Instant delivery crash

The good times are over for companies promising to deliver in 15 minutes or less

May 26, 2022

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This Tuesday edition of Oversharing is late because it feels strange to send a newsletter about the sharing economy after 19 children and two teachers were murdered in a Texas elementary school, yet another unspeakable horror in the only country where this regularly happens. Who cares if you can get a sandwich delivered in 10 minutes if you can’t send children to school and know that they’ll live to come home? Sometimes I think about the sheer sums of money and talent we throw at ‘problems’ like 15-minute delivery and wonder what would happen if those resources were directed instead toward voting rights or democracy or gun control. If you would like to do something, here is a list from New York Magazine, published in 2018 but still relevant, of six ways to fight for gun control.

Crashing.

The sugar high is over for ‘instant’ delivery startups:

Berlin-based Gorillas is laying off 300 employees and calling it quits in Italy, Spain, Denmark, and Belgium as it pivots from “hyper growth” to “a clear path to profitability”
Turkish firm Getir is cutting 14% of staff globally, an estimated 4,480 people, and slashing spending on marketing, promotions, and expansion
London-based Zapp told 10% of staff, an estimated 200-300 people, that they are facing redundancy, amid plans to close dark stores in Manchester and scale operations back to only London
Jiffy, another London-based ultrafast delivery service, halted all consumer-facing operations and plans to “gradually downsize” delivery and warehouse workers as it makes a “major strategic pivot” to delivery software

Startups promising to deliver in an ‘instant,’ which they usually define as 15 minutes or less, exploded onto the e-commerce scene in recent years, backed by billions of dollars from Silicon Valley. These companies have collectively raised at least $10 billion from investors, the kind of money that can summon a market into existence and render it irrational in the same go.

Investors have thrown these billions at ultrafast delivery companies despite the very real question of whether the economics of the service can actually work. There are plenty of reasons to be skeptical: the intense cash burn of these companies, practical matters of logistics and urban density, and whether consumers in the long run would be willing to pay the true premium that comes with 15-minute convenience. The doubt is so great that DoorDash president Christopher Payne, whose company is currently experimenting with 15-minute delivery, said at a conference in April that he wasn’t sure DoorDash could make the economics of the service work.

While a few players like Getir have been in the game longer, most instant delivery companies have raised fast and furiously in the past two years. Gorillas, founded in May 2020, closed $950 million in series C funding this past October at a $3 billion valuation from investors including European delivery giant Delivery Hero, Coatue Management, and Tencent. Gorillas had raised a $290 million round just seven months earlier, but said the new infusion would help it “reinforce its footprint in existing markets” while continuing to train customers in “need-order-get” buying behavior. As of yesterday, an anonymous source suggested to TechCrunch that Gorillas had $300 million left in the bank but owed significant outstanding debts to suppliers and others, with a burn rate of $50 million to $75 million a month. Gorillas declined to comment on these estimates to TechCrunch.

Where did all that money go? In the case of Gorillas, perhaps to expansion, perhaps to labor clashes, perhaps to marketing stints like sponsoring last weekend’s Hackney Half marathon in London and providing every finisher with a massive Gorillas-branded tote bag, perhaps to whatever subsidies it takes to deliver me a single Suga Belgian chocolate brownie for a total of £8, which is a real option I found in the Gorillas app while writing this. The brownie cost £4, the delivery fee was £1.99, and the surcharge for orders under £10 was another £2. To be clear I did not actually place this order, I have standards which include not paying £8 to have a single brownie delivered on a whim to my flat, but the point is that I could have, and I highly doubt Gorillas’ fees would have covered the total unit cost of getting that brownie to me in 15 minutes or less.

The other question is why have all these layoff announcements come so close to each other? Gorillas, Getir, Zapp, and Jiffy all broke the news to staff in the past week, with Gorillas’ and Getir’s announcements happening a day apart. I don’t have the answer, but a common thread in the announcements was to blame macroeconomic trends and the broader downturn in both the public and private tech markets. The retrenchment is very real, but you also have to wonder if the tech downturn is giving startups that failed to figure out their business models an excuse to make some big and necessary cuts and blame it on the economy rather than themselves.

Tips.

How do people tip when given a menu of options? It depends, finds a working paper from an assistant professor at Stanford University’s Graduate School of Business. Kwabena Donkor told the Wall Street Journal that consumers use tipping menus—those screens that prompt you to leave a tip and offer various dollar amounts or percentages—as a reference point but behavior varies based on the total cost of the trip and the range of options offered by the tipping menu.

The study looked at data on tipping sampled from 863 million New York City cab rides. The yellow cab tipping menu has changed several times. The default tip menu before February 2011 gave the options of 15%-20%-25%; for the next several years it increased to 20%-25%-30%; and later it expanded to five options of 10%-15%-25%-30%. Donkor finds that increasing the default tip amounts in the menu also increased the average tip rate, but lowered the share of default tips left. Switching to a five option menu increased the share of default tips left by passengers. The study suggests that the “optimal” tipping menu would be any give three options of 21%, 27%, and 33%, which would lead to an average tip rate of 18%, slightly more than tipping with no defaults.

Checking out.

Airbnb is calling it quits on mainland China, one of its least profitable markets:

The move is being viewed as the culmination of an ill-suited business model, local competition and Beijing’s insistence on its zero-Covid policy, which has kept the country’s borders shut to international tourists and hampered local tourism with routine lockdowns.
Airbnb has had to contend with intense competition from home-grown home-sharing platforms in China, such as Xiaozhou and Meituan Homestay. Xiaozhu launched Lanzu Gongzhe, which loosely translates as rental business community, in 2018.

Airbnb will suspend mainland China travel listings and experiences from July 30, with hosts no longer able to accept bookings from July 25. The South China Morning Post reports that Airbnb was ill suited to the local market, with guests complaining about lack of amenities and hosts struggling to compete against professional hotels and resorts. Beijing was reportedly one of the least profitable cities for an Airbnb host to operate in. On top of that, China’s strict covid-19 policies have crippled the tourism market and made even local travel unreliable. Per CNBC, stays in China made up just 1% of Airbnb’s revenue for the past several years.

Other stuff.

New York Now Has More Airbnb Listings Than Apartments for Rent. Germany to introduce 9-euro month pass for all public transport. Uber to expand in Italy through deal with the country’s largest taxi dispatcher. Uber freezes most hiring. Uber and Lyft drivers push city to raise pay rates amid inflation, gas price surges. Food Delivery Apps Let Gas Assistance for Drivers Expire as Prices at the Pump Continue to Rise. Instacart’s new rating system filters out scores from hard-to-please customers. Instacart Loses Bid to Keep Worker Status Claims Out of Court. Your Next Uber Could Be the Bus. Amazon tests delivery of packages directly from shopping malls. Lyft to Pause Some Hiring and Trim Budgets, Citing Economic Slowdown. Texas legislators warned Lyft they’d seek to ban companies that pay for abortions from doing business in Texas. Dublin Airbnb ‘private room’ listing features tent on a concrete slab. Surge in number of Londoners seriously injured in e-scooter crashes. Deliveroo customer spent £2,500 on takeaway in 6 months. WeWork US members get month of free therapy through BetterHelp. Self-checkout grocery carts. The WeWork Guy is Pivoting to Carbon Credits.

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