With the recent news of Take Eat Easy’s closure, and the time it reportedly took for Deliveroo to raise its latest round of funding, you’d be forgiven for thinking that, in the eyes of investors, the once-hot on-demand delivery space is cooling. And whilst that’s undoubtedly true (thanks in part to competition from Uber and Amazon), VCs haven’t stopped writing cheques entirely.
The latest on-demand delivery startup to pick up backing is Barcelona-headquartered Glovo. The company operates a local on-demand delivery service similar to Postmates in the U.S. or the U.K.’s Jinn, and is disclosing €5 million in Series A funding.
Taking part in the round are original backer Antai Venture Builder, Spain’s Seaya Ventures, Entreé Capital, Caixa Capital Risk, and Bonsai Venture Capital, along with a number of Glovo’s previous investors.
Noteworthy is that Entreé Capital also has a minority stake in Postmates, which speculatively sets up some potential partnership or acquisition scenarios further down the road. Despite a lot of talk of doing so, the U.S. on-demand delivery company has yet to expand to Europe.
In a call, Glovo co-founder and CEO Oscar Pierre told me the new capital will be used by the startup primarily to consolidate its presence in the countries it currently operates in — namely, Spain, Italy and France — and to continue building out the platform.
He also conceded that there has been a lot of negativity around the on-demand delivery space (“I have Steve O’Hear set up as a Google alert,” he revealed) but that much of this is to do with the lower margins and logistics challenge that (hot) food delivery faces in particular. This sees lunch and dinner peak times making it a lot harder to manage supply and demand, and keep a fleet of on-demand couriers happy and in work during down time.
To that end, Pierre says that non-food items, such as electronics and pharmaceuticals, now make up 50 per cent of orders. That’s significant since there’s potentially more margin outside of catering where average basket prices can be a lot higher and there’s a greater number of merchants to partner with.
Like competitor Jinn, which recently launched in Madrid (its first city outside the U.K.), it’s via direct partnerships with merchants where the real money is to be made. That’s because an official partnership results in Glovo receiving commission for each product bought through its app, which in turn means increased margins and the ability to pass on some of this revenue to customers in the form of lower delivery fees or no delivery fee at all.
Once delivery fees reach near-zero, a service like Glovo that promises to get you anything from your city delivered to you in under an hour, becomes a lot more sticky. In fact, Pierre isn’t ruling out a subscription model for the most frequent customers along the lines of Amazon Prime.
Another telling feature of Glovo is that Pierre claims the service is profitable on a per delivery basis, and therefore, unlike competitors, is not reliant on an average number of deliveries per hour per courier to make the model work.
That’s because the startup’s pricing is variable, based on distance (which is the formula by which couriers are paid), how aggressive it wants to be in a particular city or vertical, and how much kick-back Glovo will receive from the merchant in relation to a particular order.
Where the latter is zero because there is no merchant partnership in place, the resulting delivery fee, which is added at checkout, will be a lot higher. But, says Pierre, it also enables the startup to stick to its “anything you want, delivered in minutes” promise without burning too much cash. And, crucially, regardless of where in town and from what merchant the product originates.