Delivery Startup Gopuff Cuts 10% of Staff, Closes Warehouses to Preserve Cash

Gopuff is cutting 10% of its global workforce and closing dozens of warehouses in order to rein in spending as the global economy weakens.

A mix of corporate and warehouse employees will be affected by the job reductions, according to a memo to investors. The company has eliminated positions twice in four months. Plans to go public were put on hold in March.

The measures reflect a sharp reversal for the fast-growing startup which, for the past two years, prioritized expanding at a rapid pace.

The company was worth 15 billion dollars last July and generated $2 billion in revenue in 2021. It has come at a price. New warehouses are one of the main contributors to Gopuff. Half of Gopuff's 600 warehouses were launched in the last year, and each location costs an estimated $250,000 to launch. The company, spurred by the boom in delivery, expanded too quickly and now is trying to simplify expenses.

The dramatic shift in sentiment in the rapid delivery sector is underscored by the retrenchment of the Philadelphia startup. The economics of instant commerce can work in a post-pandemic world if VCs move away from the growth-at-all- costs model. Fridge No More and Buyk Corp. went out of business earlier this year as German startup Gorillas Technologies explores options for the sale of its business or mergers with rivals.

Gopuff is aiming to be profitable by 2024 through a combination of reduced spending, a focus on higher-margin revenue streams, and a purge of lower performing warehouses.

The co-chief executive officers wrote in the letter that the shifts were taking them back to their roots of keeping profitability at the center of every decision.

According to an internal investor presentation, the average earnings before interest, taxes, depreciation, and amortization per order is 88 cents and older warehouses make as much as $3 per order. After six months, a location can be Ebitda positive and begin to make more money than the previous year. A lot of the warehouses are less than one year old. It can speed up the time it takes for them to make a profit if they use freed-up cash on newer but high-performing warehouses.

In an interview, Ilishayev said that New York was one market that was too rapid in expansion. Because you haven't reached economies of scale, you're sucking from building to building. You can achieve profitability quicker if you have one building instead of two. Five warehouses in New York will be closing.

The cash position was $2 billion. The company believes it will have enough capital at the end of the year to last four years.

Future growth prospects are clouded by fears of a slowing economy and rising inflation. According to the people familiar with its operations, Gopuff leadership doesn't expect sales to grow as much as they did in May because of the economic environment.

Gopuff plans to double down on the U.K. as part of its plan to become profitable.

Gopuff plans to use advertising as a higher margin revenue stream. Last year, the startup started an ads business.