By Toby Sterling and Nadine Schimroszik
AMSTERDAM (Reuters) – The grocery delivery industry that has erupted in the depths of lockdown faces a painful period of adjustment that investors say is likely to see only a handful of companies survive each market – and then, in a very different form.
As the COVID-19 pandemic kept consumers behind closed doors, investors poured billions into “quick-trade” grocery stores that pledged to deliver products ranging from pastes to soap powder within 15 minutes from of bespoke centers known as dark stores.
But with lockdowns easing, consumers grappling with soaring costs of living and profitability still elusive, that flow of capital has slowed and businesses have shifted from expansion to contraction.
Turkey’s Getir – the biggest and longest-running fast food delivery man – Germany’s Gorillas and Britain’s Zapp have all said in recent weeks they are downsizing, while Berlin-based Flink has also slowed hiring.
Jiffy of London announced last month that it was ceasing its delivery operations, with Zapp, which raised $200 million in January, assuming its customers.
“The current macroeconomic climate has become incredibly challenging, with very little visibility on when things will improve,” Zapp told Reuters in an email.
Citi analyst Monique Pollard estimates that seven or eight small businesses have been forced to seek buyers or close so far this year. “It’s happening faster than we could have imagined,” she said.
Despite this, investors and executives say there’s still a strong business case for on-demand grocery shopping, given the convenience it offers consumers.
Larry Illg, managing director of online food businesses at tech investor Prosus NV, which owns a 9.8% stake in Flink, said the current crisis will ultimately benefit survivors.
“We’re seeing slower rollouts of new dark stores, lower levels of marketing investment, and lower competition discounts,” he said. “So overall growth is slowing, but the space economy is healthier.”
Illg, in a presentation to investors earlier this year, said he sees the lines blurring between restaurant food delivery, grocery delivery and fast-paced commerce. “I think you’re going to see different variations of this around the world, across the different inventory mixes and business models,” he said.
A push by big, well-known meal delivery companies like Deliveroo, Just Eat Takeaway and Uber Eats into the grocery space is already underway, as these companies strike delivery deals with convenience stores and grocery chains. grocery.
Some partner with existing delivery companies. U.S. DoorDash completed its $3.5 billion acquisition of Finland’s Wolt, a fast food and retail delivery company, last week.
German Delivery Hero has also agreed to take a majority stake in Spain’s Glovo in a deal valuing the target at $2.6 billion expected to close later this year. Both have quick grocery operations.
Other delivery companies have strengthened through acquisitions within the industry, with Flink, which raised $750 million at a valuation of $2.85 billion in December, buying French Cajoo for a undisclosed last month.
Flink declined to comment, but two investors told Reuters the company had no plans to enter any other new markets.
Boosting profitability is increasingly important as weak stock markets and a sharp decline in valuations of listed delivery companies make it harder for fast delivery companies to attract outside investment.
“If private market capital is no longer willing to support the business model, then a company must rely on its own cash-generating capacity,” Citi’s Pollard said. While some fast delivery companies in Europe have posted operating profits at the city or store level, none are making money at all levels.
Gorillas CEO Kagan Sumer told Reuters the company prioritized profitability. Gorillas will cut 300 office workers and “review” its operations in Italy, Spain, Denmark and Belgium.
The company raised $1 billion at a $2.1 billion valuation in October from investors including meal delivery company Delivery Hero, but has struggled to raise more.
Getir is cutting 14% of its workforce but said it would not leave any of the nine countries where it operates. The group raised $768 million at a $12 billion valuation in March, with backers including Sequoia Capital and Tiger Global.
Sajal Srivastava, co-founder of TriplePoint Capital, a Silicon Valley company that provides debt financing to startups including Flink, said he has seen an increase in demand from companies currently unable to raise capital. on favorable terms.
He said there was no single business model for food delivery, but that a combination of hot meal delivery, neighborhood delivery and slower grocery delivery would work in every country over time. time.
“So each country will have several players, but do they need six? Probably not. Do they need two or three? Yes, and I think that’s where it will come out.”
(Reporting by Toby Sterling; Editing by Jan Harvey)
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