This audio is auto-generated. Please let us know if you have feedback.

After growing in leaps and bounds over the past few years, Gopuff has pumped the brakes on its rapid delivery service and is looking to adjust course amid increasingly challenging market conditions.

Last week the instant delivery company announced a second round of layoffs in just four months. It also said it’s paring back its U.S. fleet of small warehouses, which deliver convenience items to consumers in around 30 minutes or less.

The move reflects a tightening investment climate that has become less friendly toward companies that can’t show a short-term path to profitability. 

“While it may have been easy to attract money and investment over the past two years, funds will flow less freely to companies that can’t show a profit,” said Neil Saunders, managing director with GlobalData. “That’s not good news for quick delivery, where much of the market needs to be subsidized by investments.” 

In a memo to investors, Gopuff founders and co-CEOs Yakir Gola and Rafael Ilishayev said the company is focused on accelerating its path to profitability, and said it plans to start turning a profit in around two years. The broader instant delivery industry, which has recently been beset by closures among a pack of colorfully named startups, has reached “an inflection point,” they said.

Other sources think that’s a charitable interpretation.

“The bubble is bursting” on rapid delivery, said Celia Van Wickel, senior director of digital commerce at Kantar.

Considering Gopuff is far and away the leader in instant delivery, its struggles seem to have further darkened the outlook for an opportunity that startups, tech firms and established retailers are all chasing. 

But while the road ahead is now much tougher for Gopuff and others, sources said there’s still a clear market opportunity for companies to grab. They need to evolve their business model and adjust their expectations. Success, it turns out, will take longer than 15 minutes to arrive.

Gopuff launched service in New York City last year.

Courtesy of Gopuff

 

Getting to profitability faster

In their memo, Gola and Ilishayev acknowledged that Gopuff was incentivized to grow quickly amid a bull market over the past two years or so. Around half of the company’s approximately 600 warehouses went live over the past year, Bloomberg reported, citing sources familiar with the company’s operations. Each location costs around $250,000 to open, the publication noted. 

The Philadelphia-based company likely thought it had more time from investors to scale and improve profitability, said Jordan Berke, founder and CEO of Tomorrow Retail Consulting, which has conducted research into Gopuff’s operations.

“Their investors have said, ‘We can’t accept that five- to eight-year horizon. We need [you to] to be able to prove the business is viable in the next two years,’” he said.

Gopuff has said in the past that it’s profitable in markets where it has been operating for at least 18 months. Berke said his firm’s research indicates that only a fraction of Gopuff’s warehouses bring in enough orders per day to be profitable, adding it might take longer to sufficiently boost volume at the other sites than investors are willing to wait. Gopuff’s fulfillment centers need to bring in at least 400 orders per day to make money, but only about 10 to 20% are at that level, he said.

While he thinks Gopuff’s long-term prospects remain solid, Berke said the company may need to close additional facilities to satisfy investors who have much less patience than they did last year, when Gopuff raised more than $1 billion at a $15 billion valuation.

In addition to its latest cuts across personnel and facilities, Gola and Ilishayev said Gopuff is accelerating its path to profitability by leaning on high-performing warehouses, rationalizing its assortment and focusing on promising new selling opportunities. Their memo noted that Gopuff is the first authorized seller of Apple products among instant delivery companies.

Gopuff is also focusing on its digital ads business and other business opportunities with brands that can add incremental revenue, the founders noted.



Source link

Author

Comments are closed.