The acquisition of rival Gorillas by grocery-in-minutes startup Getir for $1.2 billion is an essential step toward consolidation in Europe’s food delivery market, where companies are struggling because of the post-COVID downturn.
After seeing rapid expansion, these businesses were impacted in March by a decline in demand for delivery due to the government shutdown and by rising interest rates, while investors turned on loss-making technology enterprises.
In an effort to become profitable, the food delivery companies began rapidly merging, slashing expenses, and leaving unprofitable sectors.
Related: European stock futures are getting a little bit lower, and people are turning away from risk.
Companies and industry watchers predict that the painful retrenchment will continue, but survivors are beginning to see the first signs of improvement.
Analyst Catherine O’Neill of Citi stated that mergers and cost-cutting to eliminate surplus capacity were occurring faster than anticipated, and unit economics, such as order size per delivery, are improving.
She stated, however, that Europe’s rising cost of living remains a serious drawback.
We have not yet seen how these enterprises will survive a recession.
During the pandemic, Istanbul-based Getir and Berlin-based Gorillas were among the many venture capital-backed quick-commerce companies racing to establish “dark stores”—delivery hubs in city centres used to quickly shuttle groceries to customers.
The dark store model is fundamentally distinct from that of more established groups such as Just Eat Takeaway and Uber Eats (NYSE:UBER), which accept orders from restaurants and deliver food, despite the fact that they are frequently viewed as competitors.
QUICK COMMERCE
The acquisition of Gorillas makes Getir the largest quick-commerce company in Europe.
Getir was valued at approximately $8.8 billion in Friday’s transaction, or seven times higher than Gorilla’s, because of its strong position in Turkey, where it is headquartered, according to analysts.
Getir and the gorillas did not respond to our requests for comment.
Other consolidators include Flink of Berlin and GoPuff of Philadelphia, which operate in both the United States and Europe.
“We face direct competition in Germany from Gorillas and Getir.” “Everyone else has disappeared,” said Flink spokesman Boris Radke.
Flink operates 190 dark stores, whereas Gorillas operates 180.
Radke stated that Flink’s success can be attributed to its collaborations with the supermarkets REWE in Germany and Carrefour (EPA:CARR) in France, which are both shareholders in the company.
Analysts estimate that a dark shop centre becomes profitable between 500 and 1,000 times per day.
During the economic slump, “we shut down a few unprofitable hubs and shelved any larger expansion ambitions,” as stated by Radke.
However, he reported that the number of profitable Flink hubs is increasing and that sales are rising “consistently month after month.”
Less cash, less coupons
Since the middle of 2021, more than a dozen smaller European quick-commerce startups have failed or been purchased.
According to PitchBook data, venture capital firms spent $125 million on two deals in the sector in 2022, down from $1.3 billion on thirteen deals in 2021.
With less competition and less fresh capital entering the market, the remaining grocery and food delivery companies have reduced their promotional spending.
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While most food companies have experimented with fast commerce, both types of enterprises are now interacting more frequently, which is an indication of future developments.
Getir reached an agreement with Just Eat Takeaway to list its items on the Takeaway app last month.
This will result in increased high-margin orders for Just Eat Takeaway, while Getir receives more delivery and sales from its dark storefronts.
Larry Illg, head of food companies at technology investor Prosus (OTC:PROSF), which owns a stake in Delivery Hero, anticipates increased M&A and commercial alliances.
Europe’s publicly traded meal delivery companies have all set official goals for earnings before interest, taxes, depreciation, and amortisation (EBITDA), but the privately held quick-service commerce enterprises may not yet be profitable.
Just Eat has reported that the company is already EBITDA-profitable. Delivery Hero claims it will arrive in 2023 and Deliveroo of the United Kingdom in the first part of 2024 at the latest.
Shares of European delivery businesses are down almost 60% from a year ago, but since June they have traded flat.
Uber and DoorDash, whose U.S. operations currently generate positive EBITDA, report that their European companies are expanding.
Uber spokesman Caspar Nixon stated, “We continue to see great demand for groceries, and we continue to see food as a growth driver for our whole business next year.”
Fast grocery choices are “certainly available on the app,” but we don’t believe it makes sense to own the entire supply chain as Getir does, according to him.
Sajal Srivastava, co-founder of TriplePoint Capital, which has given venture loan financing for Flink, thinks that the negative publicity surrounding speedy commerce has been exaggerated.
“Consumers continue to use it.” “The population is continually expanding and the economy is rising,” he stated.
So, to “all the sceptics who claim that “rapid commerce is dead,” the answer is no. The data indicates that it will continue to exist.
