Profitability instead of expansion: Express delivery services are slowing down

Profitability instead of expansion
Lightning delivery services are slowing down

So far, investors have voluntarily put their money into super-fast delivery services such as Gorillas or Flink. But a lot has changed in the meantime. Many companies are currently suspending their funding rounds. Instead of aggressive expansion, the focus is now on being in the dark.

Their backpacks and bags are black, purple-yellow or pink and they travel around Berlin, London and New York on bicycles and electric scooters. Fast delivery services such as Gorillas, Getir or Flink compete for the attention of customers who want groceries delivered by couriers as quickly as possible. To do this, they need fast drivers, lots of small camps, and good apps with great offers. It devours millions, which investors have so far readily made available due to growth prospects.

But a lot has changed: Food delivery services aren’t the stock market darlings they used to be. With interest rate hikes planned by central banks, capital will no longer be so cheap, high inflation and the war in Ukraine are holding back the economy. Billionaire startups need to rethink and adapt their aggressive expansion strategies. “We are now focusing on existing markets, also with the aim of achieving profitability,” says Elmar Broscheit, CFO of Gorillas.

Analyst Clément Genelot of investment bank Bryan, Garnier & Co. describes the new strategy. Almost all companies are currently postponing their financing rounds and laying off staff in order to control costs and save time. He justifies the move with growing doubts about breaking even and fears that current valuations are already too high.

To get into the black, customers would need to spend more money per order, increase delivery costs and improve individual location utilization, experts at consultancy Alvarez & Marsal say.

Getir doesn’t have to worry about running out of money

One of the services that has already had to draw conclusions from the cost dilemma is Jokr. The Berlin startup has turned its back on the Austrian and Polish markets and is focusing on Latin America and the United States. “It was all about focus,” says company boss Ralf Wenzel, who worked for Japanese tech investor Softbank in the past. Jokr was only promoted to unicorn in December, after Getir, Gorillas, and Flink.

“The money from our last funding round has not yet been used. There are still hundreds of millions in circulation,” says Wenzel. He does not want to spend this wholeheartedly, but wants to lead the way in dark numbers due to the better cost structure in Latin America: “In Latin America, we are already generating positive contribution margins. Our goal is to do it in two to three months, including the American company. We would be the first grocery delivery service to do this.”

The gorillas are also trying to control their cash consumption. “We now want to make our core business, the warehouse, profitable. If we show that we pursue this rigorously, we will continue to have good access to capital,” says Broscheit, who has worked for Macquarie for a long time, and last year the entry of the Berlin group Dax Delivery Hero in Gorillas.

Turkey’s Getir doesn’t have to worry about a lack of money just yet. The company only raised nearly $770 million from investors in mid-March and has since been valued at $12 billion, about four times more than Germany’s Gorillas and Flink. But the company, which was founded in 2015 and describes itself as a pioneer in the fast delivery industry, now wants to take it slower. “This year, we are focusing on growing in the markets where we are already present,” said European director Turancan Salur. Getir is currently active in nine countries – there are seven in Europe, Turkey and the United States. To expand its dominance in the UK, Getir took over rival Weezy, and Gorillas recently bought French express delivery service Frichti.

Niche providers want to profit from the development

Many experts assume that a wave of consolidation will occur in the medium term. According to Alvarez & Marsal, the large number of current suppliers will not be able to survive. However, analyst Genelot is certain that fast delivery services will stay with us. During the Corona crisis, customers would have liked the goods to be delivered as quickly and easily as possible.

Niche providers such as halal food delivery service, GetHalal, or pharmacy delivery services like Mayd also want to benefit from this development. The boss and founder of the Mayd company, Hanno Heintzenberg, who previously created the real estate agent McMakler, even sees himself at an advantage: “We have two levers that we can use to become profitable. The basket and the efficiency of the drivers. We do not have warehouses or perishables for gorillas, agiles, etc. We can also work well with time windows, which helps with capacity utilization. Medicines are also not heavy, which is why several deliveries fit in one backpack. “

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