With food startups siphoning off billions of VCs, consolidation could be next


A courier for the Czech food delivery start-up Rohlik.


LONDON – Startups promising groceries delivered to your door in minutes are the hottest trend for venture capitalists right now.

Investors poured billions of dollars into on-demand grocery delivery companies – some of which are barely a year old – after the coronavirus pandemic accelerated the shift to online shopping.

Venture-funded food companies already raised over $ 10 billion in 2021, according to Pitchbook, dwarfing the $ 7 billion these companies raised last year.

In the US, Instacart was valued at $ 39 billion in a funding round in March, while Gopuff raised funds valued at $ 8.9 billion. In China, Xingsheng Youxuan raised a whopping $ 3 billion this year, the largest funding round to date for a food start-up.

The trend has spread to Europe over the past year, and a variety of grocery apps have gained prominence by promoting deliveries in 10-20 minutes: Getir, Gorillas, Weezy, Flink, Zapp, and Dija, to name a few .

They often rely on so-called “dark stores”, small fulfillment centers where items are picked up and then delivered by couriers.

This week, Czech company Rohlik, which offers two-hour grocery delivery, raised $ 120 million at a market value of $ 1.2 billion. Tomáš Čupr, CEO and co-founder of Rohlik, said the seven-year-old company is “fully profitable” in its home market.

“You saw a lot of players in the US and some players in Europe who were really struggling before the pandemic, and then it was obviously fine who made online purchases during the pandemic,” Čupr told CNBC.

“Now the question remains: how much of it will stick?” he added. “We’re pretty confident because we grew massively before the pandemic. We think we’ll do the same after the pandemic.”

“Large disproportionate”

The digital grocery delivery market is getting more crowded and some retailers say a wave of consolidation is imminent.

“The amount of money spent on this opportunity bears no relation to the size of the opportunity,” Luke Jensen, CEO of Ocado Solutions, a unit of UK food technology pioneer Ocado, told CNBC.

“I suspect there will inevitably be a major consolidation among these players,” he added.

Big tech names like Amazon and retail giants could be among the potential buyers, experts say.

New entrants to the grocery delivery sector are offering customers a “deal,” Jensen said: Pay a 30-40% markup on supermarket prices for the convenience of fast delivery.

Even during the UK’s strict Covid lockdown in January, only 16% of the country’s grocery sales were online, despite a record high, according to Nielsen. Tech founders and investors say this is a great opportunity to increase online penetration.

However, Jensen said that grocery startups are mostly competing with convenience stores rather than large supermarkets, which means they are already targeting a small slice of the market.

First mover advantage?

Getir in Turkey was early in the craze for quick grocery deliveries. Founded in 2015, the company recently became profitable in Istanbul, where the company is based, founder and CEO Nazim Salur told CNBC.

We have democratized the right to be lazy.

By analogy with a video game, Salur said that Getir was at “level six” while other upstarts had barely reached the first level.

Getir is expanding rapidly in Europe and plans to start operations in the U.S. this year after a round of new funding that valued the company at $ 7.5 billion.

“People have a right to be lazy,” said Salur, describing grocery shopping as “a waste of time for most people”.

“We have democratized the right to be lazy,” he added.

Despite the escalating competition, Salur does not believe in a comprehensive consolidation of the market. Getir took over a competitor in southern Europe called BLOK on Thursday.

“I don’t think there will be much,” said Salur. “For real consolidation to take place, these players should have a certain level of standing in the market.”

“There are some candidates out there presenting themselves to buyers,” he added. “Some of them came to us – I won’t name them – but there isn’t much to buy.”

According to Business Insider, London-based Dija held talks last week about a possible sale to U.S. rival Gopuff. Dija declined to comment when contacted by CNBC.

Jensen of Ocado Solutions said he believes most grocery apps and their investors will be “very disappointed with their inflated expectations.”

Ocado started out as an upscale online supermarket. However, the company later turned to developing software and robotics for international retailers like Kroger to sell their own products over the internet.

Rohliks Čupr said the Ocado model – which is based on giant automated warehouses – compromises “last mile” delivery or moving goods to their final destination.

“I don’t think we’ll ever need this huge robotized center,” he said.

Ocado has its own competitor for instant delivery apps, Ocado Zoom, which ships items in less than 60 minutes or the same day.