69 Views | 6 min | Published On: February 27, 2023 Last Updated: February 27, 2023
Grocery delivery has always been a lucrative market for budding entrepreneurs and investors due to its low investment and high-profit nature.
According to Statista, revenue in this segment is expected to reach $565.30 billion in 2023, with China leading the market followed by the USA and Japan. The number of grocery delivery customers is expected to amount to 164.5 Million by 2027.
No wonder why there are new growing delivery startups emerging worldwide.
If you also plan to create a grocery delivery app or any type of Uber-like application, you must know about the market players as well as failures to derive lessons from their stories.
The app Gorillas is one of them – a success or failure, you will get to know by the end of this blog.
With a mission to transform the way people do groceries, Gorillas was once known as the fastest-growing unicorn of the German market. Launched with splashy ads stating “groceries in 10 minutes” in many parts of the world, Gorillas broke all market standards using its dark stores.
But, after a while, things started to change. The Gorillas business model which once created hype in the quick grocery delivery market eventually failed. In this blog, we will discuss what happened and why so that you can learn lessons from the story.
So, let’s get started.
Gorillas Stats and Facts: Funding and Major Milestones
- Founded: May 2020
- Founder: Kagan Sumer, Felix Chrobog, Ronny Shibley
- Headquarters: Berlin, Germany
- Target market: 9 countries including the USA and the UK
- Revenue (2021): $220 million
- Business model: Hybrid
How Does Gorillas Work: The Gorillas Business Model Explained
Initially launched in Berlin, Gorillas is a food and grocery delivery service that expanded to various markets and countries quickly. Gorillas business model provided customers with access to a wide selection of things, such as groceries and alcohol, while charging them a fee for sales and delivery.
But, its working model was a bit different from other Grocery Delivery Apps like Instamart. It made money by buying groceries and reselling them for a profit. Let’s first understand Gorillas business model in detail:
- Gorillas run a network of dark stores and make money by buying grocery products and selling them for a profit. They try to maximize revenue generation through efficient inventory management and great coordination between the staff.
- They own their warehouses so couriers do not need to search random store shelves to fulfill orders. That’s also why their delivery times are faster than other apps.
- The app also charges a small delivery fee to deliver groceries anywhere in less than 10 minutes. However, it is not the company’s main revenue stream. They rely on the dark store model as their major source of revenue.
- Unlike other grocery delivery apps, Gorillas employ its riders full-time and also provide them benefits like health insurance, fixed employment contracts, paid vacation, and employer-financed accident insurance.
Doesn’t it sound like an exciting and disruptive business model? Actually, it is. The founders of Gorillas did something out-of-the-box which nobody was doing, got traction initially but almost failed in the end. Let’s figure out what mistakes they made and what can you learn from them.
What Went Wrong: Why Gorillas Grocery Delivery App Is Closing?
Every failure tells a strong story. It may not be inspirational but it is full of insights and learnings. Gorillas’ failure also taught the world many lessons. Let’s look at some of the reasons why it failed to learn from its failure story.
They Burnt Cash
According to various reports, Gorillas is a cash-burning venture and that is the major reason why it failed to attain profitable status in the market. After being founded in 2020, the company opened more than 200 dark stores by 2022, in just two years.
It is also said that they burnt all the $1.3 Billion the company raised by 2022 and started looking for new funds after that. In 2022, the company lost more than €1.50 for every €1 it made in net revenue. The marketing spending of the company averaged €8 for each order placed by customers and that is too much for a Grocery Delivery App like Gorillas.
The focus of leaders at Gorillas was always hyper-growth instead of probability. However, once investors realized that the company wasn’t profitable and was just burning cash, they stopped pouring money and the venture eventually failed.
Gorillas’ Business Model Was Problematic
The major downside of the Gorillas business model was that it required upfront investment to build warehouses and purchase products in bulk. In addition, because it hired drivers on a full-time basis, they were required to be present on the roads all the time.
Other on-demand mobile applications that hire drivers on contract do not pay them when their services aren’t required. This way, the cost is saved and drivers also get the flexibility, resulting in a healthy work environment.
But, that wasn’t the case with Gorillas. They spent all the money they had without thinking about profitability and failed when there was no more money to spend.
The Post-Pandemic Effect
After the arrival of the pandemic in most parts of the world, it made complete sense to rely on Grocery Delivery Apps. Because people were not allowed to leave their homes and social distancing was imposed by the government, these apps got prominence fast.
Many instant grocery delivery apps emerged and got successful during that time. For example, GoPuff expanded to more than 600 US cities and apps like Getir and Gorillas also rose to prominence. Investors also poured money into these startups thinking that online grocery ordering will turn into a habit now. No doubt that the competition was immense during that time as well but so was the demand.
As a result, these apps started burning cash to leave each other behind by providing countless offers and discounts on products and perks like free delivery. However, after COVID restrictions were lifted, things started to change. People started getting back in-store and the demand for delivery decreased.
The same thing happened with Gorillas. The team burnt cash in expansion when demands were high and they went too far where maintaining the equilibrium seemed impossible.
Also Read: 7 Tips For Entrepreneurs to Hit the Ground Running Post-Pandemic
Bad Employee Management
Another reason why Gorillas failed is its bad employee management policies. Many workers of the company openly criticized the working conditions of Gorillas. They complained about high delivery pressures, inadequate equipment, and heavy deliveries that lead to health problems. Also, workers said that they were not getting paid right and on time.
Furthermore, the company fired many of its employees for participating in a strike against the bad working condition of the organization. When the company started improving its conditions, it realized the harm that bad working conditions caused very late.
An organizing committee called the Gorillas Workers Collective emerged and they started organizing strikes against the company. That’s also how the world started losing faith in Gorillas.
They Sold their Operations to Competitors
There are many examples of ventures in the mobile app market that boomed after their acquisition by others. However, even that didn’t happen in the Gorillas’ case.
The reason is that it is sold to its biggest competitor, Getir. Now, one out of the two would have to end its operations in the markets where both are operational. Obviously, the weaker one would have to lose the market and that is Gorillas. So, the app is likely to close its operations soon.
Gorillas is a story of success as well as failure. In the Quick Commerce market, Gorillas is the fastest growing and also fastest failing company. After its acquisition by Getir, a number of questions are coming to the mind of budding entrepreneurs who plan to enter the grocery delivery market. Is the industry dead? Or, what should they do to make a profitable business?
Let’s find answers to all these questions.
Is Quick Commerce Dead: What Should New Players Do To Thrive in the Market?
It is true that after the pandemic many leading quick grocery delivery startups have closed their operations in many parts of the world. But, does it mean young players should maintain a distance from this model?
Well, the answer to this question is not a direct Yes or No. Not all the upcoming players in the quick commerce market will fail and neither all of them will succeed. Your approach and the way you deal with challenges will decide the success and failure of your startup.
But, one thing is sure. This era belongs to convenience at speed. If you manage to provide it while maintaining profitability, you are destined to succeed. There are many successful players in the market as well. To stay profitable, they are following approaches like:
- Increasing average order value (AOV) by targeting rich consumers and offering expensive products
- Introducing customer pickup facilities to lessen the logistic pressure
- Providing a schedule delivery option to better manage the logistic challenges
Here is what Nazim Salur (Getir’s founder) said in an interview about the future of quick grocery delivery and quick delivery startups in the world:
“Markets go up and down, but consumers love our service and convenience is here to stay. The super fast grocery delivery industry will steadily grow for many years to come and Getir will lead this category it created 7 years ago”
It is as simple as that – every market has its own ups and downs. However, it doesn’t mean the end of an era or service. Gorillas’ business approach was wrong and the team made some mistakes because of which they failed to continue their operations.
New startups in the industry can thrive if they follow a solid business plan, choose their stock carefully, set up local hubs, and ensure that they have the right software in place to provide consumers the convenience they desire.
Also Read: Headless Commerce for Online Grocery Retailers: Is It Worth the Hype?
The Key Takeaway
The team at Gorillas completely understood what their target audience needed – convenience at speed. That’s why their expansion and success rate was massive. On top of it, the pandemic contributed to the situation and the app rose to prominence fast.
But, it looks like they weren’t able to handle this massive success. Their huge success would not have been momentary but a long-lasting journey, if they concentrated more on profitability, customer support, and employee management as compared to expansion.