Rapid fall of fast delivery startups

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It only took eight months for Jokr, super fast shipping runto become a unicorn, and only six more months for his strategy to start to fall apart. Jokr swept New York bright advertising promising to deliver groceries within 15 minutes—Is free! No minimum order! — and raised a total of $430 million in venture capital to continue blitzscaling in cities around the world. From Boston to Bogota, his turquoise-clad couriers raced on scooters carrying pints of ice cream and cans of pasta sauce.

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Jokr was also losing money. In the first half of 2021, the startup generated $1.7 million in revenue but suffered a $13.6 million loss. Information. It closed in Europe in April. In June of this year – 14 months after the launch and a year after the plans were advertised build 100 micro-warehouses in New York only – Jokr announced its withdrawal from the US and laid off 50 employees. The company still operates in cities such as Sao Paulo, Mexico City and Bogota.

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Other fast-delivery startups also began to decline rapidly. In May, Gorillas and Getir — two of the biggest companies in the industry —thousands of employees laid off and retreated from major shipping cities across Europe. Gopuff, which was valued at $15 billion in 2021, vaporized 76 of its 500 distribution centers this summer. These are the lucky ones. Others, such as Buyk, Fridge No More and Zero Grocery, have already gone bankrupt and disappeared as quickly as they appeared.

The drop in super-fast delivery reflects the sobering mood of 2022. Over the past two years, venture capitalists have drowned. almost 8 billion dollars into six fast delivery startups competing in New York, driving rapid growth and land grabs. Now investors are increasingly demanding profitability. The sudden reversal seems to Thomas Eisenmann, professor at Harvard Business School, reminiscent of the dot-com crash of 2000, when noisy startups like Cozmo— which promised one-hour delivery of groceries and DVDs — shut down just a few years after raising millions from venture capitalists. “What has changed with these new ventures?” he says. “It didn’t work then and it doesn’t work now.”

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Eisenman teaches a course on startup mistakes, and last year he wrote treatise on the topic titled Why startups fail. He says fast shipping companies are subject to a common failure pattern where early successes and growth are not sustainable. The first wave of customer interest comes easily and free of charge because people want to try a new service with incredible promises. But to keep those customers and earn new ones, a startup needs to refine its value proposition. For fast delivery, this means finding people who regularly need things like a band-aid or a banana delivered on a rush basis and are willing to pay more for it, rather than going to a wine cellar to get it yourself.

When new customer growth starts to dwindle, Eisenmann says, “You start offering $20 worth of free products on every order to bring in new customers.” From there, the economy can rapidly deteriorate. The new uncertain economic outlook and recent high inflation make it a bad time to try to convince people to accept a new premium service.

Profit margins for services that deliver groceries within hours or longer are already slim. In a $100 online shopping cart, about $70 goes towards the wholesale cost of items ordered by a customer. The remaining $30 is absorbed by overheads such as refrigeration and storage, the salaries of store workers who take items off the shelves and pack them into bags, and shipping costs. BUT recent report McKinsey found that while the typical North American grocer earns 4% of the profits from in-store shoppers, they lose 13% on every online order. Companies such as Instacart, which use the infrastructure and range of existing stores by partnering with grocery businesses, things are betteralthough Instacart is still not profitable.

Demand for online products has skyrocketed over the past two years, largely due to the pandemic, which has prompted more people to try to avoid shopping in stores. In 2020, online grocery orders increased by 50 percent; Demand for instant delivery has increased by 41 percent, according to McKinsey. “Consumer demand is there,” says Vishwa Chandra, partner at McKinsey and co-author of the report. “The question is, how do you manage the economy?”

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Quick delivery startups could improve their business by storing goods in “dark stores,” micro-warehouses designed to allow a worker to select and pack a basket of goods more quickly than is possible in a conventional retail store designed to be viewed. They can also pass additional costs on to buyers, such as selling a $4 loaf of bread for $6. But building enough dark shops to serve all parts of the city within 15 minutes still requires a huge investment. Managing inventory across all of them to ensure the right items are always on hand is also tricky. “It’s more cost-effective, but you need enough demand to recoup the investment,” Chandra says.

Fast shipping startups also tend to spend more on shipping per order than more traditional companies. When you can get what you want in a matter of minutes, people can feel empowered to make impulse purchases like an overnight candy bar. But a delivery driver or a courier on a bike costs the same, whether they’re transporting a $75 bag of groceries or a $5 pint of ice cream. Bundling orders, where the courier makes multiple deliveries in one trip, can cut costs, but it’s hard to do when orders need to be delivered within 15 minutes. Result? Many express delivery services “lose money on every transaction,” says Eisenmann.

Many fast delivery companies have made their economic situation even worse by offering generous promotions in an attempt to attract new customers. New York-based startup 1520 is offering 15-minute delivery with no minimum order or shipping fees in 2021. Co-founder Maria Daniltseva described the company’s business model has been called “super-efficient”, and suggested that 1520 could even boost grocery store profits because it doesn’t need to invest in retail space. By the end of 2021, 1520 have exhausted their financing and close.

Such lavish promotions are unlikely to continue. For ultra-fast delivery startups to survive until 2023, they need to prove they can make their economy work—and fast. Instacart, which has become a leader in same-day grocery delivery, is now working on its own service that allows customers to have their orders delivered within 15 minutes. The winners in this category will be those startups that can deliver on their promises the fastest without challenging economic reality.

Credit: www.wired.com /

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