Home / Opinion / Columns /  The survival gasps of pandemic born fast delivery apps

As we have seen, some startups had a meteoric rise during the pandemic. Apps like Zoom and others offering videoconferencing seemed to be on a never ending bull run. So also businesses that were focused on servicing a clientele that was largely home-bound. These include apps that focused on food and grocery delivery.

The sole selling proposition of such businesses is how quickly they can deliver ever smaller lot sizes of product orders to our homes. Hence, the promise of a ‘single lime delivered within ten minutes’ was mouth watering for a locked-down citizenry, and as we shall soon see, also eye-watering for the founders and backers of such speedy e-commerce services.

During the pandemic, the idea took shape of ‘dark warehouses’ and ‘micro warehouses’, which are completely automated intermediate distribution points for goods that can be handled and packaged to suit hyper-personalized orders. Entrepreneurial ventures with claims to sophisticated knowledge of logistics and supply chains (and the arduous mathematics of managing such pint-sized delivery attempts) became all the rage for a while.

I must confess that the few founder-entrepreneurs I have had occasion to meet while scouting for investment prospects in this area were all intellectual giants. Almost to the last person, these are people who can mentally solve stochastic mathematical equations in a matter of seconds. Muggins here, on the other hand, is lucky if he can add, say, 46 and 23 in his head and still come up with the right answer. And this is despite the fact that one of my Master’s degrees is in applied economics, which, by the way, is nothing but advanced applied mathematics. I desisted from investing in these businesses largely because I saw such use cases only being commercially worthy where labour was extremely expensive, such as in Scandinavia, where apparel-cleaning businesses are known to send off their customers’ laundry to be done in Turkey over the weekend since it is cheaper to do so—air freight and sorting through small lot sizes included—than hiring locals to do the job.

It appears that my scepticism was warranted. New reports from developed countries like the US seem to suggest that businesses focused on hyper-personalized delivery of small packages are fast running out of steam. For instance, the media outlet Business Insider says super-fast delivery startup Gopuff is cutting 10% of its workforce, according to an internal email seen by its staff. In the email, Gopuff co-founders Rafael Ilishayev and Yakir Gola said these “uncertain times" had pushed them to “accelerate our timeline to profitability." The founders also said that, “For the last 18 months, Gopuff had operated in a market that incentivized growth, scale, testing, and investment, but the market has shifted quickly." In addition to the layoffs, Gopuff, valued at $15 billion in 2021, shut down 76 of its 500 odd distribution centres this summer.

Gopuff is not alone on this downhill road. For instance, The Information reports that it took only eight months for Jokr, a superfast delivery startup, to become a unicorn, and just six months more for its strategy to start coming apart. Jokr had plastered New York City with splashy ads promising to deliver groceries within 15 minutes, for free, and with no minimum order. Jokr also raised $430 million from venture capitalists to fund its expansion in many of the world’s cities. Jokr had promised to build over 100 micro warehouses in New York City alone.

Jokes aside, these two firms are the lucky ones. At least four of their competitors have shut shop. According to Wired, start-ups promising such super fast micro deliveries in New York City alone had attracted over $8 billion over the last two years. Such exuberance is reminiscent of the buzz during the last dot-com boom and bust, when even George Sheehan, the revered chairman of Accenture, suddenly quit the IT services behemoth to go over to WebVan, a grocery delivery startup, which went bust within a few short months of his arrival there as its boss.

The grocery business has razor-thin margins. According to a McKinsey study (mck.co/3J0Sbp1), grocers make only 4% on an order fulfilled within the premises of a store, but lose 13% on average on an online order. Also, during the early part of the pandemic, online grocery orders increased 50% and demand for instant delivery increased 41%. This is understandable during such extreme circumstances as a pandemic-forced lockdown, where people are willing to pay a premium for the convenience of home delivery, but in more sanguine times, it seems to me that they would be more than willing to walk down to the corner kirana store, rather than pay a delivery company a premium for its service.

Predictably, as customer sentiment turns and charging premia is no longer sustainable, these startups start offering free groceries with every order or some other form of discount in order to retain the loyalty of an existing customer base and also attract new customers. After all, they have large war chests provided by investors who should in my view largely qualify as gullible.

Why a business—and investors—should enter a space that is already a money-losing proposition is beyond me. There are some business models that can never turn from red into the black, despite any amount of money and sophisticated mathematical algorithms being thrown at the problem.

Siddharth Pai is co-founder of Siana Capital, and the author of ‘Techproof Me’.

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