Apps promise fast service, but can they deliver?
NEW YORK — When Mahlet Berhanemeskel gets back to her New York City home from her 90-minute commute, she doesn’t feel like cooking. So instead she orders food like BLTs, Cheez-Its and cookies from an app called Gorillas. It’s affordable and takes 10 minutes.“It’s instant gratification,” she said.
Gorillas is one of several companies that venture capitalists have poured billions into in the latest pandemic delivery craze: companies that promise to get you a bottle of Tylenol, an iced coffee, hummus, a cucumber or a roll of paper towels in 30 minutes — or even 15 minutes — or less. They typically deliver from mini-warehouses in residential and commercial neighborhoods.
Experts say they are unprofitable. Bigger companies are nonetheless muscling in. And officials in European cities and in New York, which has become the U.S. launching pad, have already started complaining about how they operate, saying it’s bad for employees and residents.
“The problem I see is that quick commerce players, despite the huge valuations enjoyed and the seemingly unstoppable money flow they get to grow, at some point they will have to find a path to profitability,” said Bain partner Marc-Andre Kamel, the co-author of a recent report on the online grocery market.
Other delivery companies are having growing pains. Gorillas dropped its “10 minutes” delivery promise from its U.S. marketing — now it’s just “in minutes.” Gopuff recently laid off 3 percent of its workforce — more than 400 people.
It’s not a sustainable business model, says Len Sherman, an adjunct professor at Columbia University’s business school. “There is going to be a lot of consolidation on some very painful terms.”
Getir, a Turkish company that operates in Europe as well as Boston, Chicago and New York, said the key to profitability is adding more mini-warehouses in the cities where it delivers.
“We’re here for the long term,” said Langston Dugger, Getir’s head of U.S. operations.
The company recently raised $768 million, valuing it at close to $12 billion, and plans to expand in the U.S. Customers range from people “ordering a late night ice cream to somebody who is doing a full grocery shop for the week for a family and everything in between,” he said.
Lee Hnetinka, the founder of FastAF, a delivery company with a two-hour delivery model in New York, San Francisco and Los Angeles, said profitability is “just not a priority” right now as it invests in customer experience, saying their strategy is a long-term one and pointing to Amazon’s early beginnings when it too was unprofitable.
There are new competitive threats from established restaurant delivery companies DoorDash, Grubhub and Uber and grocery delivery service Instacart that have noticed the appeal of the fast-delivery apps.
It’s unclear how fast the services could be outside of the densest U.S. cities, like New York, or the neighborhoods where they cluster in more sprawling cities.
There are also worries about delivery apps offering discounts that will squeeze local businesses like bodegas and convenience stores as well as concerns about the safety of delivery people.