How much would you pay to have your groceries delivered in 15 minutes or less? Maybe the better question is: How much are startups willing to pay to make that option a reality?
In recent months, a spate of companies have begun offering a nifty service in many big U.S. cities: delivering fresh groceries in 15 minutes or less. JOKR, Getir, Gorillas, Fridge No More, Gopuff, Sumer, Buyk — the competitors are tough to differentiate, with each offering speedy delivery for free, or for a nominal fee.
You’re probably already familiar with plenty of food delivery apps. UberEats, GrubHub, and DoorDash also fight over similar territory. However, this new class of service relies on a completely different business model than those established competitors. In order to deliver your ice cream before it melts, 15-minute delivery services need a network of micro-distribution centers in each of the cities they service. These centers are sometimes called “dark stores,” in that their goods are only available to customers who order through the app, without a traditional streetfront.
Data from our parent company Thinknum offers a snapshot of the swift growth in 15-minute delivery. For instance, the number of App Store reviews, which correlated with overall app downloads, are rapidly gaining on established services like UberEats and DoorDash.
But we can also see that they have a long way to go before catching up to the major players, which are also experimenting with the new model. DoorDash has launched its first speedy delivery center in NYC as part of its DashMart service, and plans to open more locations across the city in order to compete with the new offerings.
Not all of these speedy delivery businesses are brand new — Getir is a Turkish company that only expanded to the U.S. after covering all of Turkey’s provincial capitals and cities in France, Germany, the U.K., and other European countries. Gorillas became the fastest startup to reach unicorn status ever in Germany, achieving a valuation of $1 billion after only nine months. Gorillas also operates across Europe, and expanded to New York City in May 2021.
Obstacles for super-fast delivery companies
So far, these foreign companies have fared better in the U.S. than some of their competitors. 1520, which launched in January 2021, was the first to fall last December. Buyk and Fridge No More both folded this month, reportedly because their Russian investors were struggling under the U.S. sanctions levied against Russia for its invasion of Ukraine.
Financial troubles aren’t the only hurdle to overcome for these rapid-delivery companies. The apps have received pushback from local businesses and local governments. While the first generation of food-delivery apps provided another avenue for existing businesses to sell to customers, though sometimes used predatory tactics in order to get restaurants to sign up, this new class of business directly competes with existing retailers by running dark stores.
The New York City Council is crafting a package of legislation to crack down on rapid-delivery businesses. One topic of concern is the location of the companies’ dark stores — as many as 81% operate outside areas zoned for warehouse use, according to a project from BetaNYC citing public NYC data.
A proposed ban on advertising 15-minute delivery
The micro-distribution centers fall into a gray area for classification — similar to typical convenience stores, their purpose is to provide locals with retail goods, but most have no indoor retail presence. Some even disguise their operations by papering over their windows so passers-by can’t look in. If a city were to consider dark stores as warehouses rather than convenience stores, the area covered by rapid-delivery services would be critically limited.
Another proposed element of the legislation would ban companies from advertising 15-minute delivery, due to the risk of courier and pedestrian injury. Delivery-related injuries are a significant issue for Indian rapid-delivery company Blinkit, which was formerly known as grofers, which promises “10-minute delivery” in more than 30 Indian cities.
According to Thinknum’s data, Blinkit has recently seen a spike in App store reviews, indicating an increase in interest compared to competitors’ apps.
VCs were once keen on this class of startups, especially SoftBank, which has backed both GoPuff and Swiggy, another Indian-based delivery service. However, the recent struggles delivery companies are facing have led some investors to doubt their future prospects.
With an uneven road ahead, it’s unclear whether or not these companies will be able to scale to profitability before burning through their investors’ cash – UberEats only had its first profitable quarter last year, after all.