Do 15-minute grocery delivery startups benefit anyone?

And where we're at with the Restaurant Revitalization Fund and a new visa class

Feb 27, 2022

Sometimes, I take a five-minute walk to pick up what I think I’ll need for the week, and hope that I eat everything before it goes bad. Other times, I order my groceries online and have them delivered to my house. And when finalizing my order, I have to loosely plan a time that I will be home to accept the groceries.

So, I suppose that’s where the charm of on-demand grocery apps comes in. There’s no waiting or need to consider I’m doing a few hours ahead, never mind a whole week. Instead, everything comes rather quickly—no later than after brewing and sipping my first coffee of the day that the whole week’s worth of goods arrive.

But does this type of business actually benefit anyone, apart from the consumers who are lavished with discount codes, involved? Not really.

Let’s explore how the startups themselves, on-site employees, and delivery giants are working in an ecosystem that is far from beneficial to any of one of these groups.

Is it even profitable?

While, consumers seem to be the winners at the moment with numerous promotions, companies are dispensing heavy acquisition dollars and running up the losses. Per the Wall Street Journal, some of the players in the game—who include the likes of Gorillas, Jokr, Fridge No More, Getir, and Buyk—average a loss of at least $20 per order, which isn’t surprising when you factor in the amount spent on advertising.

Let’s take this example that the WSJ brings up when these startups were heavily courting users earlier this summer:

After paying for the products, the people packaging them, delivery riders, waste and other expenses related to storage, it lost $3.30 on every order. That doesn’t include marketing costs. Fridge No More spent $70 on advertising to win the average customer, an investment that resulted in a $78 loss for every customer that stayed in the 10 months through September, according to the presentation.

Advertising has scaled back considerably since—coupons via postcards or social media ads are not as aplenty, and neither are the digital out-of-home ads around the city. Even if the ad spend is no longer burning a hole through pockets, the larger question is whether or not these pockets are being filled with returning customers. IF If investors are not seeing customer retention rates to their liking, we might very well see more ad campaigns take flight, which won’t be cheap in such a competitive space.

Rent is another financial hurdle to contend with. The multiple “dark stores”, which act as mini warehouses, served as an answer to retail vacancies in an uncertain economy. However, with more optimistic outlooks, the question of whether or not landlords will want to continue to host these dark stores when the space could be used more prominently is one that will have to be answered. Perhaps by the time these leases run out, there will already have been consolidation or the idea will have been kiboshed entirely.

In the interim, Berlin-based Gorillas, for one, is removing the large opaque vinyls that cover its windows at its brick-and-mortar shops to better promote its pickup option.

And the workers?

While the startups are quick to say that they offer protection for their workers by way of guaranteed full- or part-time employment and possible benefits, the promise to deliver within such a timeframe (in most cases, 15 minutes) creates an undue burden on the employees.

I’ve already mentioned in a previous post about the time I saw a Fridge No More courier heading down the wrong way on a one-way and almost crash into another cyclist. When the clock is ticking on a delivery, going down a one-way that you shouldn’t be heading down can save a minute or two of circling around the block. Unfortunately, it’s a risky move that comes with a lot of liability, especially when these companies are keeping these workers as full- and part-time workers, as opposed to independent contracts (which absolves them for all liability).

If we want to see the ramifications of promised hastened delivery at scale, we can refer to The Verge’s piece covering traffic accidents with India’s instant delivery counterpart, Swiggy.

To combat the dangers from such advertising, NYC Councilman Christopher Marte announced that he would be introducing a bill to ban on-demand grocery apps from advertising 15-minutes or less delivery times. The rationale for this bill stems from a multitude of related accidents and fatalities linked to e-bikes in the city. Marte also stated to the New York Post that he would be pushing for legislation that would provide more worker protections and better health benefits, although the details surrounding these two issues remain vague.

Ahead of the bill’s introduction, Gorillas changed its marketing message from 10-minute delivery to "delivery within minutes”.

Frenemies and copycat models

This week, Grubhub announced that it would be teaming up with Buyk, the startup that snagged Nathan’s Famous Exec James Walker as CEO last quarter. With this partnership, Buyk will be able to offer grocery and convenience items on Grubhub’s marketplace. And while sometimes there can be a wait for delivery for regular food delivery, the selling point is that Buyk would still assure delivery within 15 minutes by way of its 30 locations across New York and Chicago. The win seems pretty big for Buyk, considering they are able to tap right into Grubhub’s large user base in two metropolitan cities.

And by having Buyk on the platform, Grubhub side steps the logistics needed to set up its own version of on-demand hyperlocal delivery. Gopuff, founded in 2013, has been available on Uber Eats since May 2021, so the notion of frenemies working together is not exclusive to Grubhub.

Instead of partnering with an existing company, DoorDash dedicated internal resources to launch its own version, dubbing it DashMart, in New York almost three months ago. To remain competitive with other hyperlocal players in the space, DoorDash was sure to state that those working at DashMart would be considered full-time and part-time workers and be eligible for a set wage and benefits. Such a move is in stark contrast to its usual employment of gig workers.

In a similar vein, Instacart’s plans for 15-minute delivery were leaked in December. Although with the advent of Councilman Marte’s bill, it’s unclear whether Instacart will proceed.

So, does it make sense for the meal delivery giants to be here? Yes and no.

Since the beginning of the pandemic, we’ve seen the perception of delivery offerings expand from the night-in meals and scheduled-ahead grocery drops to include nationwide and hyperlocal opportunities. And with user bases that have been cultivated for over a decade, the delivery giants already know its customers crave and consume a certain kind of convenience. To offer an expansion of such options, especially when private equity and VC firms are dolling out money for new, yet similar, businesses, seems worth a try, even if it doesn’t generate profitability. At the very least, they are staking the ground in hopes that others’ resources peter out sooner, rather than later.

However, as we’ve seen, this hyperlocal strategy of delivery within minutes has not shown to be profitable in the least. It might be too early for the delivery giants to consider acquisition, while the leases are fresh and the startups are running hot, but in the mean time, partnerships and copycat models with little effort are ways for them to not only force competition, but to also check and validate hypotheses about their audiences’ actual appetites.

And about financial relief for restaurants…

We are still waiting on the FY22 appropriations package to see what the House has in store for the Restaurant Revitalization Bill. Provided that there are no more continuing resolutions passed (I’m not sure how many more can be passed), the House has until March 11th to complete their work.

With a source stating that there would not be a huge stimulus in the works, it is unlikely that restaurants will see a huge wave of aid in the package next month. The most likely scenario, per Roll Call’s interview with Senators Benjamin L. Cardin and Roger Wicker, is that the aid would be shared amongst restaurants and businesses that were not included in initial government stimulus programs.

In other words, relief for restaurants is not guaranteed, as successful funding is going to be competitive with the newly added qualified applicants.

In immigration news…

The House-passed “America COMPETES Act of 2022” was officially received in the Senate; however, the Senate’s version is 1200 pages shorter than its original form, and missing the introduction of the W visa program.

Under Sec 80301 of the House’s bill, the U.S. would introduce a new visa class—the W class—geared toward hiring for startup businesses. While we normally associate startups with STEM, the language is broad enough to cover a variety of job functions, so long as the sponsored worker has ownership interest or an executive/managerial position. The initial term of the visa is three years with opportunity to renew in increments.

For the subsection of sponsees that fall under essential (i.e. executive/managerial), there are limitations to how many W visas can be issued to a startup. The limit depends on how many total employees there are in the U.S., with a max of 5 such persons for a business with 70+ employees.

Key to note is that this visa class would’ve allowed for dual intent—meaning that the person could also seek lawful permanent resident status while holding and renewing the W class. Nonimmigrant spouses would also be authorized to engage in employment with this visa class.

Unfortunately, it’s unclear if there will be any reconciliation between the House’s and Senate’s version, but given that a lot of proposed immigration plans have fallen to the wayside, I wouldn’t hold my breath. But at least we got our hopes up for two weeks?

Chortle Chortle

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