Business

Speedy grocery delivery firms are racing to survive

The likes of Getir, Gorillas, Weezy and Zapp are taking over our city streets. But on-demand grocery apps are really racing to be too big to fail

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On a sleepy, suburban street in Pankow, Berlin, there’s barely any traffic, and sound is confined to the distant chime of church bells. The only activity comes in the form of black-clad cyclists, buzzing in and out of an unmarked address like bees round a hive.

Inside, the drab, post-war location looks pretty much like the convenience store it once was. But there are no prices, tills, or even shoppers. The “pickers” who scurry up and down its aisles compile orders made on smartphones, relayed via overhead screen, and delivered by the riders back to clients in superfast time.

This particular summer morning the average delivery time is nine minutes and fifty-five seconds. “Sometimes we go over ten minutes,” a manager tells me. “But people don’t really complain.”

This “dark store” is one of sixteen in Berlin, the hometown of on-demand grocery delivery company Gorillas. Since its June 2020 launch, the app – part of a new Q-Commerce (for quick) industry – has become one of the fastest European startups to reach a billion-dollar valuation. Chinese gaming giant Tencent, hedge fund Coatue and others have piled almost a quarter of a billion pounds into Gorillas. It is reportedly seeking another nine-figure sum.

Gorillas’ CEO Kagan (pronounced ‘Kaan’) Sümer personifies his company’s breakneck growth. “If you go to the fucking Moon,” he said on a recent podcast, “you shouldn’t go to the supermarket.”

But if you move fast, you break things. And Gorillas is moving very fast; it has launched in eight countries – including the UK – and employs 10,000 people. Since its launch, the company has endured a torrent of bad press over working conditions, security lapses and a revenue model fuelled by VC money.

“It’s a house of cards,” a company insider, who wished to remain anonymous, told WIRED. “It’s just a matter of time until it falls.” There are still plenty in Q-Commerce, however, who believe Sümer is holding all the aces.

Despite being built on a technology platform, Q-Commerce is actually a throwback. Before the Piggly Wiggly Store in Memphis became the world’s first self-service supermarket, in 1916, shoppers handed a list to shop assistants, who gathered their groceries for payment at the till. But the model didn’t catch on. For decades thereafter customers were expected to do the picking themselves, in ever-larger hangars of household goods.

The internet’s arrival encouraged entrepreneurs to reverse the process once more - but almost all Web 1.0 attempts failed. Q-Commerce firms like Kozmo and Webvan, which offered one-hour and thirty-minute deliveries respectively, hemorrhaged cash and became bynotes of the dot-com bubble.

More recent brands such as DoorDash and Postmates, buoyed by advances in mobility and data science, have excelled. The Covid-19 pandemic has birthed a host of startups with peculiar names – Weezy, Flink, Getir, Jiffy, Zapp, Glovo and Cajoo – to join Gorillas in the quest to fill Europe’s fridges.

The European grocery market is worth £2 trillion and, according to McKinsey, grew ten per cent in value last year. Online grocery shopping grew 55 per cent from 2020, as lockdowns forced us to eat at home.

That may drop as restaurants and shops reopen, but the pandemic may have changed buying habits for good. “I genuinely believe it’s a once-in-a-generation spending shift from offline to online, and Covid’s’s just accelerated that,” says Alec Dent, co-founder and COO of Weezy, a London-based startup promising to deliver produce in 15 minutes.

British and German consumers are increasingly “uptrading” in the pandemic – buying higher quality and more sustainable produce. London-headquartered Weezy is betting on this. Its highest selling products are avocados, bananas, lemons and Oatly milk. “We’re very much about quality groceries and the midweek top-up shop,” says Dent. “We’re not about cravings or emergency snacking.”

These startups follow the inroads already made by the traditional supermarket industry into home delivery: Britain’s Tesco, E.Leclerc in France, Germany’s Edeka and Mercadona in Spain. “It makes a lot of sense to get it 100 per cent right in the UK first, then look abroad,” says Dent, whose pink regalia won’t appear outside Britain until next year.

He and the majority of Q-Commerce newcomers have chosen to hone their platform in their home markets. The distinctive purple-and-yellow mopeds of Getir, which was founded in 2015 and has raised £700m in investment, have only recently expanded outside its native Turkey. Berlin’s Flink, whose name means “nimble”, has focused its £220m VC cash on Germany alone, building darkstores in 33 cities.

Entrepreneur Vladimir Kholyaznikov spent two years at X5, one of Russia’s largest food retailers, before founding Jiffy in London last December. His firm tempts customers with free delivery, flash promotions and other offers. Kholyaznikov believes that in Germany, Flink has the upper hand over Gorillas. “The grocery business is very much about retaining customers and creating a long-lasting relationship with households,” he says. “I think local champions will be more efficient in the long run.”

Gorillas’ Sümer, presumably, disagrees (he could not be reached for this article). His company has followed the scale-at-all-costs model popular with Uber, WeWork and other Silicon Valley brands.

Sümer is a charismatic leader who appears to revel in steamrolling risk. When riders blocked a Berlin dark store this June to protest arbitrary firings, overweight deliveries and a lack of protective gear, he wrote in a company Slack channel that “I would rather die to protect values then [sic] be a de-escalator.” He later accused riders of dabbling in politics at the behest of “external parties”.

Several riders described to WIRED that they had been paid late, denied sick leave and had had their complaints ignored by management. In October last year a small group of riders formed the Gorillas’ Workers Collective. It is now backed by Verdi, one of Germany’s largest unions, has over 11,000 followers and conducts wildcat strikes.

On July 31, Berlin’s Senate, which governs the city, launched labour law proceedings against the company. “It’s a bit like David versus Goliath,” says labour lawyer Pascal Croset. “They’re really serious. They [the riders] have a chance to change things.”

Investigations have shown that Flink and Gorillas’ prodigious growth have left holes in their security. In March tech collective Zerforschung exposed a leak in Flink’s order data, while in May it discovered that the details of 200,000 Gorillas customers was compromised, and that the company was using basic, white-label software acquired from Lebanon.

Gorillas told WIRED that it worked to resolve the issue “with immediate effect,” and now collaborates with “a renowned digital security organisation who have verified our security system.” But, a company insider told WIRED in June that the episode adds to a “fake it til you make it” culture at the company, which is reflected in a business model that, according to Germany’s Manager Magazin, loses cash on each item it sells.

“Our inventory management platform is almost non-existent,” the employee adds. “It almost makes our company an empty shell… This is the first time I’ve been in a situation where I feel that what’s happening is unethical. It’s definitely not transparent – especially the financial transparency of the company, where I know this company is bleeding money.”

Burning early cash is rarely a roadblock to tech success. Groceries are a high-cost, low-margin market: even the biggest retailers manage two to three per cent profits. Add to that the overheads of building a network of tech-driven darkstores, pickers and riders, and Sümer’s lightspeed model begins to make sense.

Besides: it’s already succeeded elsewhere. “In China we went through this trend already,” says Alexander Kremer, a Beijing-based partner at VC Picus Capital. “The competition’s over as the winners went public.” When Chinese Q-Commerce exploded a few years back, dozens of startups launched into the space. So far, only Dingdong Maicai and Missfresh have IPO’d. Both scaled super-fast. Both are backed by major investors, like SoftBank, Tencent and Goldman Sachs. “The unit economics are not good,” adds Kremer. “The ones with really strong investors, who support these companies no matter what, are the ones that have better odds.”

Kremer sees no reason why Gorillas cannot follow Dingdong and Missfresh’s lead. But he warns against inflated valuations. Gorillas recently sought a $1bn (£701m) funding round to value it at £4.3bn, though the plans have reportedly been tamped down. Getir closed a £400m round in June to bump its value to £5.4bn. “Dingdong Maicai and Missfresh trade at two to three times their revenue,” says Kremer. “If you apply this to Europe, many of these companies appear over-valued.”

What remains unclear is how traditional supermarket chains will react to these Q-Commerce upstarts. Services like Sainsburys’ Chop Chop and Tesco’s Whoosh now offer one-hour delivery, and online platforms still have single-digit share of the wider grocery market. With high European labour costs, hybrid, delivery-as-a-service models may be the future. After all, American meal delivery startup DoorDash quickly caught up with grocery app Gopuff when it pivoted to fresh produce. Miki Kuusi, CEO of Berlin meal-delivery firm Wolt, claims that groceries are often easier to deliver ontime than prepared meals, “as our main bottleneck with restaurants is the longer time that they need to prepare the food.”

For the big chains, delivery apps could be a win-win. Perhaps that’s why Flink has partnered with retail giant Rewe in Germany, and French giant Carrefour invested in Cajoo this June. “Carrefour has a lot of assets, assortment, logistics, knowledge,” says Cajoo co-founder and CEO Henri Capoul. “But they don’t have the technology.” 

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This article was originally published by WIRED UK