Summary
- Getir steps up market consolidation with Gorillas deal
- Flink, GoPuff are Europe’s other fast grocery players
- Just Eat, Deliveroo, Delivery Hero set EBITDA profit targets
- Uber, DoorDash say they are thriving in Europe
Grocery-in-minutes company Getir’s $1.2 billion deal to take over rival Gorillas is a significant step toward consolidation in Europe’s food delivery market, where firms are struggling amid a post-COVID downturn.
After a sharp boom, these businesses were hit in March with a drop in lockdown-driven demand for deliveries and by increasing interest rates, while investors abstained from loss-making tech companies. The food delivery groups started quickly merging, slashing costs, and leaving markets where they were weak, in an attempt to become profitable.
Companies and industry observers say the painful downsizing is expected to continue — but survivors are beginning to see the first green shoots. Citi analyst Catherine O’Neill said mergers and cost-cutting to get rid of excess capacity were happening more quickly than anticipated and unit economics, including order size per delivery, are picking up.
But she said Europe’s cost-of-living squeeze remains a major drawback.
“We haven’t seen how these companies will get through a recession yet.”
Berlin-based Gorillas and Istanbul-based Getir were among the many venture capital-backed quick commerce companies scrambling during the pandemic to build “dark stores” — delivery hubs in city centres used to transport groceries quickly to customers.
The dark store model is essentially different from that of more established groups like Uber Eats (UBER.N) and Just Eat Takeaway (TKWY.AS), which receive orders for restaurants and deliver meals, though they are often seen as rivals.
Quick Commerce
The Gorillas acquisition makes Getir Europe’s biggest quick commerce company. Getir was appraised at around $8.8 billion in Friday’s deal, roughly seven times more than Gorillas due to its dominant position in Turkey where it is situated, analysts said.
Getir and Gorillas would not reply to requests for comment. Other consolidators are Berlin-based Flink and Philadelphia-based GoPuff, which operates in Europe and the United States.
“In Germany, we see competition directly from Gorillas and Getir. All the others have disappeared,” said Flink spokesman Boris Radke.
Flink manages 190 dark stores, in contrast to 180 for Gorillas. Radke said Flink is booming due to close partnerships with supermarkets Carrefour (CARR.PA) in France and REWE (REGRP.UL) in Germany, both of which own stakes in the company.
Analysts believe that a dark store hub becomes profitable at somewhere between 500-1,000 orders a day.
“We closed down a few hubs that were not profitable and we definitely put aside any kind of bigger expansion plans,” amid the downturn, Radke said.
However the number of Flink hubs that are making profits is increasing he said, and sales are growing “consistently month after month.”
Less Capital, Fewer Coupons
More than 12 smaller European quick commerce firms failed or were bought since mid-2021. Venture capital firms invested $125 million in the sector in two deals this year, a fall from $1.3 billion in thirteen deals last year, according to PitchBook data.
With less competition and less new capital going into the market, prevailing firms in both grocery and food delivery have reduced spending on vouchers and promotions. While the majority of the meals companies have experimented with quick commerce, both types of firms are also now combining more frequently, a sign of things to come.
In November, Getir clinched a deal with Just Eat Takeaway (TKWY.AS) to list Getir’s groceries on the Takeaway app. That will result in Just Eat Takeaway getting additional high-margin orders, while Getir gets more sales and deliveries from its dark stores.
“I expect we will see more activity either in the form of M&A or deep commercial partnerships,” said Larry Illg, head of food businesses at technology investor Prosus (PRX.AS), which has a stake in Delivery Hero (DHER.DE).
While profits may still be distant for the privately-owned quick commerce companies, Europe’s listed meal delivery firms have all fixed formal targets for earnings before interest, taxes, depreciation, and amortization (EBITDA).
Just Eat has said it is EBITDA-profitable already. Delivery Hero says it will get there next year and Britain’s Deliveroo (ROO.L) by the first six months of 2024 at the latest. Shares in the European delivery firms plunged around 60% from a year earlier, but have traded sideways since June.
Buy Bitcoin NowUber and DoorDash (DASH.N), both already EBITDA positive on the strength of their U.S. businesses, say their European subsidiaries are thriving.
“We continue to see strong demand for grocery and we continue to see grocery being a growth driver for our overall business next year,” Uber spokesman Caspar Nixon said.
He said fast grocery options are “absolutely available on the app, but we don’t believe it makes sense to own the entire supply chain” as Getir does.
Sajal Srivastava, co-founder at TriplePoint Capital, which has offered venture debt funding for Flink, says negativity about quick commerce has been exaggerated.
“Consumers are still using it. Numbers are still growing and the economics are improving,” he said.
So to “all the naysayers saying ‘quick commerce is over – No. It’s going to be around and the data shows it.”
