts. Spain-based Glovo has raised $1.2 billion, Turkey-based Getir raised $1 billion, and Germany-based Gorillas has raised $335.4 million. (Side note: if you want to raise funding for you speedy grocery delivery startup, start your company name with the letter “G.”) And that doesn’t include all the other players like Flink, Weezy, and Jiffy.

But Gopuff isn’t just expanding its footprint. The company is also branchig beyond straight up grocery delivery and into pre-made meals. Gopuff officially launched Gopuff Kitchen last week, and is already serving hot pizza, chicken tenders, salads, coffees and more in cities like Austin, Miami, Nashville, Philadelphia, Phoenix, and San Antonio.

The speedy grocery delivery started in earnest this year. And with $2.5 billion raised in the past six months, Gopuff has armed itself to try and finish them.

Will Gopuff’s (Second) Billion-Dollar Funding Round Make its Grocery Competition Go Poof?

In addition to delivering groceries fast, Gopuff is pretty speedy when it comes to raising big sums of money. Bloomberg and Axios both reported yesterday that Gopuff is raising an additional $1 billion in funding, according to sources familiar with the matter. This new money comes just months after Gopuff raised $1.5 billion in March, and will give the company a $15 billion post-money valuation.

Like others in the space, Gopuff operates a network of dark stores in the U.S. that deliver goods like groceries in 30 minutes, 24 hours a day. But unlike its competition here, Gopuff has raised a ton more money. If this latest round does indeed close next week, the company will have raised nearly $3.5 billion since 2015. By comparison, other speedy grocery services have far less funding: Gorillas has raised $335M, Fridge No More raised $16.9M, JOKR raised $170M, and Food Rocket raised $2M.

Gopuff is also a little different from its competitors in its value proposition. Those other services promise super-fast delivery of groceries in as few as 10 minutes. Because they deliver to a very limited radius, they can tailor their inventories to the particular tastes of the neighborhood they serve. But those services are also very small right now. Three are only in New York City (Gorillas, Fridge No More, JOKR), and two are in San Francisco (Food Rocket, Gorillas). Gopuff, on the other hand, has more than 300 facilities operating in 550 cities across the U.S. With another $1 billion, Gopuff can accelerate its expansion and grab market share before the competition can even get out of their hometown.

But speedy, on-demand grocery delivery will soon become commonplace in big cities, if you believe the CEO of Food Rocket. As such, we are starting to see these speedy grocery services start to differentiate. Food Rocket, for instance, is adding branded ready-to-eat meals and ghost kitchens to make even more types of delivery friendly meals. But there, too, goes Gopuff: the company has been hiring out kitchen staff and managers for its own ghost kitchen services so it can deliver its own meals.

Gopuff’s biggest competitor might actually be DoorDash at this point. DoorDash has a nationwide delivery network and infrastructure, is expanding aggressively into grocery, has a ton of money thanks to its IPO, operates its own growing line of delivery only DashMart convenience stores, and has its own ghost kitchen program. With another billion in the bank, Gopuff has the goods and the cash now to have a go at DoorDash.

I quipped on Linkedin earlier this week that it would be weird if your speedy grocery delivery service didn’t raise over $100 million. Given Gopuff’s furious fundraising pace, I might have to adjust my joke.

Gopuff is Hiring to Get Into Ghost Kitchens

It looks like Gopuff, which is best known for ’round the clock, half-hour grocery delivery, is expanding into the ghost kitchen business. According to HNGRY (subscription required), Gopuff is hiring more than 100 cooks, managers in states across the country including Arizona, Texas, Florida and Pennsylvania to be a part of its new ghost kitchen endeavor (hat tip to Grocery Dive).

A job description for a Kitchen Associate in Chandler, Arizona on Gopuff’s site reads:

As a member of Gopuff’s new Fresh Food & Local team, the Kitchen Lead role is crucial to contributing to the success of Gopuff Fresh & Local by leading and managing a vertically integrated ghost kitchen.

Ghost kitchens are commercial kitchen facilities without dining rooms that restaurant brands can rent out to create delivery-only concepts. Meal delivery and takeout, of course, have risen in prominence over the past year as the pandemic forced the closure of dining rooms across the country.

Gopuff, which has micro-fulfillment centers in 650 cities in the U.S., raised a whopping $1.5 billion in funding earlier this year and acquired fleet management company RideOS last month. The general thinking at the time of that acquisition was that RideOS would be used as part of its core grocery delivery operations. But as Grocery Dive points out, that same feet management technology could also be used for routing restaurant meal deliveries.

The ghost kitchen space has certainly been a hotbed of activity over the past year with a number of players launching and expanding services. But perhaps what is more interesting about Gopuff’s hiring spree is the latest example of the lines between restaurant, grocery retail and ghost kitchen blurring. DoorDash, which started out as a restaurant delivery service, launched its own ghost kitchen and is expanding further into grocery delivery and expanding it own dark delivery only Dash Mart stores. Walmart is doing virtual food courts via ghost kitchens. And ghost kitchen operator C3 is running ghost kitchens out of hotels and residential spaces.

For Gopuff, adding hot meals to its existing grocery delivery business makes sense, given that it aims to complete deliveries in a half-hour. In that short amount of time your restaurant food arrives hot, while your pint of ice cream stays cool. Now the onus is on Gopuff to communicate clearly what it’s brand proposition is, so people will order both from the company.

GoPuff Acquires rideOS for $115M

On-demand delivery service GoPuff announced today it has acquired fleet management company rideOS, with TechCrunch also reporting a $115 million price tag for the deal after speaking with sources familiar with the matter.

GoPuff, which raised $1.5 billion this past March, operates a delivery service that can fulfill orders — anything from food to baby products to alcohol — in 30 minutes or less, 24/7. To do this, the company operates micro-fulfillment centers in residential areas of cities. The company currently has these centers in over 650 U.S. cities.

As it grows both the number of markets in which it operates as well as the number of fulfillment centers in each city, GoPuff will need to further optimize its delivery operations and tech, which is where rideOS comes into play. For GoPuff, the rideOS deal means access to the latter’s proprietary delivery, routing, and logistics technology as well as the expertise to build new technologies that can further reduce delivery times and enable new modes of delivery. 

GoPuff acquired alcohol retailer BevMo for $350 million in 2020 and the U.K.’s Fancy Delivery in May of this year.  

The rideOS acquisition comes at a time when on-demand delivery startups are raking in the investment dollars and expanding services. Currently, that list includes Weezy, Glovo, and Getir in Europe, and Food Rocket, Fridge No More, Gorillas and JOKR in the U.S.

The concept will realistically only work in dense residential areas, where micro-fulfillment centers can be located within blocks of customers. Receiving an order, fulfilling it, and delivering it in under 30 minutes to a customer in suburban or rural areas seems less feasible given the greater distances couriers must travel. That means large swaths of the U.S. will likely never see extensive implementations of these services, while competition will increase in more concentrated urban areas.

GoPuff acquiring a fleet-management software platform could give the company a strategic edge in terms of being able to optimize routes for delivery, decrease fulfillment times, and possibly even handle more inventory.

GoPuff said it expects to “significantly increase” headcount by the end of the year and expand its presence in Silicon Valley, Pittsburgh, and Berlin.

GoPuff Raises $1.5 Billion to Deliver You Goods in Under a Half Hour Around the Clock

GoPuff, the service that delivers food and other goods in under a half hour any time of day, announced today that it has raised $1.5 billion in new funding. Investors in the round include D1 Capital Partners, Fidelity Management and Research Company, Baillie Gifford, Eldridge, Reinvent Capital, Luxor Capital and SoftBank Vision Fund 1. This brings goPuff’s total amount of funding to roughly $2.5 billion.

GoPuff operates more than 250 micro-fulfillment centers that service more than 650 cities in the U.S. These fulfillment centers stock groceries, alcohol, pet supplies and other household goods for home delivery 24 hours a day. Because these micro-fulfillment centers are delivery only, they can be placed deeper within residential areas and closer to customers to facilitate fast delivery. GoPuff doesn’t guarantee 30-minute delivery, but says that’s the average time it takes to fulfill an order.

The company made headlines in November of last year when it acquired brick and mortar retailer BevMo for $350 million. Not only did that acquisition give goPuff access to BevMo’s customers, it also provided 161 physical stores from which goPuff could establish new micro-fulfillment centers.

This funding almost feels like the apotheosis of the dark store/fast delivery trend we’ve been watching for the past few month. Since the beginning of the year, a number of startups promising grocery delivery in as little as fifteen minutes have gotten funding including Weezy, Fridge No More and Jiffy. GoPuff’s $1.5 billion haul, however, blows all those other funding rounds out of the water.

With is warchest now bursting at the seams, you have to wonder if DoorDash is going to step up its own dark convenience store ambitions. The company launched its DashMart delivery only stores last year, but has been quiet about their rollout since.

The concept of dark grocery stores with super-fast delivery is a new concept, and honestly, it is something that will only work in dense residential areas where multiple orders can be completed per hour. But if the concept catches on, these startups are poised to change our relationship with grocery shopping. Baking cookies and realize you’re out of sugar? A few taps on your phone and fifteen minutes later you have it. Guests coming over and you’re out of wine? A few more taps and problem solved. Groceries, in this scenario, become a utility, always on and available any time of day or night.

GoPuff Acquires BevMo for $350 Million

Delivery startup, goPuff announced today that it is acquiring booze retailer BevMo for $350 million. Bloomberg was first to report the story earlier today, with goPuff sending out press release confirming the news later this morning.

GoPuff is a delivery service that has a network of more than 200 micro-fulfillment centers serving more than 500 U.S. cities. The service is available 24 hours a day to deliver everyday goods like groceries, baby and pet products and booze within 30 minutes. Each delivery carries a $1.95 delivery fee ($10.95 order minimum), and there is a subscription option for $5.95 a month.

With the acquisition, goPuff will get an accelerated entrance into the California. BevMo has 161 stores throughout California, Arizona and Washington state. Not only does this give goPuff access to the “millions” of BevMo customers, but all those BevMo buildings can serve as fulfillment centers to deliver bottles of wine and baby bottles.

GoPuff raised $380 million in new funding last month and has raised a total of $1.2 billion. It’s deep pockets and purchase of BevMo continue the accelerated evolution of convenience store delivery we’ve seen during the pandemic.

DoorDash and Instacart both offer delivery from convenience stores now. DoorDash even took things a step further with the creation of its own chain of dark convenience stores from which the company operates delivery services.

GoPuff is also part of the burgeoning micro-fulfillment trend, which forsakes huge, centralized warehouses in favor of smaller, neighborhood facilities that don’t house as many items. Grocery retailers H-E-B and Albertsons have both announced micro-fulfillment centers to process online orders.

According to today’s press announcement, goPuff’s acquisition of BevMo is expected to close within 30 days.