Bloomberg has a fascinating piece about "a class of startups that soared during the pandemic, trying to solve a logistics and math puzzle that’s dogged Silicon Valley for decades: Can an e-commerce company whisk products to your house in under an hour? And more important: Can it actually make money doing so?
"Flying cars and nuclear fusion it certainly isn’t. But the problem has confounded nearly everyone who’s tried to solve it, starting in the 1990s with Kozmo.com, whose bike messengers swarmed New York and a handful of other cities, offering free one-hour delivery of everything from magazines to 16-ounce Cokes, before it was vaporized in the dot-com crash.
"Two decades later, Covid-19 lockdowns created the perfect conditions for the model to finally work - billions of people trapped at home, desperate to have anything and everything delivered as quickly as possible, for almost any price. Nearly $10 billion of venture capital gushed into so-called quick commerce companies like Gopuff and the Istanbul-based Getir in 2021, according to PitchBook Data Inc. That didn’t include the exponential growth of delivery apps like DoorDash, Uber Eats, and Instacart, which ferried food from restaurants and supermarkets. Meanwhile, the biggest deliverer of all, Amazon.com Inc., was notching a 40% annual growth rate."
Now, Bloomberg writes, "the transition from peak pandemic to a new normal has interrupted the party. Once-wary shoppers have returned to stores looking for discounts, inflation is back, and the economy has foundered. The market values of DoorDash Inc. and Uber Technologies Inc., both public companies, have fallen 67% and 33%, respectively, in 2022. Instacart Inc. pivoted toward developing software to help supermarkets run their websites and shelved plans to go public this year. Gopuff clones like the New York-based Fridge No More and Buyk went spiraling out of business; another, Jokr, withdrew from the US to focus on South America. Earlier this month, Berlin-based Gorillas, which has been desperately hunting for a cash infusion, entered into advanced talks to be acquired by Getir. Even mighty Amazon shed 40% of its mid-pandemic market cap, closed warehouses, and laid off employees."
And Gopuff, which "had an Amazon-like approach of storing and stocking products in its own mini warehouses staffed by full-time employees, then using contractors to deliver products to people’s doorstep for $1.95 an order," last year alone burned through "roughly $700 million in expansion mode," and in recent months has "laid off almost 2,000 employees."
You can read the entire story here.
- KC's View:
The argument here long has been that chasing the instant delivery pot of gold is a mistake, and that especially the pure-play companies looking to conquer it were going to find themselves in a world of hurt - not only are the economics questionable, but small matters like, say traffic, could lead them to consistently over-promise and under-deliver.
I still worry, though less so, about traditional retailers that are venturing into the fast delivery space, as in our next story about Schnuck Markets doing so via Instacart. At least they have an infrastructure, defined market areas, and data sets - the parameters are more easily set, and there may be ways to make the investment work because of the broader business proposition. Traffic lights, jaywalkers and no-turn-on-red signs still are likely to be a problem, but perhaps the risks can be managed through promises that are reasonable and transparent.