A recent survey conducted by Polytechnic Institute suggests that 90% of people who used online delivery services during the health crisis could go back to their original mode of purchase. The wind is turning for the home delivery sector.
Layoffs in the delivery sector
Is the golden age of home delivery companies over? Their growth has been meteoric: in 2020, for example, Instacart saw an increase in 500% of orders. Its turnover quickly reached 1.5 billion dollars. Meanwhile, Gorillas has raised $290 million. Positioned in exactly the same market segment, the Berlin start-up Flink also raised $750 million. Funding that allowed it to reach a valuation of 2.85 billion dollars. Finally, Gopuff, an American company now valued at $15 billion, had raised $1 billion in 2020.
The epilogue of the misadventures of Didi, symbol of the repression of the Tech sector in China
Just a few months ago, 60% of US consumers said they bought groceries online, up from 36.8% in 2019. However, this is an extremely volatile market. As they develop and structure, market players have increased delivery costs. This is for example the case of DoorDash which imposes fees on all parties to cover its operating costs. The home food delivery model works when margins or delivery costs are high. It will not be able to remain a daily model at low prices. In reality, it is becoming a luxury activity.
Inventing a new model to survive
Over the past few months, with changing consumer behavior, investors have begun to take a close look at the profitability and cash flow of the companies in which they have invested. What economists feared is happening… Delivery companies lay off with a vengeance. According to several market experts, “Layoffs and hiring freezes are just beginning and will likely get worse in the coming months”.
They feel that “History repeats itself”. In the 1990s, California-based Webvan, one of the first fast food delivery companies, was valued at $7.9 billion before going bankrupt. At the time, rivals Kozmo and Urbanfetch went bankrupt after racking up losses.
Inflation only compounds the difficulties that delivery startups face. Food prices are rising. To survive, market players will have to change their offers. Some companies are already rethinking their model. Jokr and Buyk are introducing longer delivery times in order to fulfill more orders per trip.
Before going out of business, Fridge No More was looking to obtain a liquor license and invest in private label products for its customers. FastAF, a newcomer to the delivery industry, specializes in luxury and high-priced items. It’s simple: delivery companies will have to find a model that worksotherwise they will not hold.