Why Delivery Startups Fail to Deliver: Exploring the Challenges of the Delivery Market
In this blog, we will examine how delivery startups fail to deliver on themselves, with a particular focus on UK and European companies such as Gorillas, Getir, Zapp, and GoPuff. We will explore the history of the sector, its recent success during the pandemic, the business model issues that companies face, and the challenges they must overcome to succeed.
The food and grocery delivery sector saw significant growth during the COVID lockdown days, with global revenue growing 58% in 2020 and 37% in 2021, going from $0.33 trillion to $0.71 trillion. However, once the world opened its doors, the sector struggled to stay alive. Why?
A Brief History of the Sector
The first online food delivery services emerged in the 1990s, with Pizza Hut being the first to offer online ordering in 1994. However, it wasn't until the mid-2000s that the sector started to gain momentum. By 2009, 30% of pizza deliveries were done online, and technology was advancing rapidly. At the same time, the sharing economy was taking off, and companies such as Uber Eats, GrubHub, Postmates, and DoorDash were emerging.
Despite showing promise, the sector was not profitable, with only 0.19% of Americans using grocery delivery services in 2001. However, as the years went by, the number of people using these services grew, and by 2015, 30% of Americans used them. Still, companies in the sector were struggling to turn a profit.
Recent Success During the Pandemic
The pandemic had an immediate effect on the grocery and food delivery industry, with revenue skyrocketing every month. For example, DoorDash had never had a profit in its history, but in Q4 2020 alone, the company had $23 million in profit. Similarly, Uber Eats saw 224% growth in revenue, and DoorDash saw 226% in the fourth quarter of 2020 alone.
VCs and investors were quick to invest, with Instacart landing $1 billion in funding after seeing 500% growth in orders. At the same time, a small grocery startup, Gorillas, had $290 million in funding and a $1 billion valuation, becoming the first-ever unicorn-gorilla mix. Other startups such as Getir, Zapp, and Zepto raised hundreds of millions in funding.
The Business Model Issues
However, the battle for market share means companies must take out the competition, which usually happens by lowering fees, thus eating away at an immediate profit. The idea is that, eventually, they dominate the market, thus spiking the prices, but even Uber recognized that it’s a problem. Back in the glory days of 2020 (for delivery companies), Uber admitted that driver and contractor fees far exceeded what customers paid. Of course, this wasn’t the only case, as DoorDash, Instacart, and similar companies charged smaller fees to consumers to attract them. It made sense during the pandemic, but now, all these companies struggle to survive.
Challenges and Solutions
Delivery startups must overcome several challenges to succeed, including the need to dominate the entire industry to charge massive fees or finding a business model that doesn't rely on a pandemic. However, these solutions are not desirable, and the sector needs to find a way to sustainably grow while keeping prices reasonable.
Importance of Financials When Scaling Up
Financials play a crucial role in scaling up delivery startups. As companies expand, they need to have a solid financial infrastructure in place to manage their funds and make informed decisions. This includes tracking expenses, forecasting revenue, and managing cash flow. Failure to do so can result in financial instability, difficulty securing funding, and ultimately, failure.
The solution is to invest in reliable financial management tools and services to help manage finances effectively. This is where Accountancy Cloud comes in. Our team of experienced accountants and financial experts provide comprehensive accounting, tax, and CFO services for delivery startups. We help companies manage their finances and make informed decisions, so they can scale up sustainably and succeed in the long run.
If you're a delivery startup looking to overcome financial challenges and scale up sustainably, Accountancy Cloud can help. Contact us today to learn more about our accounting, tax, and CFO services, and how we can help your business thrive. With our expertise and support, you can focus on what you do best - delivering quality products and services to your customers.