The delivery market is coming down from its pandemic highs

The delivery market is coming down from its pandemic highs

During the pandemic, delivery startups — whether focused on groceries, essentials, or takeout — became the darling children of venture capital firms. Early on, mandates and closures put up barriers to physical shopping, but as time went on, customers became more used to the idea of shopping for everything from toilet paper to rotisserie chicken online. In a 2021 survey from Coresight Research, nearly two-thirds of U.S. consumers — 60% — said that they were buying groceries online, up from 36.8% in 2019.

Delivery companies old and new reaped the benefits of the changed landscape. In 2020, a 500% increase in order volume drove Instacart’s revenue to $1.5 billion — attracting $1 billion in capital at a $39 billion valuation in 2021. On-demand grocery delivery startup Groillas nabbed $290 million at a $1 billion valuation that same year. Within the span of a few months, Berlin-based instant grocery startup Flink secured $750 billion at a $2.85 billion post-money valuation, while Gopuff, a U.S.-based rival, raised $1 billion on a $15 billion valuation.

According a report from AgFunder, total venture investment for “e-grocery” companies reached $18.5 billion in 2021. Between 2020 and 2022, investors poured more than $5.5 billion into New York City-based instant delivery companies alone, a separate analysis found .

The boom continued into early 2022, with startups like Getir , Zapp , and Zepto raising mammoth rounds. But there’s signs of a correction. Instacart, citing “market turbulence,” last month slashed its valuation by 40% and slowed hiring . Publicly traded DoorDash and Deliveroo have seen their stock prices fluctuate wildly over the past year. (DoorDash executed a $400 million stock buyback program in May.) Gorillas , Getir, Zapp , and Gopuff are among other delivery startups that have let go staff in recent months, despite fundraising. Some have been forced to shut down entirely, like Fridge No More , 1520, and Buyk.

The delivery sector can’t be painted with a broad brush, necessarily. But — taken together — the developments suggest that the pandemic period of rapid growth is coming to an end.

“Some [delivery startups] are most certainly safe — especially the ones with positive unit economics,” Matt Birnbaum, the former head of talent acquisition at Instacart and now a talent partner at Pear VC, told TechCrunch via email. “The good delivery companies can slow their spend in growth areas like hiring and marketing and become profitable almost immediately. The companies that are in the most danger are the ones who don’t have a clear path to profitability in the short or medium term. As access to capital has become more constrained, so has the appetite for growth at all costs.”

Craft Ventures partner and co-founder Jeff Fluhr, the ex-CEO of StubHub, didn’t mince words about the delivery market’s woes. (Craft Ventures has invested in several delivery startups, including Shef , which enables home cooks to sell their food for delivery.) He blamed “ultra-fast delivery” marketplaces — i.e., those promising food, drinks, and household items delivered in roughly 30 minutes or less — for dragging the overall segment down with low or negative gross margins, owing to the “very high” human labor expenses relative to the margin from product and transaction fees.

“The fast delivery space is the epitome of exuberance of 2021: investors were pouring money into cash guzzling companies with flimsy business models,” he told TechCrunch in an email interview. “Fast delivery companies are capital-intensive. They require local infrastructure, local people, and local operations which are expensive to build out. As a result, all of these companies have been incinerating boatloads of cash over the past 12 to 24 months as they’ve expanded to new geographic markets. Of course consumers like the instant gratification of a pint of ice cream in 15 minutes, so revenues grew quickly, driven by a great consumer experience and word-of-mouth virality. Investors followed the growth paying no attention to the potential for profitability. But the notion that a startup can deliver on that promise profitably is a pipe dream.”

To Fluhr’s point, even for firms that buy goods at wholesale prices and sell them at a markup (unlike, for example, Instacart and GrubHub, which act as an intermediary between storefronts and end-customers), ultra-fast delivery has sky-high operating costs. Jokr , a New York-based grocery deliver venture, was reportedly losing $13.6 million on just $1.7 million worth of sales in 2021. Delivery vehicles as well as contract labor, including drivers and those responsible for packing or picking orders, are an outsize line item — poor pay and benefits […]

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