Business Insider

Jun 08, 2022

 

Gopuff, Gorillas, Getir, Jokr:  Investors predict which ultrafast-delivery startups will survive

 

Investor skepticism around startups offering ultrafast grocery delivery had been growing over the past few months, and that was before the public markets nosedived and talk of a potential recession became common.

Now, as investors look to park their money in cash-producing, sustainable businesses, the quick growth and quick burn model of rapid delivery has fallen out of fashion. That, coupled with the swift shutdown of a few businesses in New York, has put unfamiliar pressure on these companies that previously had been able to raise billions.

The first ultrafast player to fall in the US was 1520, which shut down in December. So far this year, Fridge No More and Buyk shuttered after failing to raise more capital, while Jiffy, a delivery service in the UK, stopped doing deliveries and pivoted to being a software company. In a once a crowded field, just four main players remain in the US: Gopuff, Gorillas, Getir, and Jokr.

Those companies are facing headwinds, too, Insider previously reported. Gorillas is struggling to raise money at a high valuation, and news broke on Tuesday that it was laying off 300 employees. Jokr is mulling a funding round largely led by current investors to give it a bigger cash cushion to make it through a rough period. Gopuff went through its own round of layoffs, while sources say Getir burning through $60 million cash in a single month. 

The better pitch to investors now is less about highlighting growth metrics and more about highlighting the balance sheet. Getir has raised the most of the companies from Europe, while the Philadelphia-based Gopuff has $2 billion in the bank, which it's been telling investors is a huge advantage.

But many investors who spoke with Insider were largely turned off by the category. One late-stage venture capitalist said he wouldn't even take the meetings with delivery companies. Others who've been skeptical of the category said the timing couldn't be worse.

"These companies are everything 2021 was and everything 2022 is not," Rick Heitzmann, the founder of FirstMark Capital, said.

"The undercapitalized companies won't be able to get to the next round of financing just to stay afloat because there aren't any of them that are really making any meaningful amount of money right now," Burt Flickinger, a managing director at the retail consulting firm Strategic Resource Group in New York, said.

Gary Hawkins, the CEO of the Center for Advancing Retail & Technology, agreed.

"Given what's going on with the economy, given what's going on in the investment community, all these companies have now got a limited window to figure this out," he said. "The phase of cheap money is gone."

Below are the thoughts of analysts and investors Insider spoke with about the relative prospects of the main ultrafast startups still standing.

Gopuff

Last fundraise: $1 billion at $15 billion valuation
Total amount raised: $3.4 billion
Key investors: SoftBank, D1 Capital Partners, and Fidelity

Gopuff, headquartered in Philadelphia, is the most well funded of the ultrafast players, with about $2 billion in the bank, multiple people with knowledge of the matter said. This means that even though it's projected to lose well over $100 million this year, it has plenty of runway to last through a prolonged economic downturn.

According to Robert Mollins, a Gordon Haskett analyst, Gopuff is a strong player because it's been in the market longer than others, operates nationwide, and has expanded its delivery model to include more profitable products, like liquor and ready-to-eat pizza.

"They are really, in the US, in the best position for everything for the rapid-delivery space or quick delivery," Mollins told Insider.  

He highlighted its move into prepared foods as a way for Gopuff to stand out. In early May, Gopuff introduced a line of pizzas called The Mean Tomato, prepared inside its Gopuff Kitchens in the US. 

Mollins said while the pizza didn't look "very enticing," it was still a good play, especially in markets where Gopuff performs best: college towns. Data shows that when consumers order prepared food from a Gopuff Kitchen, 90% of those orders contain a not a nonkitchen item, he said.

"So if you were to order a pizza, nine out of 10 times, you're probably going to add on something from the convenience store," he added.

But Gopuff has also been laying off employees and restructuring its business. The move came as the company was considering an initial public offering this year, though those plans have been sidelined for now, TechCrunch reported.

"A few weeks ago, I probably would've said Gopuff seems like it's doing the best," Laura Kennedy, a CB Insights analyst, said. "But now, it seems like there's a lot of turmoil."

 

Gorillas

Last fundraise: $1 billion at $3 billion valuation
Total amount raised: $1.3 billion
Key investors: Delivery Hero, DST Global, and Dragoneer

Gorillas, headquartered in Berlin, is in the middle of a fundraising round but entering a rough environment. Investors were already skeptical that it would be able to raise anywhere close to the $5 billion valuation the startup was asking for, Insider previously reported.

And that was before the news Tuesday that the company laid off 300 employees, including half its corporate staff, and is considering pulling out of several European countries, including Denmark, Italy, and Spain. An anonymous source speaking to TechCrunch said Gorillas had just $300 million of cash on hand and, before layoffs, had a burn rate of $50 million and $75 million each month. 

In an email to Gorillas staff from Sümer announcing layoffs and obtained by Insider, Sümer predicted that "one year from now there will be only 1-2 players remaining," and that Gorillas would be one of them.

CEO Kağan Sümer has recently expressed an openness to merge with Jokr, according to a person familiar with his thinking. But Jokr CEO Ralf Wenzel isn't interested at the moment, two people familiar with the matter said. Those talks could heat up, at least on Gorilla's side, given the current environment.

Mollins at Gordon Haskett said Gorillas was "one of the weaker players right now" but that he didn't believe it would shutter "anytime soon."

Mollins said Gorillas was operating in only one US market and probably needed to "focus on different markets" to compete with rapid-delivery players who have set up camps in Chicago, Boston, and San Francisco.  

Another way it could grow its business is by expanding partnerships like the one it has with the UK grocer Tesco, CB Insights' Kennedy said. Under the partnership, Gorillas fills orders using "colocated warehouses" in Tesco stores. 

The model minimizes the cost of holding inventory and running dark stores for Gorillas, making it a smart financial move if the startup adds more stores to the pilot, Kennedy said.

"These companies need some scale behind them," Kennedy said. "That kind of partnership could be really interesting to help both parties involved."

But if Gorillas can't raise significant capital, it may be forced to reign in spending further, including actions like discontinuing promotional deals, a key way ultrafast players draw in customers. 

Getir 

Last fundraise: $768 million at $12 billion valuation
Total amount raised: $1.8 billion
Key investors: Sequoia, Mubadala, and Tiger Global

Getir has the advantage of having raised a substantial amount of capital and running a strong business in its home country of Turkey.

Mollins said Getir should be in good shape after announcing a major raise of $768 million in March. Mollins said the capital infusion came "right before everything started hitting the fan" and the markets started to become volatile so that the "raise should definitely come in handy, especially if VC capital dries up dramatically."

Its burn rate is high, however. The company was losing as much as $60 million a month earlier this year, Insider previously reported. While it has a sizable amount of capital, it will need to lower that burn rate considerably to compete long term.

But the company has many deep-pocketed investors, including a sovereign wealth fund in Abu Dhabi, United Arab Emirates, as well as Sequoia Capital. If the company needs to raise the money, it can tap that for an inside round, which could help it last through the downturn.

Jokr

Last fundraise: $260 at $1 billion valuation
Total amount raised: $430 million
Key investors: Activant Capital, GGV, and Tiger Global

Based in New York City, Jokr raised $260 million in December, shortly before the fundraising climate turned sour.

At its burn rate, the company has 18 months of capital in the bank, according to a person familiar with the matter. The company could extend that runway if cut down on its expenses. It's running well behind competitors in New York.

Wenzel, its CEO, has more recently floated the idea of raising another tranche of capital about half that size. It would largely be led by current investors with the hope that new ones would come aboard, according to two people familiar with the matter.

Mollins, the Gordon Haskett analyst, said Jokr might come out ahead because of its recent launch of a platform for self-serve ads. 

Launched in mid-May, the media platform allows advertisers like Kellogg's to bid for more personalized and relevant product placements when consumers search for specific goods on the Jokr app. 

"Grocery, in general, is a very low-margin business. Ads are very high margin," Mollins said. "So you really need that to help boost your margins and actually make you look like a tech company and not just a traditional grocer that delivers your food on a bike." 

Also in Jokr's favor is its assortment of basic groceries and fresh produce, Mollins said.

"They've really tried to be an actual rapid-grocery-delivery company and not a rapid convenience company," he added. 

That's led to better basket sizes compared with rivals.

According to transaction data tracked by Earnest, Jokr has a higher average ticket size than Gorillas and Gopuff.  In April, Jokr's average ticket was $36.17, compared with Gopuff's $27.16 and Gorillas' $31.22. By comparison, the average order size for the grocery e-commerce giant Instacart was $108.69 in April. Earnest does not track Getir. 

"But also what's most important with Jokr now is that they're actually fully gross positive on a group level in all of their countries after 12 months of operations, so that is incredibly impressive to hear," Mollins said, referring to Wenzel's interview with TechCrunch on April 21.

Mollins said Jokr looked "quite strong" thanks to doing a "pretty good job of trying to be a little bit different from the pack."

 

Permalink: https://gordonhaskett.com/news/13828096