The Modern Milk Man Sits in the Dark: demanding more from on-demand delivery
Just as city-dwellers were getting used to on-demand delivery app drivers all but flooding their neighborhoods, a new denizen has hit the streets: the Quick Commerce Courier.
Armed with rucksacks stocked with beer, toothpaste and spinach, deliverers from the likes of GoPuff, Getir, and Gorillas are starting to flood street corners around the world. It’s easy to think that they pose the biggest threat to supermarkets and corner stores. However, the experience of the past decade shows that it is the on-demand companies of the 2010s that need to be worried — our Uber Eats, Instacarts, Glovos of the world.
Food delivery is not a new phenomenon. It started in the 1800s with milk rounds. But technological innovation has gradually seen it superseded and evolve with new practices. While urbanization created the job of the milk man as people were drawn into cities and away from their farms, the emergence of refrigeration eventually made his job obsolete. By the 1950s, a culture of families gathering around the television during dinner meant that restaurant sales suffered. As a response to this, restaurants began to offer delivery, resulting in a surprising spike in demand.
Now, with the 2020s in full swing, the milk man is outdated and TVs are increasingly replaced by phones; however, the concept of receiving food at our doorstep persists. A new kid has emerged on the block to create an ultra-fast standard for on-demand delivery: Quick Commerce.
This is a story about Quick Commerce in 4 Parts:
Part 1: The Building Blocks of Quick Commerce
Part 2: Three Historical Waves of Contemporary Food Delivery
Part 3: The Players
Part 4: Looking Forward
Part 1: Building Blocks of Quick Commerce
While the Instacarts and Delivery Heroes of the world spent the last decade promising “on-demand” convenience, we still received cold pizza 1.5 hours after ordering, or picked a “2 hour delivery window” 3 days out for a bag of groceries. Did we settle too soon for on-demand? Should we have demanded better? Enter Quick Commerce: This new category will bravely promise you a banana at your doorstep in 5 minutes, a Red Bull in 9 minutes, or a case of beer in 10 minutes.
Quick Commerce is the rapidly emerging space in food and convenience item delivery that will deliver essential products at ultra-fast speeds (for the purpose of this article: sub-20 minutes). This new wave of companies facilitate deliveries through vertically integrated operations, consisting of micro-fulfillment centers (“Dark Stores”) scattered through dense urban areas, serving hyperlocal geographies, and serviced by couriers often on e-bikes and e-scooters. Demanding the same level of service from the on-demand companies of the 2010s (Uber, Instacart, Deliveroo, etc), is difficult because they have entirely different operating models, with their modus operandi being “asset light”.
From a Consumer Perspective
Kagan Sumer — founder of Gorillas, one of the best known startups in the Quick Commerce space — consistently says, “We have the technology to go to space and we’re still going to the supermarket?” It’s a thought provoking idea, especially when compounded by our poor ability to manage our personal kitchen pantry inventory, which results in 54 billion pounds worth of food waste thrown away from US households every year (reference). The obvious solution is a service that enables us to receive the exact items we need, exactly when we need them.
Quick Commerce steps up and promises the app-based delivery of essential items to your doorstep in less than 20 minutes for a nominal fee (often $2), blowing you away with the “wow” aspect of an ultra-timely delivery.
Wasn’t same-day delivery good enough? It may have been, until Quick Commerce entered the scene. We were once content waiting 1–2 weeks for e-commerce items, then Amazon launched Prime and recalibrated consumers to staunchly stand up for 2-day delivery. Quick Commerce will do the same for consumer expectations around grocery and essential items.
How are these companies different from one another? Their home pages suggest not very.
For now, quick commerce apps will litter our home screens similar to how e-scooters of the same make but different colors littered our street corners in 2018. As the market develops over the next 6–12 months, how these companies manage their operations will emerge as the unique selling proposition.
Let’s dig deeper into how we operationalize this consumer value proposition.
From a Real Estate Operations Perspective
Why is a grocery delivery startup renting out a run-down strip club? Quick Commerce startups are asset heavy and vertically integrated, and this starts with real estate. These companies operate via Dark Stores, also referred to as micro-fulfillment centers, which are small warehouses strategically placed around city centers to service their immediate neighborhoods, often with a 1 mile radius service area
In order to manage fixed costs, some companies have been clever in acquiring cheap inner city real estate, with the example of GoPuff renting out basements and the aforementioned run-down strip clubs (August 2020).
This strategy is a departure from the operations of the earlier wave of delivery apps, which operated in two flavors: 1) Held an asset light approach of picking goods from a merchant network of grocery stores and restaurants, or, 2) If there was vertical integration, fulfillment centers were located outside of the city center (i.e. Amazon Fresh), and they were unable to promise delivery faster than 1–2 hours.
From an Inventory Perspective
Quick Commerce is not asset light. This also pertains to the inventory, as most models currently involve taking inventory risk. Dark Stores often begin their operation with a limited inventory of 1–2k SKUs, with differing strategies around inventory curation — from those that are mostly focused on perishables, to those that manage convenience store items.
From a Logistics Perspective
Quick Commerce Dark Stores are serviced by a fleet of speedy packers, who zoom through the warehouse picking the goods and then hand it off to an adjacent fleet of couriers. Couriers are often on e-bikes or other Light Electric Vehicles (LEVs) and will pack the order into big square backpacks and dash through the neighborhood to drop off the goods, before returning to home base to do it again.
Part 2: The Three Waves of Contemporary Food Delivery
To better understand the significance of Quick Commerce, let’s explore the recent history of on-demand food delivery. A contemporary history of online food delivery can be conceptualized into three waves: The Great Aggregation, Logistics or Bust, and now The Great Integration.
First Wave: The Great Aggregation
In the early 2000s as the Internet took off, an initial set of delivery marketplaces emerged as entrepreneurs grew frustrated by searching for paper menus when they needed to order food. From this frustration was born an opportunity to equip restaurants, and other merchants, with digital tools in order to share menus online, and manage other adjacent operations. This new online repository of information also enabled aggregating merchants onto a single website, and eventually integrated online payment as well, leading to the birth of the earliest food delivery marketplaces.
Merchants now had a way to be indexed online, and diners could surface options from marketplaces and submit orders for delivery online. Delivery operations were not managed by these marketplaces, and were instead owned or operated by the merchants.
This First Wave included Grubhub, Eat24, Seamless, Just Eat, Takeaway, Zomato, and more. However, many of these consolidated later in time as the “Second Wave” of delivery emerged.
Second Wave: Logistics or Bust
Enter the 2010s: The “uberization” of everything. As consumers acclimated to ordering rides on-demand, the promise of an on-call network of drivers also foreshadowed an opportunity to receive any good on-demand. From this realization, the next generation of delivery marketplaces were born. While the First Wave created digital marketplaces, the Second Wave relentlessly focused on digitalizing the logistics that facilitated marketplace models.
This Second Wave saw the birth of Uber Eats, Postmates, Glovo, DoorDash, Deliveroo, and more. This wave of companies had courier networks in cars, bikes, scooters — mostly fleets of self-employed independent contractors. They ran in and out of grocery stores, bodegas, and restaurants, picking, packing, and delivering food in less than two hours.
Both First and Second Wave startups used an “asset light” model in which marketplaces bore low fixed costs by avoiding the commitment of full time employees, inventory risk, and brick and mortar locations. They sustained via delivery fees, commissions, and item mark-up by being the broker.
While Second Wave companies saved on Cost of Goods Sold (COGS) by being asset light, they spent billions trying to achieve market leadership through aggressive subsidies for diners, low commissions for merchants, bonuses for couriers, and huge budgets for marketing campaigns. The strategy here was “growth at any cost” — the idea was that a marketplace should first focus on market leadership, and later focus on profitability. The Second Wave of companies aggressively, and often unprofitably, expanded past the First Wave, which were being held to standards of profitability by their investors and the public markets. The First Wave of companies were increasingly unable to maintain the customer and merchant retention needed to stand alone. Many of these First Wave competitors have merged with each other, or consolidated into the Second Wave entrants.
As Second Wave companies prepared IPOs and late stage growth equity rounds in the 2020s, the expectations around profitability started to shift and there was a pressure to wean off of VC backed subsidies. From here, there has been a recent trend of consolidation, i.e. Postmates being acquired by Uber, Grubhub being acquired by JET, and Caviar being acquired by DoorDash. There are also reports of delivery fees rising in both the grocery sector (February 2021) and hot food delivery (December 2020), which in the past would have been absorbed by the marketplace.
Third Wave: The Great Integration
As the Second Wave companies have shifted their focus to unit economics and profitable growth, a Third Wave of companies has now emerged — Quick Commerce. While a few of these emerged in the 2010s, most sprung up in the 2020s. These companies wow customers by consistently delivering food, beverage, and essential items in less than 20 minutes. Such speed and convenience is difficult to achieve when your business model is at the mercy of third party merchants fulfilling your orders. These companies must therefore be vertically integrated with a high degree of control over their Dark Stores and courier networks.
Companies that have emerged in this space include the flagships GoPuff in the US and Getir in Turkey, other very well-funded recent entrants such as Gorillas and Flink in Europe, as well as others which will be covered in the subsequent section.
Just as customers became accustomed to 1–2 hour delivery, this new wave of companies have started to put pressure on that Second Wave of marketplaces by promising a bottle of liquor or a bag of chips to your door in 20 minutes — at the low price of $2 or free, per delivery. The growth of these companies is deeply subsidized by investors, who once again ascribe to a land grab mindset. This investor ethos enables Quick Commerce enterprises to quickly grab cheap real estate to serve as Dark Stores, hire away couriers, and start getting customers hooked on faster and cheaper delivery.
While initially the path to profitability seems grim as we nurse our Uber hangovers, GoPuff claims to achieve positive unit economics when it operates in a local market for greater than 18 months (May 2021). Other anecdotal accounts from entrepreneurs in this space indicate that while initial customer Average Order Value may be less than $10, as customer retention increases, AOV also increases — signals that customers are increasingly using this service to replace grocery runs and meal delivery. Increasing AOV in combination with highly batched orders — i.e. delivering to me and my neighbor in the same run, are necessary levers to achieve positive unit economics.
There’s a serious opportunity for Third Wave companies to meaningfully dent the grocery and meal delivery markets. Many raise their eyebrows at the seeming infeasibility of the business model, but the Third Wave companies are once again being held to different standards than their Second Wave cousins, in a pattern we have seen before.
The early and mid-stage investors in the Third Wave do not expect their portfolio companies to turn a profit any time soon, and rather encourage them to pursue a familiar “growth at all costs” strategy, while the Second Wave of companies struggle with the pressure of profitable expansion. This Third Wave is highly capital intensive due to their vertically integrated Dark Store approach, but so far it checks out that this approach is necessary to enable the rapid convenience that they promise. Should the Second Wave incumbents underestimate the threat, we could even see Gorillas acquiring Instacart in a few short years.
Part 3: The Players
In the classic board game Risk, players take turns to roll a die and make strategic decisions with the ultimate goal of world domination. The path to victory is a balance of tactical intelligence, strategic management of resources, and a bit of luck.
Such is the world of the land grab strategy in startups. However, in the Quick Commerce space there is a sense of chaos, as if every player is simultaneously rolling their die, frantically moving out of turn, and trying to rapidly stake claim across different regions.
This story of Quick Commerce can be told through the perspective of four “M”s: Magnitude, Momentum, Mergers, and Maneuvers. Mmmm — because we love food, obviously.
Magnitude
Silicon Valley is the forever teen, obsessed with riding the wave of latest trends. But instead of highlighter scrunchies and puka shell necklaces, this community gushes over Juiceros while downloading “Yo”, only to quickly forget about both. Every now and then a business model comes along that feels like a once-in-a-decade opportunity, launching unicorn after unicorn, which seemingly live in mirror images of one another. The magnitude of funding rounds happening in Quick Commerce feels unprecedented, but is reminiscent of Ridehailing, Autonomy, and Micromobility — while not everyone is poised to win, the stakes are extremely high and this sector is worth paying attention to.
The following table shows the sheer amount of funding in this sector, and the remainder of this section profiles two companies that exemplify the magnitude of interest in the space.
🇩🇪 Gorillas
If there’s a company that captures the magnitude of the opportunity in Quick Commerce, it is Berlin-based Gorillas, which became the fastest company to reach unicorn status in European tech history as it closed a $290 million (March 2021), after launching in May 2020. This round might quickly become old news, with the latest rumor that it is raising at a valuation of $6 billion (May 2021). While Gorillas currently operates in Germany, Netherlands, London, Paris, and New York — the recent rounds will push their growth to 10 countries and 50 cities. Investors behind recent rounds include top global names, and notably, real-estate focused VC, Fifth Wall — highlighting the importance of the property play in this space. With the US expansion and US investors, I expect that by late summer, the Quick Commerce wars should be in full swing, stateside as well.
Notable Investors: Coatue Management, DST Global, Tencent, Fifth Wall, Atlantic Food Labs, Tet Ventures
🇹🇷 Getir
Getir CEO Nazim Salur recently said, “I was the same guy for the last six years, doing super-fast deliveries [….] But in the last six months the investor community decided to get into it; it is like they have a club.” (July 2021). In VC, where longevity and patience allegedly matter, market timing can be a dangerous game to play, and as a founder, being able to ascribe some portion of your growth and valuation to these market forces takes a certain level of humility. Getir has delivered groceries to consumers in 10 minutes since 2015. This consistency has led it to 10x its valuation in the course of just this year, most recently closing a $550 million round at a $7.5 billion valuation with top names on the cap table.
While Getir’s initial market was Turkey, it recently entered Europe, and with this new stash of funding it is expanding into the US. Still, don’t look for splashy headlines from this team, “We are not a spoilt Silicon Valley start-up with lots of money to trash away,” said Salur (June 2021).
Notable Investors: Sequoia, Silver Lake, Tiger Global, Mubadala
Momentum
It was the 2010s and GoPuff and Getir were growing respectively in the US and Turkey at very healthy and VC-approved rates with some eye on profitability, and then, the pandemic happened, and demand for deliveries soared. The next crop of Quick Commerce companies emerged during the summer of 2020, and a few initial rounds of funding in the space got the snowball rolling. Then, another crop of companies emerged in late 2020 and early 2021 to hop along for the ride — increasing the momentum of the Quick Commerce snowball with every quarter.
The following table demonstrates the momentum that these companies gained over the last year.
🇩🇪 Flink
The funding story of Berlin-based Flink since its launch 6 months ago, is a case of momentum that exemplifies the rise of the Quick Commerce space. In January 2021, Flink came out of stealth with a Seed round of >$12 million (January 2021), a sum rarely heard of in the European venture scene. The company showed strong founder-market fit with the likes of Julian Dames (Foodora co-founder), Christopher Cordes (CEO of home24), and Oliver Merkel (Bain partner) at the helm; however, while the founding team would be considered top decile in Europe, chances are the size of this round did not only reflect its talent, but rather the urgency with which it would need to grow from the moment they launched. This round was followed up two months later with a $52 million financing (March 2021), at which point Flink was operating in Germany, the Netherlands, and France with a focus on grocery delivery, as opposed to convenience items.
Apparently that one-two punch in funding rounds was not sufficient to carry its ambition. Fast forward three months to June, Flink announced a $240 million series A (June 2021). While most of the strategy seems to stay constant, the news is a partnership with REWE, one of Germany’s largest grocery chains. The details of the partnership are scarce, but indicate that Flink would be a channel for shoppers to pick up last-minute items that complement their otherwise-weekly grocery haul. I’m curious to see how REWE manages or accepts the risk of Flink stepping on its toes as the consumer app basket sizes become bigger. Did I mention that Flink means quick in German? Let’s see how quick it is to raise its Series B as well.
Notable Investors: Prosus, BOND, Mubadala Capital, Target Global, Cherry Ventures, Northzone, and debt provider TriplePoint Capital
🇬🇧 Zapp
While some Quick Commerce startups have consistently dominated headlines with funding rumors and expansion stories, there’s one that remains suspiciously quiet — London based Zapp, which has reportedly raised $100 million to date (March 2021). Its media silence must serve a strategic purpose, given that media veteran Steve O’Hear, a notable tech-journalist with a 10 year tenure at Techcrunch, made a surprising turn out of journalism and took over as VP Strategy in April (April 2021).
Zapp operates in a similar fashion to the others with a vertically integrated Dark Store model, however, its emerging distinction seems to be in its messaging around sustainability, i.e. its all-electric fleet, recyclable paper bags, and partnership with Planetly to track and offset its emissions. While Zapp might not be dominating the headlines, its funding story did give momentum to the Quick Commerce narrative, as it leaked in March, during which time there were at least 7 other major funding announcements in the space.
Notable investors: Lightspeed, Atomico, 468 Capital
🇬🇧 Dija
Breathe in…breathe out the following: “Getir, Gorillas, Weezy, Fancy, Zapp, Dija”. The number of Quick Commerce startups that have tried to make the UK their battleground can leave one breathless, and you may find yourself saying that last one in a whisper, and appropriately so, as the most quiet of them all has been Dija. The tech community started whispering about London based Dija in December 2020 with rumors of a $20 million seed round, which was confirmed in March 2021 (March 2021), lining up with the other funding announcements in the space. There was briefly a small but seemingly deliberate coverage about its launch in France and Spain (April 2021), but there are also persistent rumors that Dija is pursuing a sale to potential acquirer targets such as Gopuff or Gorillas (June 2021, June 2021, July 2021). The degree of competition in the UK market has perhaps begun to catalyze consolidation.
Notable Investors: Blossom Capital, Index Ventures, Creandum
🇩🇪 JOKR
Jokr is a curious company. It was founded by the former CEO of Foodpanda, Ralf Wenzel, based in Germany, but has launched in select cities of Europe, South America, Mexico, and recently NYC (April 2021, June 2021). This chaotic expansion strategy underlines the fact that the network effects for this business are hyper-local, and there may be limited advantages to being a regional hero (versus a local one). Funding is undisclosed but includes a rumored list of heavy hitters.
Rumored Investors: SoftBank, HV Capital, Tiger Global (June 2021)
Honorable Mentions
🇬🇧 Weezy launched in London in Summer 2020 with >$1 million in funding (August 2020), followed by a $20 million round in January (January 2021). As it remains focused on building presence in the UK, its coffers remain limited in comparison to its peers and it could become a prime acquisition target. (Notable Investors: Left Lane Capital, DN Capital, Heartcore Capital)
New York-based FridgeNoMore is worth mentioning due to the lack of American homegrown contenders in the Quick Commerce space, especially as it pertains to groceries. This outfit launched in October 2020, and announced a $15.4 million Series A in March (March 2021). It will be interesting to watch whether this US contender will be able to step up to the European companies planning to make the Big Apple their first American apple. (Notable Investors: Insight Venture Partners, Altair Capital)
France-based 🇫🇷 Cajoo raised a $7.3 million seed round in February 2021, and is currently operating in France. (Notable Investors: XAnge, Frst)
UK-based 🇬🇧 Jiffy, led by Russian founders has raised >$6million as of April 2021. This is the fourth group of Russian-founded Quick Commerce startups outside of Russia, the others being 🇺🇸 FridgeNoMore, 🇷🇺 GetFaster (March 2021), and 🇺🇸 Food Rocket (May 2021).
Mergers
In the 2010s, the rise of Ridehailing taught us that regional network effects were much more powerful than potential global network effects that emerged from businesses like Uber. This dynamic led to local heroes proving to be worthy opponents in many geographies, leading Uber to strike merger and partnership deals across the world (i.e. with Careem, Grab, Yandex). In the lead up to those deals Uber would put up good fights, that resulted in significant capital deployed by all parties. This time around, Quick Commerce startups seem to have learned from Uber’s mistakes, and are pre-empting the race to the bottom (of their cash coffers) by already employing M&A as an expansion tactic, and to acquire technology that would take longer to build in-house — time that cannot be lost in this tight race.
🇺🇸 GoPuff
Our almost deca-corn GoPuff has led the pack with a recent flurry of acquisitions that expand both its technology and consumer reach. With $1.15B of new money since March (March 2021), GoPuff has been on a shopping spree.
In order to secure real estate, inventory, and distribution within 20 minutes of relevant customers, GoPuff has been pursuing a strategy of acquiring storefronts such as BevMo on the west coast ($350 million, November 5 2020), and LiquorBarn in Kentucky (June 21, 2021), These deals are land grabs that accelerate its ability to set up Dark Stores and gain access to new customers.
In addition, GoPuff also acquired routing and mapping company, RideOS (June 21, 2021). RideOS was founded by Uber and Apple alums who originally focused on the autonomy ecosystem, and then pivoted to offering its fleet optimization software to delivery companies during the pandemic. This pivot enabled them to find more immediate product-market fit. In Quick Commerce, where efficiency is valued more urgently than any other delivery sector, RideOS’s route optimizations should help GoPuff shave valuable minutes off of deliveries and aggregate runs, in the pursuit of positive unit economics.
Notable Investors: Accel, Softbank, D1 Capital Partners, Fidelity Management Luxor Capital, Softbank Vision Fund, Reinvent Capital
🇬🇧 Fancy
In the UK a small outfit, Fancy, with only a publicly-reported funding round from Y-Combinator in 2020, was recently acquired by GoPuff (May, 2021) in order to fuel the beginning of its international expansion. This move pits GoPuff against Zapp, Dija, and Weezy in the UK.
Notable Investor: Y-Combinator
🇪🇸 Blok
While Getir’s founders claim that it, “will not become an acquisition company” — it is indeed making one of its first acquisitions with Blok (July 2021). This Quick Commerce startup was founded late 2020 in Spain and launched out of stealth in 2021. Since then, Blok has made little noise in terms of funding but has already amassed 120 employees. This acquisition will enable Getir a speedy expansion into Italy and Spain.
Notable Investors: Cavalry Ventures, Lanai (July 2021)
Maneuvers
While the Third Wave startups grab land, the Second Wave delivery companies of the 2010s are urgently maneuvering into the space. They realize the need to start launching new product lines in Quick Commerce, otherwise someone else will plan their obsolescence.
Transitioning into Quick Commerce won’t be easy, because the Third Wave model does not align with Second Wave players’ asset light ethos. The following is a state of play of select companies across the world attempting to maneuver.
🇪🇸 Glovo: Glovo has otherwise been known to operate in an asset light model covering groceries, restaurant deliveries in Spain and South America, and more. However, Glovo’s most recent funding round of $528 million (March 2021), seems to have a major earmark for Quick Commerce. It plans to launch Dark Stores, but will also stock items from other grocers and retailers such as Carrefour, Continente, and Kaufland.
🇰🇷 Coupang: Softbank backed, and publicly listed Coupang is otherwise also known as the Amazon of Korea. It also houses a “Coupang Eats” division that functions much like Uber Eats, and recently announced an extension of this with a service promising 10–15 minutes delivery, but otherwise thin details are available (July 2021).
🇮🇳 Dunzo: Google backed, Dunzo, from India has already been offering hyper-local convenience to consumers around India across categories ranging from groceries and perishables to pet supplies and medicine, often delivered within 25 minutes, for 5 years. It announced that it will extend this convenience promise by offering ultra-fast deliveries through its new offering, Dunzo Daily (June 2021).
🇩🇪 Delivery Hero: While Delivery Hero’s new European counterparts zoom through town in less than 15 minutes, the Delivery Hero Quick Commerce offering promises essentials in less than an hour. While it is launching “Dmarts,” Dark Stores enabling ultrafast delivery, Delivery Hero has omitted the sub-20 minute promise that others emphasize. It will be critical to track when they are able to confidently offer this promise, to stay on par with the others. (April 2021).
🇨🇴 Rappi: The Columbian unicorn and superapp, Rappi, announced its launch of turbo mode — ultra fast deliveries facilitated through Dark Stores. As of April, Rappi operated over 26 Dark Stores across several Brazilian cities with a plan to expand to 100 by the end of the year (April 2021).
Part 4: Looking Forward
The year is 2013. It’s a Saturday night and I’m listening to Thrift Shop by Macklemore while getting ready to meet up with friends. I order an Uber. Someone sends me a Vine of people doing the Harlem Shake. I laugh and flip through more videos watching some Gangnam Style bits, lmaoo!! Oh snap, 25 minutes has already passed and my Uber arrives. I put on my sneakers and head out for the night. Life is good.
Gone are the days when waiting 25 minutes for Uber seemed remotely acceptable. ETAs of 10 minutes have us huffing in indignation, and we start opening other apps for alternatives. As on-demand services have multiplied, we increasingly expect shorter ETAs, better prices, and find it difficult to accept past standards. The advent of Quick Commerce will make our current standards for on-demand delivery services also feel unacceptable in a few short years. In this section I will consider a selection of dynamics that may develop as Quick Commerce continues to proliferate around the world.
Transportation Strategy
Right Sizing Transportation: Picking up groceries in a 3,000lb sedan, and parking that car where ten bikes could otherwise fit demonstrates the wastefulness of using traditional vehicles to run errands. Many delivery companies caught wind of that as they started to transition driver fleets into biker fleets in the late 2010s, also because the latter were superior in terms of speeding through cities, weaving in and out of traffic, and parking anywhere. The next step in this evolution has been equipping couriers with e-bikes to enable even more speed, especially for amateur bikers. But as this space develops, we should keep an eye on how emerging vehicle types, whether they be e-scooters, cargo-bikes, or other emerging form factors will help to facilitate deliveries, while managing speed and growing basket sizes.
Inventory Strategy
Private Label Items: As Quick Commerce companies quickly gain a treasure trove of data on purchase habits about ASAP deliveries, it will be wise to see them launch private label items. What is a private label item? For our American audience, recall your last trip to Trader Joes where you may have picked up some Trader Joe’s Cauliflower Gnocchi and topped it with Trader Giotto’s Parmesan cheese. A private label product, like the ones at Trader Joe’s, come from third party manufacturers, but are packaged, branded, and sold under the retailer’s name. Retailers can earn up to 25–30% better gross margin on private labels over third party brands (source), and supposedly Trader Joe’s is particular about building exclusive supplier relationships. For Quick Commerce companies this may be a key lever in unit economics, and being fast to lock in exclusive supplier relationships could also help build a moat around their model.
Adjacent Categories: Once a Quick Commerce company has established Dark Stores and has a core stock of fast moving inventory, it can also start to consider expanding its selection carefully into adjacent categories. GoPuff is successfully expanding into pet food and baby products, and Gorillas’ inventory is 20% local products, such as coffee beans, chocolate brands, etc.. that would face greater trouble being stocked at major grocery chains (June 2021).
Quick Commerce companies can also consider leasing Dark Store shelf space to other brands and fulfill orders on their behalf as well i.e. Fulfilled by Amazon, but for hyperlocal delivery. This opportunity to think creatively about inventory is one of many opportunities enabled by being a store that consumers walk into on their phone, not on their street.
Real Estate Strategy
A critical area of mastery for Quick Commerce companies will lie in their real estate strategy. Given that the key value prop to consumers is the speed with which they get their goods, identifying and acquiring worthy real estate for micro-fulfillment centers, and subsequently negotiating with stakeholders, at significant speed will be necessary for successful expansion. European Quick Commerce companies have already picked up on this, with Gorillas including Fifth Wall Ventures, a New York based VC fund specializing in global real estate and prop tech, in its Series B, and Glovo entering a >$100 million partnership with Stoneweg, a Swiss-based real estate firm (January, February 2021).
Factors that companies should keep in mind as they look forward are:
Relationships with brokerage firms: The job of regional launch managers has the potential to be simplified should they effectively manage relationships with brokerage firms. These firms can help inform Quick Commerce companies with real estate data around traffic, demographics, psychographics to aid in Dark Store placement strategy, while also brokering deals for multiple locations in one shot, enabling them to scale faster.
Land Use and Zoning Strategy: As these companies seek to expand their coverage outside of the highest density urban areas ,while still maintaining their ultra fast delivery promise, they may start to run into issues with land use and zoning regulation. With the example of American suburbs: residential, industrial, and commercial zones are often at a sprawling distance from each other, and finding loopholes or working with policy makers to set up Dark Stores closer to the consumer in this setting will be important to continue expansion, especially when the battle for Tier 1 and Tier 2 cities heat up.
Societal Impact
It is tempting to only discuss the operational complexities and optimization strategies at length for a logistics oriented business model, but there’s another important angle to consider — what impact will these companies have on society?
Climate: For most startups, a critical milestone to achieve early on is product-market fit, and I believe that in the 2020s a new standard will emerge which is Product-Market-Climate fit, by which companies are not just constrained, but even enabled by environmentally responsible principles. It is easy to point fingers at industrial companies, and a bit harder to reduce the number of flights we take, but there’s another lever that’s hardly spoken about in our climate conversation: Food Waste.
The carbon footprint of US food waste is bigger than the airline industry’s (source), and more than a third of that food waste is produced in our homes. We are poor inventory managers when we do groceries in bulk: we ambitiously buy ingredients that we don’t cook, fruits start to mold by mid-week, forgotten purchases zombie in the freezer for a year, and so on. By getting what we want, exactly when we need, instead of hoarding grocery hauls for 2–3 weeks, we have major potential to manage food waste, and we should greatly look forward to Quick Commerce’s positive impact here.
Exits, Maneuvers, and M&A Landscape
Consolidation in the Quick Commerce sector has already begun with Getir picking up Blok, GoPuff buying Fancy, Dija buying Genie, and so on. Here are a few predictions on what’s next for the merging, maneuvering, and funding landscape over the next few months through the next few years:
- We will likely see another rush of funding rounds over the next 6 months before we enter a period of intensified consolidation.
- In this period of time more local heroes will likely emerge, especially in emerging startup hubs, many with the hopes of being snapped up by one of their well funded competitors
- Companies that own a logistics network (Ubers, Lyfts, DoorDashes, etc.. of the world), are increasingly attempting to be superapps. Such apps will launch pilots to trial Quick Commerce. The primary asset they will bring to the table is their logistics network and their network of consumers, but they will still have to work hard to set up dark store operations and refine inventory. These Quick Commerce operations could be synergistic or serve as lead generation to higher margin services that they offer. Our portfolio company, Fenix, is already seeing synergies between its E-scooter operation and Quick Commerce operation by using it’s existing charging centers as Dark Stores (July 2021).
- Fleet Intelligence companies that initially popped up to service autonomous vehicle fleets (i.e. Fleetonomy, Autofleet, Ubiq etc..) will increasingly service Quick Commerce companies, pitching the minutes they can shave off of deliveries by optimizing courier fleets. The ones that are eager for an exit, given the long road to passenger autonomy, will position themselves as acquisition targets.
- Gorillas and GoPuff may launch their own private label products by next year, trying to strike exclusive partnerships with suppliers — which may be key to weakening their competitors down the line, whom they may snap up as acquisition targets for talent and real estate.
- A well capitalized grocery delivery company such as Instacart may acquire a brick and mortar grocery retailer that they are currently partnered with in the medium to long term. They will be facing intensified competition from Quick Commerce companies expanding SKU count and product offering. A Grocery retailer acquisition will enable them to acquire real estate that can be converted into dark stores as well as liquor licenses.
For years now we’ve heard investors and the public talk about the end of innovation: all the world-changing inventions are now over a decade old, and there are complaints that nobody has come up with a truly revolutionary idea since the internet, smartphone, or maybe Uber.
I believe the rise of quick commerce proves how wrong that idea is. Consumers are just beginning to wake up to the implications of ultra-fast deliveries, just how it took them a while to understand the value of two-day and one-day shipping. Soon, there will be no going back to the old ways of shopping, not just for groceries, but for anything. We’re just getting started.
Do you have further thoughts, are building or investing in the space, or just want to have a heated conversation on Quick Commerce? Feel free to reach Stuti at stuti@maniv.com or at her LinkedIn.
