Perhaps faster delivery times were a poor choice from a unit-economics perspective

In every startup cycle, there are attempts to get consumers goods faster than ever before; the hope being that technology has improved to the point that such deliveries are financially possible. Infamous dot-com-era flameouts are now ancient history, but they do indicate just how long founders and their backing investors have been working on the concept.

The dream of super-quick consumer deliveries never went away. Amid Uber’s ascent, a number of startups tried to build companies focused around fast food deliveries, leveraging pre-cooked food and a supply of drivers in urban areas to deliver the eats. Sadly, SpoonRocket and Sprig failed to survive.

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Instacart was a big deal, with a goal of one-hour grocery delivery, a model that it has expanded to include next-day delivery and the like. Some major platforms are tinkering with sub-hour deliveries, absorbing costs to work on the idea of even speedier consumer service.

Startups have also been hammering away on the idea in the last few years, leaning on so-called dark stores — mini warehouses, more or less — to provide a local supply of goods that can be whisked to consumers’ doors in record time. GoPuff has raised a tectonic amount of capital, for example, as have a host of other startups around the world. The model, called quick commerce — q-commerce for short — attracted billions of dollars in funding in recent years.

And as in previous cycles, it’s falling apart. This is not to say that every company in the q-commerce market today will fail; GoPuff has major backers, and despite some issues, it may pull off its model. But we’re seeing, once again, startups that raised huge sums of money to build super-rapid consumer delivery models lay off staff, attempt to merge, and otherwise stay alive after they consumed mountains of cash.

Who could have seen this coming?

Fast is expensive, slow is cheap

It is not hard to see why q-commerce caught the attention of both founders and investors. Uber Eats helped keep its parent company’s gross merchandise volume afloat during COVID, when demand for ride-hailing services tanked. And DoorDash grew like a proverbial weed over the last few years, leading to a mega-IPO and share price that crested at $257 in late 2021.

Consumers wanted deliveries, and they wanted them quickly, and companies that were in that game were doing well. So why not try the same model, but even faster? Wouldn’t consumers love that even more? So long as you had a model in mind that could make the math shake out at least on paper — thank you, dark stores! — it was off to the races.

The results in financing terms were huge. Fridge No More (U.S., q-commerce grocery delivery) raised $16.9 million, per Crunchbase data. Buyk raised $46 million. Zapp (U.K., q-commerce consumer packaged goods delivery) raised $300 million, again per Crunchbase. Gorillas (Germany, q-commerce consumer goods delivery) raised $1.3 billion. Getir (Turkey, q-commerce groceries and other services) raised $1.8 billion. GoPuff raised $3.4 billion. JOKR (U.S., q-commerce grocery delivery) raised $430 million. Flink (Germany, q-commerce food delivery) raised $1.1 billion.

The q-commerce model scaled around the world, benefiting from a booming venture capital market that had money to invest and was looking for growth. But by late 2021, warning bells were ringing. Alexander Kremer, a partner at venture capital firm Picus Capital, wrote an op-ed for TechCrunch last August arguing that “Europe’s quick-commerce startups are overhyped,” drawing from lessons he had learned in the Chinese market.

Now the damage is starting to pile up. Fridge No More shut down. Buyk also closed, though due in part to international sanctions. More recently, Zapp laid off 10% of its staff, Gorillas cut 300 workers, Avo slashed 500, Jiffy backed out of some of its consumer-focused expansion and Getir cut 14% of staff. One of the Australian q-commerce companies closed.

The slowing venture capital market won’t help the companies retool their models. Some may make it. As TechCrunch wrote last month, JOKR’s model has improved its economics from cash conflagration (losing $13.6 million on $1.7 million worth of revenue “as of the end of July” in 2021, per The Information) to what the company’s CEO and founder, Ralf Wenzel, described as “fully gross profit positive on a group level for our local business across all of our countries after 12 months of operations.”

That’s better but far from profitable. How many companies will manage the same turnaround? We’ll find out soon — the clock is ticking.

Q-commerce companies are in a hard place, but not entirely of their own making. How so? For the venture market to have enough spare cash to plow billions into the rapid-delivery model, the market had to be so hot that it was overheated. And such overheating never lasts. So for there to be enough money for q-commerce to raise and spend as much as companies pursuing the model did, the venture market had to be at unsustainable levels of activity. Therefore, q-commerce companies raised heartily right before a correction, leaving them with oceans of red ink just as the pullback kicked off.

The result will be more layoffs, consolidation and shutdowns.

Not to be an ass, but with humans in the loop, rapid deliveries were always going to be hard to make work from a gross profit perspective, let alone from the vantage point of operating profit. But, once again, we’ve talked ourselves into funding the model. Self-driving cars aren’t here yet, and delivery robots are niche players, meaning that the tech wasn’t there for the concept to work in real financial terms. Again.

Perhaps the next time we give it a try, the required tech to make the financial math work will be in place. But for today’s crop of startups trying to get you toothpaste or tomatoes in 10 minutes, it’s probably too late.