Ultra-fast delivery was 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 and valued it at $11.8 billion, “cementing its position as a decacorn” even in the face of a “volatile” market, according to a representative of the company at that time. The representative suggested that a reporter discuss the future of the industry with Getir’s CEO amid the “disappearance” of two smaller competitors.
The sudden shift reflected the wider turbulence in this sector. Fueled by billions in venture capital and a surge in demand earlier in 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 1[ads1]0 minutes. These startups opened offices and micro-fulfillment centers in cities across the country and quickly recruited couriers.
Then the music stopped. Rising inflation, rising interest rates, fears of a looming recession and a war in Ukraine forced large parts of the technology industry to reconsider spending. Perhaps nowhere was the backlash more severe than in this ostentatious and highly expensive corner of the ordering industry—an industry that was born out of the Great Recession of 2008 and had never experienced a prolonged downturn.
“It’s the model we saw with Uber a decade ago of heavily prioritizing growth over profit in order to quickly seize first-mover advantage,” said Alex Frederick, a senior emerging technology analyst at PitchBook, a data analytics firm. This model “requires high burn, high capital investment to continually expand into new markets, attract customers and retain them,” he said. Now, investors may have less appetite for it.
The fallout has caused whiplash for some of the many workers betting on it. One of the thousands of employees laid off by Getir told CNN Business that they had felt a sense of security because of something they said they had heard expressed inside the seven-year-old company: There had never been a layoff.
The worker, who started in late 2021 while Getir built up its US presence in Boston and Chicago, said that while they had rationally understood that it is common for startups to lay off employees, or even fail, they believed that Getir would be the exception. “I really thought they just weren’t doing layoffs and thought they were going to be a completely different startup,” said the former employee, who asked not to be named for fear of retaliation. “I believed in the dream they were selling. I’m disappointed.”
In an emailed response to CNN Business, Getir CEO Nazim Salur said his company “decided to expand the runway” through layoffs “due to the deterioration of market conditions.” Salur added: – Redundancies are something we try not to do unless absolutely necessary. This is the first time in Getir’s seven-year history that Getir has gone through such a cut in the workforce.
He declined to provide further details about the round of cuts in May, including which part of the US business was affected. The company said it is the first case of widespread layoffs as opposed to specific store closings.
Like Getir, the remaining ultra-fast delivery startups have largely indicated that the cuts are intended to help them weather the economic downturn. As they adapt, however, other businesses appear to be looking at opportunities to gain a foothold in the market and perhaps change how it operates.
The rise and fall of 15-minute delivery startups
But in a note to investors in July, it outlined a series of changes it was making, including a second round of layoffs within months and closing 76 micro-fulfillment centers, to prepare for the next two years by then planning it. it can be profitable. It said it is preparing for “what could be a much more significant macroeconomic downturn than we are currently experiencing.”
“The instant commerce industry that Gopuff created is at an inflection point,” the company said in the memo, a copy of which was seen by CNN Business. “Gopuff was among the last hyper-growth technology companies to take a significant turn in the previous economic environment and among the first to cut costs to focus on and optimize unit economics,” the company said, referring to the revenue and costs associated with each delivery.
Even with the cuts at Gopuff and other startups, some industry watchers doubt the long-term viability of their core offerings, especially in a more sober economic environment.
Brittain Ladd, a supply chain consultant who has advised a number of companies in the area and previously worked on strategy at Amazon, told CNN Business that the premise of 15-minute delivery is a “gimmick”.
“It hooked people, it generated a lot of publicity, it became something strange,” he said. “The goal was to make consumers ask, ‘Why can I get groceries in 15 minutes, but I can’t get cosmetics and shoes and clothes and things like that [in 15 minutes]?'”
“That’s where the next phase of growth was going to be,” he added. Then came the downturn and fears of a recession. “Investors collectively said, ‘How in the world are we ever going to make money investing in this?’
A slower way forward for some
As some of the biggest names in the ultrafast delivery sector stumble, others are looking to gain ground.
In December, DoorDash began offering an ultra-fast delivery option in New York City from a DashMart, one of the stores it opened in 2020, and has since begun expanding.
Meanwhile, several under-the-radar companies have taken what they say are deliberately slower and more methodical approaches to ultrafast delivery. Paul Stellatos, who has run grocers in the Chicago area for two decades, told CNN Business that his company, Go Grocer, had developed an app to offer quick deliveries from its stores — without VC backing. That process took many months, during which time Gorillas and Getir took the market by storm.
“We kind of sat back and said, ‘Okay, Mr. Gorillas or Mr. Getir, How are you going to monetize capturing your audience and getting a sticky customer, someone who will order more than once?” said Stellatos, who said Go Grocer leverages workers from companies like DoorDash and Uber to deliver orders from its stores. I’m really good at money because we don’t have the opportunity to burn money. We can only be profitable.”
Vitaly Alexandrov, CEO and founder of San Francisco-based startup Food Rocket, which offers 10- to 30-minute grocery deliveries with an emphasis on fresh food, said that to date it has only six outlets in San Francisco and Chicago.
“It’s not because we’re a super-slow company,” said Alexandrov, who noted that Food Rocket grew out of the remnants of his previous business focused on restaurants that closed due to the pandemic. “That’s because we were trying to build a really sustainable business model. It couldn’t be scalable without such huge losses.”
Alexandrov said the extra time on 30-minute deliveries provides more “sustainable unit economics” because it provides more opportunities to group 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 still think people love to get everything super fast,” Alexandrov added.
