Quick commerce running out of time and money
The quick commerce sector was one of the most distinctive outcome of the pandemic (a longer text about the category). The explosive growth of the companies was driven by a flood of funding. This lead to explosive growth of the valuations of the companies. Gorillas became the fastest company in Europe to reach the unicorn status (took only 6 months). The growing valuations lead to more and more companies showing interest towards the category.
As new companies popped up, the competition for the customers heated. The customer acquisition costs got out of hand. According to Wall Street Journal, Fridge No More (closed operations in March) spent $70 to acquire one customer.
The world of quick commerce is suddenly turning upside down. Inflation running wild and the war in Ukraine both constitute to a very different operating and financing environment.
All of a sudden company after company are reporting about layoffs and other reductions:
GoPuff will layoff 3% of its 15 000 person workforce (~450 reductions)
Getir is about to cut 14% of its 32 000 person workforce (~4 480 people)
Gorillas to layoff half of the head office workforce (300 reductions) and focuses operations to only UK, US, Germany, France, and the Netherlands.
Zapp reduces head count by 10% (300-400 reductions)
Jiffy went furthest as it closed operations and focuses only to provide grocery software as a service.
Test of character during the elimination
The most recent problems are a big test of character for the quick commerce players. Similarly as ecommerce went through its dark ages after the Dotcom crash, only the best run quick commerce companies will survive.
It would be surprising if the category itself would not survive. One should never bet against customers’ craving for more convenience.
It is much more likely that the business models will evolve to include more sustainable elements. During the dtocom crash Jeff Bezos kept his cool and confidence on the business. However, he had the wisdom to focus Amazon from rapid growth to improving the processes and thus generate profits.
For the quick commerce companies the hunt for growth has become more difficult as the money can’t be used as carelessly anymore to attract customers. On the other hand, there will less companies vying for customers. The additional revenue streams (from ads to other logistics) will become ever more important to drive profitable growth.
However, the most important aspect for the quick commerce companies will be the internal processes and how to make them more financially sustainable. Order volume growth will help a little to drive delivery efficiencies. The companies will need to take a new look into the value proposition of instant delivery (as some companies already have).
Instead of delivering in 10 minutes, customers would probably be content if the delivery would arrive in 30 or 45 or 60 minutes.
This would generate big savings in terms of the delivery costs. Maybe that will give the needed needed financial flexibility for some of the companies to survive this long and dark period.
From the market perspective, this new phase is very welcome. It will drive out the excess spending and less efficient operations from the markets. After this period there will be less companies with much better management and processes. Hopefully we will see a more healthy online grocery category in the future.