Sep 27, 2021

Gorillas and 10-Minute Grocery Delivery Companies

I wanted to pass along what I read this week that was interesting from an ops perspective: “Take a look inside a dark store” by Sifted

As you’ve probably seen in the news, super quick (i.e. 10- to 15-minute) grocery delivery companies like Getir, Gorillas, and JOKR have been raising huge funding rounds recently to deliver grocery and convenience items quickly to consumers. The COVID pandemic created the perfect environment for these companies to grow rapidly: 1) increased consumer demand for delivery amidst social distancing measures 2) a “flatter investment world” creating geo-agnostic FOMO amongst investors, and 3) increased appetite for private market investment to chase higher (and riskier) returns.

Clever advertising from Gorillas / Credit: M&C Saatchi Accelerator

The article goes into detail on the picker and courier operations at Getir in the UK and shares some data on what the unit economics might be like. Based on my prior experiences at Uber and chasing profitability, I’ve always wondered about how these new delivery companies could reach that milestone, especially in markets with higher hourly wages. Remember, these companies may appear similar to Instacart or even food delivery startups like Uber Eats or DoorDash, but their business model is quite different:

  1. They offer quicker deliveries (10-15 minutes vs. 30-40 minutes), which might not seem like much, but has significant operational implications (see #4 - they rely on employees for deliveries and not gig economy workers).
  2. They sell groceries and other CPG items, which have a much lower margin than delivery food (similar to Instacart in this regard, but these companies have a lower SKU count at 1.5-2K vs. 15K-30K at traditional grocery stores).
  3. They are not a 2-sided marketplace (yet); they own the dark stores that supply the goods sold on the platform. So they own/rent the space and likely carry inventory risk.
  4. They employ their couriers, and therefore have more control over their courier operations.

All of these factors point to profitability possibly being a bigger challenge for these companies. Given this, I was surprised to learn that there doesn’t seem to be a ton of operational efficiencies in their processes. Especially on the picker operations front, although it makes sense:

“The current automation solutions are built for very large fulfilment centres,” says [Turancan Salur, son of CEO Nazim Salur and UK General Manager]. “When there are solutions that come onto the market that work for smaller spaces, we want to be the first ones to try them out.”

For these companies to become profitable and the business model proven to be sustainable, a combination of the following will need to happen:

  1. Reach critical mass in consumer demand, which locks in the flywheel of 1) a high picker and courier utilization rate, 2) route density (i.e. less distance to travel per delivery dropoff), and 3) a positive LTV:CAC (i.e. longer retention and more repeat purchases from customers they paid to acquire)
  2. Increasing take-rate, either from suppliers (i.e. selling in-app ad space to CPG companies) and/or from consumers by increasing margin / delivery fee
  3. Automation and increased sophistication in picker and courier operations. While replacing couriers and pickers with autonomous vehicles and warehouse robots won’t happen any time soon, these quick grocery delivery companies should introduce sophistication to their product & operations (if they haven’t already) like… 1) exerting more control over demand-supply balance (e.g. dynamic delivery zones, surge pricing), 2) testing whether 10 minutes is indeed the sweet spot (see below tweet on how DoorDash figured this out), 3) testing whether 1,500 SKUs is the right number for selection, etc.

#3 takes time to experiment and figure out, and #2 can only happen after #1. This is why we’re seeing a fundraising arms race play out amongst these quick grocery delivery companies. I believe these companies will continue to be aggressive in marketing / growth and we’ll see more consolidation in the space in the coming months. Once consolidation happens and we graduate from this phase of land grab is when we’ll start seeing more interesting innovations on the operational side (#3).

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