The “super-speed delivery” business, which delivers products within 15 minutes, has been attracting attention mainly in Europe and the United States. The Quick Commerce business model seems to be falling apart far too quickly, contrary to expectations.
JOKR, a startup that launched a super-speed delivery business, has grown into a unicorn company with a valuation of over $1 billion (about 133 billion yen) in just eight months. However, half a year later, cracks began to appear in that strategy.
JOKR once filled New York City with flashy ads claiming to deliver groceries and household items in 15 minutes, with free delivery and no minimum order. After that, it succeeded in raising a total of 430 million dollars (about 59.4 billion yen) from venture capital, and will continue to rapidly expand its business in cities around the world. From Boston to Bogota, Colombia, delivery men in bright turquoise uniforms could be seen flying scooters carrying cartons of ice cream and jars of pasta sauce.
But JOKR also continued to lose money. According to research data from the information site “The Information,” JOKR will generate $1.7 million (about 235 million yen) in revenue in the first half of 2021, while losing $13.6 million (about 1.88 billion yen) It is said that it was out.
As a result, JOKR ceased operations in Europe in April 2022, announced its withdrawal from the United States in June, and laid off 50 employees. It came 14 months after the company began operations and a year after making a big announcement about plans to have 100 of its own “micro-warehouses” in New York City alone. JOKR is still operating in cities such as São Paulo, Mexico City and Bogota.
Other super-delivery startups are also rapidly winding down their operations. In May 2010, the industry’s largest companies, Gorillas and Getir, laid off thousands of employees and withdrew from major European cities where demand for home delivery business was high.
Gopuff, which hit a $15 billion valuation in 2021, closed 76 of its 500 fulfillment centers this summer. These are still lucky examples. Companies like Buyk, Fridge No More, and Zero Grocery have already gone out of business and disappeared as fast as they appeared.
Problem of high cost structure
The decline of the super-speed delivery business reflects the mood of 2022, which seems to be “sober”.
Over the past two years, venture capitalists have plowed nearly $8 billion into six fiercely competitive speed-delivery startups in New York City, fueling rapid growth and land availability. encouraged to obtain. But now more and more investors are looking for profitability first.
Harvard Business School professor Thomas Eisenman says these sudden shifts remind him of the dot-com bust in 2000. At the time, startups like Kozmo, which was flying birds by claiming to deliver groceries and DVDs within an hour of ordering, all raked in millions of dollars from venture capital before going on sale. It went out of business within a few years.
“How is the new business today different from what it was then?” Eisenman asks. “If you failed then, you can’t succeed now.”
Eisenman is in charge of lectures on startup failures, and in 2009 published a book titled “Corporate Failure Encyclopedia: 6 Patterns that Determine Startup Success”. He says super-delivery companies are prone to a common failure pattern of failing to sustain the revenue and growth they started with.
In the beginning, it’s easy and inexpensive to get the customer’s attention. Everyone wants to try a new service with great perks. But in order to retain those customers and acquire new customers, you must clearly demonstrate your unique value as a startup.
For the super-delivery business, it’s people who always want items like Band-Aids and bananas delivered to them in a hurry instead of going to the local store themselves, and they don’t mind paying a premium for it. It means finding someone.
When new customer growth began to wane, “I was forced to start offering $20 worth of free groceries per order to attract new customers,” says Eisenman. says. Since then, the financial situation has deteriorated. With the economic outlook bleak and inflation stubbornly high, it’s a bad time to persuade consumers to accept expensive new services.
Even services that take hours or longer to deliver groceries have very thin margins. For example, if you sell a $100 item in an online grocery store, about $70 of that is the wholesale cost of the item. The remaining $30 (about 4,140 yen) disappears in overhead expenses such as refrigeration and storage costs, wages for the clerks who pick and bag the products from the shelves, and delivery costs.
Consulting giant McKinsey & Company recently reported that the average North American grocery store makes 4% of the sale price from in-store shoppers. On the other hand, online orders are losing 13% on each order.
Others, like Instacart, have fared better by partnering with grocery companies to borrow infrastructure and inventory from their existing stores. That said, Instacart has yet to turn a profit.
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Consumer needs are certainly there, but…
Online grocery sales have seen a surge in demand over the past two years. That’s largely because the coronavirus pandemic has caused more people to avoid shopping in stores. A McKinsey study found that the number of online grocery orders increased 50% in 2020, and demand for express delivery increased 41%.
“Consumers do have a need,” says Vishwa Chandra, a McKinsey partner and co-author of the report. “The question is how to manage the financial side.”
Another way to improve the performance of super-delivery startups is to use micro-warehouses, known as “dark stores,” to store goods. It’s a warehouse designed for quicker picking and bagging than the traditional walk-around-collection method.
There are also ways to increase the burden on customers, such as raising the price of a loaf of bread from $4 (about 550 yen) to $6 (about 830 yen). But to set up enough dark stores and be able to deliver anywhere in the city within 15 minutes of receiving an order will require a lot more money.
It is also difficult to manage the inventory of all dark stores and always have the necessary products. “It’s a great way to be cost-effective, but if you don’t have enough demand, you won’t get the return on your investment,” says Chandra.
It’s also true that super-speed delivery startups tend to charge higher per-order delivery costs than traditional home delivery. If you can get what you want right away, more people will want to impulsively buy a bar of chocolate late at night.
However, the cost of a delivery person delivering an item by car or bicycle, whether it’s a bag full of $75 worth of groceries, costs $5 in a pack of ice cream. It’s the same with cream. Consolidating orders and delivering them to several locations in one delivery could save money, but not if delivery within 15 minutes is a must.
As a result, many super-delivery services “are losing money on every order,” says Harvard Business School’s Eisenman.
who will be the winner in this field
Many super-delivery companies have exacerbated their financial woes by running generous promotions to lure new customers.
One of them is 1520, a New York-based startup. Maria Danilcheva, one of the founders of the company, which launched in 2021 with no minimum order or free delivery and delivers goods within 15 minutes, describes its business model as “extremely efficient.” He said it should make more profit for grocers because they don’t need to invest in sales floor space. However, 1520 ran out of money by the end of 2021 and went bankrupt.
It is unlikely that this kind of flashy promotion will continue in the future. If the super-delivery startups are to stay in business until 2023, they’ll have to prove they’re cash-saving right away.
Instacart, the leader in same-day grocery delivery, is working on a unique service that delivers items within 15 minutes of ordering. The winners in this space must be the startups that deliver on their promises the fastest, without blinding themselves to financial realities.
