Following various well publicised funding rounds, the likes of Flink, Getir, Gorillas and Zapp are promising to shake up the weekly shop. Can they live up to the hype?

In recent months, the on-demand grocery delivery space has been heating up. A wave of new startups, including the likes of Flink, Getir and Gorillas, have attracted significant investor interest, with some sizeable fundraising rounds making headlines.

On June 4^th, Berlin-based Flink announced that it had raised $240m in a series A funding round, just six months after launch. That same day, Turkish company Getir announced a $555m Series D fundraise, bringing its overall valuation to $7.56bn.

Gorillas, also based in Berlin, reached a $1bn valuation in March following its $245m series B fundraise. In doing so, it became the quickest European tech company ever to attain unicorn status. London-based Zapp, which was founded just last year, has raised more than $100m to date.

This is not to delve into the seemingly endless list of rivals, which include the likes of goPuff, Dija, Weezy and Jiffy. According to analysts at PitchBook, the market has drawn in more than $14bn of investment globally since the start of 2020.

“The fact is that consumers want digital services, they want convenience and they want things that revolve around the way they live,” Steve O’Hear, VP of strategy at Zapp, tells EMEA Finance. “If you look at e-commerce, the companies have worked really well are always the ones that by moving something from offline to online have made it more convenient rather than less. That is why this space is resonating and VCs see that.”

On the face of things, all these startups – which are battling it out across their home cities and beyond – offer a similar proposition. They provide grocery home deliveries whenever you need them, providing the same kind of speedy service as a company like Deliveroo.

While a traditional supermarket delivery service would require you to book a slot (something that could take weeks during the height of the pandemic), these startups cater to the here and now. You order via an app, choosing from several thousand items, and receive your order within as little as 15 minutes.

The startups use a ‘dark store’ model (delivery only) and are vertically integrated, meaning the company is both retailer and delivery service. They build their own stores, employ their own riders, and in contrast to a Deliveroo type model – in which a gig economy rider delivers from another store via an app – they seek to take control of the full customer experience. By and large, they use electric vehicles and emphasise sustainability.

It’s a hugely disruptive model, and one that in some cities is on the cusp of becoming mainstream.

“When you do an online grocery shop, you have to plan ahead a lot,” says O’Hear. “Items that you order may not be in stock on the day of delivery, and you have to wait in for that delivery slot. So you need to organise your life around the supply chain. But with a quick commerce company, you don’t have to change your behaviour. That’s why consumers are gravitating towards these fast delivery grocery startups.”

Although this trend existed before the pandemic, it gathered pace during the lockdowns. As with many aspects of life, grocery shopping moved towards greater digitisation: Google searches for ‘food delivery’ hit a record high in April 2020, while more consumers than ever before used online services.

In the UK, the percentage of weekly food shops that took place online jumped from 7% pre-pandemic to 13% today. One supermarket report, from August 2020, found that one in four consumers were buying food and essentials online at least once a week, double the proportion from 2019.

“The acceleration may not carry on at that pace, but this is not going back in the box – people are not going stop using online shopping services that they may have tried out during this period,” says O’Hear. “I think the trend is here to stay and that’s why we’re seeing so much capital going into the space.”

Larry Illg, CEO of Food at Prosus, remarks that we have seen a significant inflection point over the past year. A global technology investor, which has backed Flink along with several other food delivery companies, Prosus identified the consumer demand for convenience delivery at an early stage.

“Prosus entered the food delivery market in 2013 and we are now present in 69 markets globally,” Illg tells EMEA Finance. “Our leading food delivery companies, including Delivery Hero, iFood and Swiggy, have been making significant investments in grocery and convenience delivery over the past year. In Europe specifically, there are several players that have emerged in the space in a short amount of time.”

He adds that grocery is second only to housing in global household spend, at $5.2tn annually, and the opportunity that exists for online grocery delivery is vast. The market in Germany alone is expected to reach more than $300bn over the years ahead.

“Online grocery represents a large growth opportunity,” says Illg. “Structural category dynamics are attractive – high frequency and average order value – but online penetration is low compared to other e-commerce categories, so there is a lot of growth opportunity ahead.”

Prosus chose to back Flink in particular because of its value proposition and rate of growth. The company offers more than 2,400 different products, which it promises to deliver within 10 minutes or less. (Aptly enough, the word ‘Flink’ means ‘quick’ in German.) It is rolling out a new hub every two days and already reaches more than three million customers directly.

“We are impressed by Flink’s innovative tech-enabled logistics service combined with the expertise of the team, the quality of the partnerships they have quickly established, and the pace of execution within Germany,” says Illg. “They have opened 50+ hubs in 18 cities open after just four months of operations. The team has also quickly established some key partnerships, including REWE Group, one of the largest grocery chains across Germany, which entered into a long-term nationwide supply agreement to support Flink.” 

Flink has said its recent fundraise will fuel its expansion into more cities and countries, including the Netherlands and France. In a similar vein, Getir launched in London and Amsterdam this year and is eyeing additional UK cities, along with Paris, Berlin and even parts of the US. Gorillas has launched in London, Amsterdam and New York, while Latin American startup JOKR has now reached Vienna and Warsaw.

The question remains, is there actually room for so many different startups or does the market risk becoming oversaturated? And with so many grocery delivery apps to choose from, how will consumers know which one to pick?

O’Hear believes that there is room for a few different players to co-exist – this isn’t going to be a winner takes all scenario.

“It’s also a city-by-city play, so I think in most cities, you want to be in the number one or number two position, or maybe in a really big city, number three,” he says. “Perhaps some companies will fall out the market. But competition is really quite useful at the beginning, as it means people learn about the services more quickly. In London there are seven direct competitors, so everyone is clubbing together in that sense.”

He points out that these on-demand delivery startups, far from being a monolith, actually fall into two distinct categories. Some of the companies (including Getir, Gorillas and Flink), are positioning themselves as an alternative to the weekly shop – you can do your grocery shopping on demand, including fresh produce and everything you’d otherwise buy from a supermarket. Here, the emphasis is on products with a longer shelf life, and fresh goods are treated for longer expiry dates.

Others are positioning themselves more as online convenience stores, including some fresh groceries but with more emphasis on drinks and snacks. Zapp falls into this category, as does goPuff in the US. These companies are targeting impulse purchases (including alcohol) rather than trying to replace the weekly shop.

“The reason why that is important is that, when you’re doing convenience shopping, you’re less price sensitive,” says O’Hear. “When you buy drinks and snacks they tend to have quite high margins. The market sizes here are looking really good in terms of the average order value – that’s why goPuff is already profitable in every city it’s in.”

Despite this divide, these two types of company clearly overlap a lot. The only way they can truly differentiate themselves is to build a brand that customers love – keeping their promise to deliver in minutes, and making sure the right products are in stock.

They also need the business model to continue running effectively. Most of these companies charge a nominal delivery fee, which may be waived in the case of a larger order. The question is, is their average order value high enough to absorb the delivery costs and turn over a profit?

O’Hear points out that, while there is clearly a huge amount of capital being pumped into this sector, that capital should be considered in relation to the startup costs. Building your stores, hiring your drivers, and working out your marketing strategy isn’t cheap.

“I would stress it’s early days,” he says. “Despite the capital, despite the expansion, this is still a really new market and the next 12-18 months are going to be interesting. That’s when we’re going to find out which of these companies can keep their customer promise as they expand.”

This article appears in the August 2021 edition of EMEA Finance