Ultra-fast delivery startups fold or leave the marketsleaving the stage as quickly as they had arrived.
Another sign of potential turbulence for these unprofitable companies? Those that remain continue to rely on giving users gifts. So far, they haven’t been able to convince customers to pay the full delivery cost in 15 minutes or less. And while more established delivery players like Uber have been able to rely less on discounts in a pivot to profitability, super-fast delivery startups are trying to grow in a volatile market in which investors and customers are increasingly reluctant to open their wallets. .
Nearly 30% of delivery orders from GoPuff, which is the largest superfast delivery player in the United States, were discounted in April, according to data from YipitData, a research firm.
The share of delivered orders is higher outside the United States. For example, Getir, a Turkish super-fast delivery startup, has more than 80% of its orders discounted in countries like Germany and France, according to YipitData.
Tech stocks have fallen over the past three months, prompting investors to prioritize earnings. In response, companies are changing the way they do business. For example, Uber rides and restaurant deliveries have become more expensive. (Unlike new superfast delivery startups, established delivery players like Uber have been able to pull discounts to show investors a clearer path to profitability.)
Attracting customers with cheap Uber rides and food delivery
Discounts are a way for scale-dependent delivery businesses to quickly attract and retain customers. Over time, as more and more orders come from customers who have worked with the companies for a while, the discount percentage should drop, said Daniel McCarthy, an assistant professor of marketing at Emory University. For fast delivery companies, the fact that the share of discounts remains high implies a less clear path to profitability.
“There’s way too much money that’s been poured into this industry,” said Mathias Schilling, founding partner of Headline, a venture capital firm that invested in GoPuff. “Six months ago it was the best and amazing thing… and now everything is negative. This extreme exuberance of the people is like ridiculous.
The rapid growth of ultra-fast delivery companies
Over the past couple of years, as the demand for delivery skyrocketed, super-fast delivery services with abstract names – Buyk, Getir, Jokr – appeared on the scene. Venture capitalists invested $28 billion in fast delivery globally, more than double the amount in 2019, according to data from research firm PitchBook.
Like Uber’s playbook, these companies, with venture capital funding, quickly spent money to break into new markets and attract and retain customers with cheap services. Bigger services like GoPuff, Gorillas and Getir relied on high order volumes and a change in consumer buying habits to achieve profitability, said PitchBook analyst Alex Frederick.
But the model works best when markets are stable and venture capital funding is plentiful, he added.
It is difficult to make money in food delivery because the money is split between the retailer or restaurant, the food delivery company and the worker. It’s even harder for faster delivery, as it requires the hiring of workers as employees and often does not come with a minimum order. This allows a customer to order a pint of ice cream to be delivered in 15 minutes, a costly loss for super-fast delivery companies.
The question now is whether these companies will be able to withstand such losses, at a time when financing is more difficult to come by, or will they follow in the footsteps of the old fast delivery companies that sprung up during the consumer boom. dot com front go out of business.