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Grocery Delivery: A Modern-Day Gold Rush?

mm by James Boley
June 28, 2021
in Business
5 min read
Home Business

The Coronavirus pandemic changed the world in many ways. For over a year, the world was essentially shut down. But amidst the chaos, an industry boomed, and that was the food delivery business.

Venture capitalists practically fell over each other to throw money at food delivery start-ups, one of the only business thriving during the pandemic. Investors were eager to spend their money no matter how crazy the valuation.

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However, as vaccinations rise and countries come out of lockdown, many are now concerned that this rush to invest in what was a Covid-era bubble, was based on valuations that did not correlate to the economy on the ground. Did the intense pressure to get in on the ground level of the next big thing mean rushed and questionable decision making?

Was the right pitch, the right idea so appealing that VCs by-passed what were considered bureaucratic procedures due to not wanting to miss an opportunity? Food delivery was thought to be a sure thing, people were stuck at home and people always need food.

Investors put lots of money quickly into a business category, not necessarily specific business models, and moving at such speeds meant cutting such corners and missing important things that might otherwise have been caught if due diligence checks took place under a less stressful and competitive environment.

Once the investments were made, VC partners had to spend that money as quickly as it came in, sometimes leading to poor decision making within the start-ups, and ironically putting those investments at risk.

Now there is concern this is what happened with the German-based food delivery service Gorillas. Kağan Sümer, Gorillas’ founder and CEO, is charismatic, charming, and has a great story. A successful immigrant who started a business doing the shopping and delivering himself; who still tests out the routes himself. A bike enthusiast, Sümer and Gorillas made for an appealing investment. 

Gorillas also aimed to be different than its competitors, not only faster and cheaper, but by hiring drivers directly, instead of the at-will style contracts its competitors used. This meant drivers would be offered standard employee benefits such as sick leave, health care, and overtime pay. 

Gorillas aimed to revolutionize food delivery. Sümer wanted to replace the run to the corner store for that forgotten item, as well as the weekly or bi-weekly trip to the supermarket.

Gorillas exploded onto the market with a 10-minute delivery promise and no product minimum, a customer could order two products or 20. Sümer wanted to bring people the products they needed, exactly when they needed them, and at market prices.

Although the food delivery market was growing more saturated by the minute, Sümer was able to raise large sums of money due to the excitement around Gorillas’ tagline “Delivery Faster Than You,” as well as the palpable hunger during Covid to invest in the food delivery business; quickly becoming Germany’s fastest unicorn. 

Coatue Management, led by founders and brothers Philippe and Thomas Laffont, as well as former co-founder Bennett Siegel, DST Global, led by founder Yuri Milner, and Atlantic Food Labs led by Mario Lebherz and its Managing Director Patrick Huber, are some of the VCs who invested in the Gorillas boom.

Fifth Wall, led by partner Miguel Nigorra Esteban, as well as the Dragoneer Investment Group, Greenoaks Capital Partners, and Tencent Holdings, also invested in the start-up.

While Covid still rages in many parts of the world, the places where Gorillas, and similar food delivery start-ups have appeared, are opening up, going “back to normal.” How this will affect the food delivery industry in these areas remains to be seen. Current predictions are that deliveries will see a drop but will remain higher overall than pre-Covid numbers.

The question now is, will the VCs who invested in Gorillas and other food delivery start-ups regret their expedited due diligence and rushed contributions, or will that excitement pay off?

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James Boley

With an experience of two years covering the local news, James has a panache for recognizing, understanding and decoding science based news. He brings in the best news pieces for the Science/Environment section of the website.

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