As grocery startups rake in billions of CVs, consolidation could be next

A courier for the Czech grocery delivery company Rohlik.

Rohlik

LONDON – Startups that promise to deliver groceries to your doorstep in minutes are the hottest craze for venture capitalists right now.

Investors have invested billions of dollars in on-demand grocery delivery companies, some of which are just a year old, after the coronavirus pandemic accelerated the shift to online shopping.

Venture-backed grocery companies have already raised more than $ 10 billion so far in 2021, according to Pitchbook data, dwarfing the $ 7 billion raised by such companies last year.

In the US, Instacart was valued at $ 39 billion in a March funding round, while Gopuff raised funds at a valuation of $ 8.9 billion. Meanwhile, in China, Xingsheng Youxuan raised a whopping $ 3 billion this year, the largest round of financing for a grocery store startup to date.

The craze has spread to Europe over the last year, with a host of grocery apps gaining traction promoting 10-20 minute deliveries: Getir, Gorillas, Weezy, Flink, Zapp, and Dija, to name just a few.

They often rely on so-called ‘dark shops’, small logistics centers where items are collected and then delivered by courier.

This week, Czech firm Rohlik, which offers two-hour delivery delivery, raised $ 120 million at a market value of $ 1.2 billion. Tomáš Čupr, CEO and co-founder of Rohlik, said the seven-year-old firm is “completely profitable” in its local market.

“They saw a lot of players in the United States and some players in Europe really fighting the pandemic, and then obviously whoever was shopping online during the pandemic was doing it right,” Čupr said.

“Now the question remains: how much of that is going to stay?” added. “We are quite confident because we grew massively before the pandemic; We believe that after the pandemic we will do the same ”.

‘Extremely disproportionate’

The digital grocery delivery market is becoming increasingly crowded, with some retail experts saying a wave of consolidation is fast approaching.

“The amount of money that goes into this opportunity is hugely disproportionate to the size of the opportunity,” Luke Jensen, chief executive of Ocado Solutions, a unit of the UK grocery technology pioneer, told CNBC. Ocado.

“I suspect there will inevitably be a lot of consolidation among these players,” he added.

Tech big names like Amazon and retail giants could be among the potential buyers, experts have said.

New entrants to the grocery delivery industry offer a “trade-in,” Jensen said: paying a 30-40% premium to supermarket prices for the convenience of speedy delivery.

Even during the strict Covid shutdown in January in the UK, only 16% of the country’s grocery sales were made online, according to Nielsen, although this set a record. Technology founders and investors say it represents a great opportunity to increase penetration online.

But Jensen said the grocery startups were primarily competing with convenience stores rather than large supermarkets, meaning they are already targeting a small slice of the market.

First move advantage?

Getir from Turkey was soon insane of fast grocery delivery. Founded in 2015, the company recently became profitable in Istanbul, where it is based, founder and CEO Nazim Salur told CNBC.

Using the analogy of a video game, Salur said that Getir was at “level six”, while other upstarts were only just at the first level.

Getir is rapidly expanding in Europe and plans to launch operations in the US this year after raising new funds in a round that values ​​the company at $ 7.5 billion.

“People have the right to be lazy,” Salur said, describing grocery shopping as “a waste of time for most people.”

“We democratize the right to be lazy,” he added.

Despite escalating competition, Salur does not believe that there will be widespread consolidation in the market. Getir on Thursday acquired a competitor in southern Europe called BLOK.

“I don’t think there is much,” Salur said. “For true consolidation to occur, these players should have something to do with the market.”

“There are some candidates that are presented to buyers,” he added. “Some of them came to us, I won’t name them, but there isn’t much to buy.”

London-based Dija reportedly held talks about a possible sale to its US rival Gopuff, according to Business Insider last week. Dija declined to comment when contacted by CNBC.

Jensen of Ocado Solutions said he believes that most grocery applications and their investors will end up “very disappointed in their rather exaggerated expectations.”

Ocado started out as a luxury online supermarket. But the company later focused on developing robotics and software for international retailers like Kroger to sell their own products over the Internet.

Rohlik’s Čupr said the Ocado model, which relies on huge automated warehouses, compromises “last mile” deliveries or the transport of goods to their final destination.

“I don’t think we will ever need this huge robotic center,” he said.

Ocado has its own instant delivery app competitor, Ocado Zoom, which ships items in less than 60 minutes or the same day.

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