Instant delivery curse

Can on-demand delivery ever make sense?

The technological challege of our era turns out not to be driverless cars or generative AI but rather a logistics problem: can on-demand delivery ever make sense?

Every 10 years or so since the dot-com bubble, a new wave of startups comes along promising to have cracked the code. In the beginning there was Kozmo.com and Webvan (both infamous dot-com busts). Next came the gig-fueled delivery boom (Postmates, Uber, DoorDash, Instacart, Caviar, Favor, etc.) that pledged to make on-demand anything cheap with the help of algorithms and contract labor, plus many, many meal delivery services (RIP) that hoped to reimagine the office lunch.

The latest phase is ‘instant’ delivery, which has lowered the on-demand target from an hour or even 30 minutes to 15 minutes or less. Companies promising to deliver in an ‘instant’ include Jokr, Gorillas, Getir, GoPuff, Zapp, Jiffy, and Fridge No More, the last of which is, excuse the pun, no more. These companies have raised a stunning amount of money—at least $14 billion among 13 firms, according to data from PitchBook—and yet they still can’t figure instant delivery out.

I mention all this because Businessweek is out with an excellent look at GoPuff, which after enjoying a heyday of lockdown-induced demand now risks becoming the next major online delivery flameout:

[T]he transition from peak pandemic to a new normal has interrupted the party. Once-wary shoppers have returned to stores looking for discounts, inflation is back, and the economy has foundered… Gopuff clones like the New York-based Fridge No More and Buyk went spiraling out of business; another, Jokr, withdrew from the US to focus on South America. Earlier this month, Berlin-based Gorillas, which has been desperately hunting for a cash infusion, entered into advanced talks to be acquired by Getir. Even mighty Amazon shed 40% of its mid-pandemic market cap, closed warehouses, and laid off employees.

By their own admission, the Gopuff founders never imagined this scenario. After the company burned roughly $700 million in expansion mode in 2021, in recent months it’s laid off almost 2,000 employees, withdrawn from parts of Europe, shelved grandiose plans for new categories, raised fees on customers, and halted a planned initial public offering as its valuation has plummeted. Almost 25 years after Kozmo.com’s infamous flameout, Ilishayev and Gola are scrambling to figure out if it’s still possible to crack this particular Silicon Valley obsession. Or if the billions poured into it are destined to simply gopoof.

There are obvious challeges to instant delivery that we’ve talked about before. These are mainly logistical. For starters, unit economics, i.e., ensuring that each delivery makes rather than loses money; batching and routing, both of which are integral components of unit economics; and supply chain management, especially when perishables and non-shelf-stable items get involved. There are also market-level questions, such as: how many people really want 15-minute delivery? Are they willing to pay the true price of ultra-convenience, or only the VC-subsidized rates they’ve come to expect? Finally, there are more philosophical quandries, for instance: should we be moving to a world where 15-minute delivery is the norm, or a world where people, particularly those who live in cities, are able to get everything they need within 15 minutes because we’ve designed our urban landscapes that way?

But of course there are also more basic pitfalls any company can fall into. For example, giving your company a name that’s both a setup and a punchline (Fridge No More, GoPuff, Jokr). Or, you know, not doing any market research before opening delivery hubs in neighborhoods where the average resident probably can’t afford your service:

For example, one [Gopuff warehouse] in the Bronx was seeing only around 150 and losing up to $15 per order, according to a former executive. In its frenzy to stake a claim in as many cities as possible, Gopuff hadn’t considered that many of the area’s largely low-income residents relied on the Supplemental Nutrition Assistance Program (formerly known as food stamps) and lacked the disposable income to spend on marked-up cereal.

Or insisting on stocking perishables over the warnings of more seasoned Amazon executives, and being unprepared to deal with it in warehouses:

[F]ront-line employees describe sprawling chaos, with primitive computer systems, slow order volume, and waves of inventory from suppliers that didn’t correspond to actual demand. Waste was rampant, they say; mountains of moldering fruit and baked goods had to be chucked. One Amazon transplant—who like dozens of others lasted less than a year—says workers were told to put items in black bags so no one could see the prodigious waste.

I’m old enough to remember Kozmo.com and the Uber-era on-demand delivery bubble, but as Businessweek points out, Gopuff’s co-founders Ilishayev and Gola “knew little of this history.” They dreamed up the idea as college freshmen in 2011 looking for a money-making scheme and expanded slowly until, according to Businessweek, a venture capitalist reached out one day on the customer service line (truly a great detail) and suggested they take VC money to accelerate growth. From there the funding flowed in—$109 million from 3L Capital and Accel in 2018, $650 million led by SoftBank in 2019, three more deals with SoftBank involvement worth a cumulative $2.5 billion from 2020 to 2021—as did the demands for winner-takes-all growth.

What went wrong with Jokr

Does hypergrowth always end in a crash? That’s another philosophical question, but we have seen enough ill-fated startup hypergrowth stories by now, often involving SoftBank, to expect it might not end well. I would also hazard that indefinite exponential growth is an unrealistic expectation in a finite world, but that’s probably why I’m not an investor or a startup founder.

At any rate, things certainly seem to be crashing for Gopuff, which has recently conducted several rounds of layoffs, closed 76 U.S. warehouses, exited a handful of European countries, raised delivery fees, and shelved IPO plans—your standard ‘let’s try to turn this ship around’ playbook. It definitely doesn’t seem like a good time to be a Gopuff employee, unless maybe you’re Ilishayev and Gola, whom Businessweek reports cashed out by selling shares to investors when the company’s valuation was at a high, then “bought a private plane and decamped from Philadelphia to intracoastal mansions in Miami,” the current favorite retreat of founders of overpriced tech companies.

Read the full Businessweek story: The Fantasy of Instant Delivery Is Imploding