There are more than 10 companies that offer instant grocery delivery in Europe. They were founded in 2020, which was the year of the pandemic. These companies have raised over $2 billion so far.
Delivery Hero, an established and well-funded online food delivery service, is also joining the race to launch dedicated grocery products. If China's $450 billion online grocery market is any indication, it's clear that instant delivery will not be enough to overthrow Europes established supermarket chains in the $2 trillion plus flat market.
China's quick-commerce counterparts, like Miss Fresh, Dingdong Maicai and Meituan Maicai, compete with a variety of other online grocery models (such Pinduoduo and JDs Super) which have contributed to market penetration of 20% and beyond.
Quick commerce has lower profit margins than other models. It is also addressing lower consumer demand from China than anyone in West expects it to in Europe or the U.S. A range of B2C business models are more likely to replace traditional grocery retailers in China, according to the five- to seven-year-old performance of China's online grocery portals.
Third-time luck for quick commerce?
It is not a new idea to order groceries online and have them delivered within an hour. In the heydays of the dotcom bubble, Kozmo.com tried to do exactly that. It was founded in 1998 and raised over $250 million from investors.
It had revenues of $3.5million and losses of $1.8million in 1999. The board decided to close the business in 2001 after it couldn't scale the business model.
Another company was founded 15 years later. Gopuff, which was originally established in Philadelphia in 2013, initially targeted students. The original purpose of Gopuff was to deliver hookah to students. However, it quickly grew into a convenience store and customers could get their products in just 30 minutes.
Gopuff's most recent valuation was $15 billion. This is after it raised $3.4 billion, 75% of which happened in the last 12 months. Gopuff saw its revenues rise from $100 million to $340million last year.
After just three years, Kozmo.com was gone. In the meantime, Gopuff was rejected by many VCs early on and it wasn't until the pandemic did it see a rapid acceleration of fundraising. The founders of either company did not know they would inspire a whole new generation of European founders.
Europe's $2B Instant-Grocery Gamble
What has changed fundamentally in the twenty years since Kozmo.com was founded? We haven't seen any technological advancements that would significantly impact the operation of instant commerce businesses. But, consumer behavior has changed in a much greater way.
First, internet usage has increased dramatically (from less than 500 million to more than 4 billion), and mobile internet has dominated. Second, the COVID-19 pandemic has seen a significant increase in demand for online grocery delivery. This is because consumers prefer to shop from their homes for safety reasons. Consumers are used to paying delivery fees, usually around $2 per order. Kozmo was notoriously not able to do this.
There are many online grocery business models, but the one that is most popular with European entrepreneurs and venture capitalists has been the quick grocery, instant-commerce model. It is easy to grasp the model, also known as q-commerce.
A small number of products are kept by companies, which may include around 1,0002,000 SKUs. These products would not be available in drug or convenience stores. These products can be purchased directly from the brands or through distributors. They are kept in self-operating microwarehouses near customers' locations.
Many startups offer products at half the price of traditional supermarkets or at a 10%15% discount. Delivery is usually by scooter, e-bike, or bicycle within 10-30 mins of order being placed. There is no minimum order amount.
Companies such as Getir, Istanbul (total financing: $1billion, last valuation $7.5billion) and Gorillas, Berlin (total financing: $335m, last valuation $1billion) are leading this trend. Gorillas' $290 million Series B announcement in March 2021 made it the fastest European startup to reach unicorn status, nine months after its launch. Rumours suggest that the company may be looking for Series C financing at a valuation of $2.5 billion.
More than 10 European companies have the exact same business model. These include Flink, a German-based company, which has raised $300 million, Zapp (U.K. based, $100 millions raised), Dija, which was founded in 2020 and was just acquired by Gopuff. Jiffy, a U.K. firm, has raised $7 million, and Cajoo, based in France, has raised $6 million.
JOKR was also started by Foodpanda founder. JOKR was established in Q1 2021. However, it raised the largest seed round ever (rumored at $100 million) and then a $170 million Series B in July to take the model to Europe, Latin America, and the U.S.
Companies that specialize in food delivery also have expanded their reach and received funding.
Is instant grocery a viable business model?
These companies will soon be able to approach financing in later stages. Questions about how they plan on becoming profitable in an industry with notoriously low margins will be raised. This is a painful truth that hasn't changed since Kozmo.com's early days.
Old patterns are being repeated, according to the available data. Gopuff reported recently a negative EBITDA margin of -45% on revenue of $340 million. Manager Magazine in Germany also concluded that Gorillas were operating at negative unit economics (-6) This number could rise significantly if additional costs like overhead and technology are added.
