Australian grocery delivery startups face funding difficulties as venture capital checks out | Gig economy


Inner-city residents who enjoy getting groceries delivered in 10 minutes from services such as Milkrun should enjoy it while it lasts.

Analysts say rising inflation and interest rates have made venture capitalists – who have, over the past decade, been willing to throw billions of dollars into “disruptive” businesses like Uber on the chance they might one day turn a profit – far more conservative with their cash.

Two companies offering quick delivery of groceries within selected suburbs of big Australian cities have collapsed in the past two months: Send, which promised to deliver within 10 minutes to locations in Melbourne, and the smaller Quicko, which operated in Sydney and allowed itself two hours to get to the doorstep.

The collapses leave Milkrun, which operates in Melbourne and Sydney and is backed by investors including Atlassian billionaires Mike Cannon-Brookes and Scott Farquhar, and Voly, which operates in Sydney, fighting it out for grocery orders.

Both are backed by venture capital funds that have stumped up serious amounts of money: $85m in the case of Milkrun and $18m for Voly. But the collapse of Send shows that startups can burn cash almost as quickly as they can deliver fruit and veg.

A report to creditors filed with the Australian Securities and Investments Commission by Send’s administrators, Matthew Kucianski and Matthew Jess of Worrells, show that it burned through a total of $11m over the eight months during which it traded.

As sales grew, so did the losses. In October last year, Send had sales of $8,113 and made a loss of more than $658,000. By March, sales had exploded by more than 50 times, to almost $417,000 a month, but losses also soared, reaching $2.38m a month.

Milkrun bike
The main expense incurred by Milkrun competitor Send was in staffing, according to a report filed with Asic. Photograph: Blake Sharp-Wiggins/The Guardian

The administrators said staff costs of $5.5m were the main expense over the eight-month period.

“The significant salary and wages expense incurred is associated with the company’s business model of groceries delivered in 10 minutes as the company was required to employ a large number of staff in order to meet its business model,” they said in the report.

“Accordingly, despite attempts by management to reduce the losses incurred, it is clear that without external funding the company’s business model was not sustainable.”

Patrick Coghlan, the chief executive of credit reporting group CreditorWatch, says that businesses in the startup phase may find it harder to get crucial funding as they work towards a profit.

“Supply chain problems, interest rates, inflation; they’re going to be topics of discussion for at least another six months,” he says.

“So we’re not going to see a quick fix, and that’s just going to put pressure on particularly those companies that are reliant on raising capital to stay alive, basically, not even for continued growth.

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“If you’re … a company that requires a fundraising round at the moment, and there’s no sort of obvious path to profitability, then you’re probably going to struggle.”

Even the big supermarkets – experts in warehousing and logistics – have struggled with home delivery, which boomed during Covid lockdowns over the past two years. Neither Coles nor Woolworths offers to deliver as quickly as 10 minutes. Instead, delivery slots that can be several hours in duration are booked hours or days ahead.

Even then, while both make money from their online shopping services, the margins are thinner than the ones they enjoy in-store.

Woolworths, which has led the charge to online, has suffered the most erosion of its profit margin from the shift, analysts at investment bank UBS said in a note to clients in April.

Businesses like home delivery are expensive to start and run. In addition to staff, they need a network of warehouses close enough to customers to make deliveries – and the quicker the deliveries are supposed to be, the more warehouses are required.

Milkrun delivery rider on a bike
Milkrun’s founder, Dany Milhan, says ‘our ambitions haven’t been dampened by recent examples of [grocery delivery services] being managed and executed poorly’. Photograph: Blake Sharp-Wiggins/The Guardian

Coghlan says the costs involved mean transport-heavy businesses need to be able to become large to survive.

“If you look at it from an investment or a venture capital perspective, you need scale, and it needs a lot of investment until you actually get to profitability,” he says.

“The most extreme version – while it’s not deliveries – is Uber. Ten years in, however much they’ve spent, [they’re] still not necessarily profitable – and arguably, they’ve got global scale.”

He says Australia’s suburban sprawl also challenged delivery companies.

“Australia [is a place] where you don’t have a huge density of people like you would in, for example, New York and other large cities globally – you’re more spread out.

“So how many of those companies can actually survive? Is it a sort of winner-takes-all scenario?”

Voly’s cofounder, Mark Heath, couldn’t be reached for comment.

However, Milkrun’s founder, Dany Milhan, says his company’s “business model is definitely sustainable and we’re outperforming original forecasts and projections”.

He rejected any comparison with Send or Quicko. “Businesses go into administration every day in categories where competitors are thriving and doing extremely well,” he says.

“We (confidentially) reviewed Send’s financial information and can confirm that we are a substantially different business in every aspect.

“The fundamentals of scaling this business model have not changed since launching eight months ago and our ambitions haven’t been dampened by recent examples of this being managed and executed poorly.”


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