On-Demand Grocery’s Real Cost

February 2, 2022

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If you're in the Northeast, chances are you're minimizing your exposure to the snowy streets and bitter cold and sticking only to the necessities: work, dog walks, doctor's appointments, and the occasional bodega run. For the latter, there are a handful of well-funded startups competing to take care of your late-night snack cravings with on-demand grocery delivery. Today, we're looking at the business model, challenges, and players in the rapid grocery delivery space.

How it works
New York City is the ideal battleground for a competition of ever-decreasing delivery times. For one, it's a high-density metropolis, so there are plenty of potential customers within a relatively small delivery area. Satellite mini-warehouses and couriers on e-bikes make it possible. Secondly, New Yorkers are more than willing to forgo bodega runs in exchange for an app with curated snacks and sign-up deals, in response to heavy competition, that amount to free stuff. One New Yorker says he has received about $400 worth of free ice cream and laundry detergent from the various apps.

Survival of the most funded
The business model has some flaws. Fridge No More loses about $3 on every order after paying for the grocery items, packaging, delivery, and warehouse. That number could flip into profit if the scale of deliveries increases and sends costs down. However, profitability won't happen unless more customers consistently return to the service and purchase higher-cost items (swap toothpaste for Patrón, for example). Meanwhile, all of these companies are competing and driving down one another's prices and order frequencies, resulting in massive losses. The marketing acquisition cost of one customer is roughly $70, meaning Fridge No More is losing $73 on every delivery it makes to a new customer.

So how will this situation end? We can expect companies to run out of cash or consolidate before a true winner is declared. Until then, check out the company profiles and enjoy those promo codes!

The Players:
Gopuff is the highest valued amongst the bunch, at $15BN as of July. The company offers a wide selection and delivery in about 20 minutes.

Gorillas is a German transplant to NYC and is valued at $2.3BN. It markets delivery in 10 minutes at the same price as retail.

Getir is a Turkish brand currently serving New York, Chicago, and Boston.

Lastly, restaurant delivery giant Doordash joined the micro-fulfillment trend in December.

For more on this topic, we cover rapid delivery here and here.