The future of instant grocery delivery looks murky as companies announce cuts

“Instant” grocery delivery is the latest sector to suffer from the current tech downturn, with three European startups this week announcing layoffs and other cuts. All of these companies have risen to prominence during (and arguably because of) the Covid-19 pandemic, promising groceries and household items in minutes to homebound consumers looking for convenience.

  • Turkish start-up Getirwhich promises deliveries “within minutes”, announced that it reduced its workforce by 14% worldwide (more than 4,000 people) and reduce service expansion plans. Getir, valued at around $12 billion, operates in the UK, Germany, France, Italy, Spain, the Netherlands, Portugal and the United States in addition to Turkey.
  • england zap is in layoff talks and says pretty much 10% of its staff faces redundancy (between 200 and 300 people). The company has already closed its operations in Cambridge and Bristol and will do the same in Manchester in the event of layoffs.
  • Gorillas also reduces staff; about 300 people at its headquarters. The Berlin company mentioned it is “examining all possible strategic options for the Gorillas brand,” which could include pulling out of certain markets. Gorillas currently offers services in the UK, US, Germany, France and the Netherlands, in addition to Spain, Denmark, Italy and Belgium.

Last month, GoPuff announced it would cut 3% of its workforce, or about 15,000 people.

These instant grocery services typically allow consumers to order food, beverages and some household items online, which are delivered in 10, 15 or 20 minute windows, through micro-distribution centers in areas densely populated cities.

Instant investment in groceries in numbers:

Underscoring the excitement around the sector in the wake of Covid-19 demand, investors have poured billions into instant grocery delivery over the past two years and there have been some big and tantalizing rounds of funding for these capital-intensive businesses. Here are some examples:

  • Gorillas have raised over $1 billion in 2021.
  • Getir a raised over a billion dollars in total funding so far, including a Series E of $768 million starting in March 2022.
  • based in the United States GoPuff raised over $2 billion in 2021 and, at last check, had a valuation well over $10 billion.
  • Yeah!which specifically focuses on Latin American and Asian cuisine, has raised nearly $1 billion in total, including a $425 million round in February this year.
  • Flink Foodsanother German company, raised $990 million in 2021, across its seed, Series A and Series B rounds, all of which closed within months of each other.

The total venture capital investment for the entire e-Grocery category was $18.5 billion in 2021, making it by far the largest agribusiness investment category of the year. According to AgFunder Agrifoodtech Investment Report 2021. [Disclosure: AgFunder is AFN‘s parent company.]

Why is this important:

The mega-deals above all took place in a more optimistic investment environment than the one companies are currently facing. The tech as a whole is down after a remarkable, and often incredible, bull run that peaked earlier this year. Soaring inflation, ongoing supply chain issues exacerbated by the war in Ukraine and the end of the pandemic are among the drivers of the technological slowdownwhich commentators come close to calling a depression.

These factors do not bode well for instant grocery startups that are largely backed by venture capital and whose road to profitability is highly uncertain. Earlier this yearthe the wall street journal called the industry’s unit economics “disappointing” and said investors “could be chasing a mirage.” If consumers start to cut costs due to rising unemployment and rising food prices, the convenience of instant delivery will likely be one of the first things to come.

As Mark Durno of early-stage investor and accelerator group Rockstart recently told the audience at the FoodHack Summit in Switzerland, in this macroeconomic environment and given the far greater climate challenges ahead, “Who cares about shopping in 15 minutes? I’m happy to wait. Most important is to ensure groceries can reach people in food deserts around the world, he added.

Durno and others have expressed frustration that some of this funding is not being directed to more impactful technologies. Based on the layoffs above, it seems likely that valuations will plummet and investors will pull out of instant online grocery for the rest of the year; maybe they can redirect some of that funding to tech startups solving real-world problems.