Analysis – Food delivery to Europe takes shape with purchase of Getir gorillas By Reuters

By Toby Sterling

AMSTERDAM (Reuters) – Grocery company Getir’s $1.2 billion deal in minutes to buy rival Gorillas is an important step towards consolidating Europe’s food delivery market, where companies are are debating in a post-COVID downturn.

After a rapid expansion, these companies were hit in March by a drop in demand for deliveries due to the confinement and by rising interest rates, while investors grieved for loss-making technology companies.

Food delivery groups quickly began to combine, cut costs and exit markets where they were weak, in an effort to become profitable.

Companies and industry watchers say the painful retrenchment is set to continue – but survivors are starting to see the first green shoots.

Citi analyst Catherine O’Neill said mergers and cost-cutting to eliminate excess capacity were happening faster than expected and unit economics, including order size per delivery , was improving.

But she said Europe’s squeezing cost of living remains a major downside.

“We haven’t seen how these companies will weather a recession yet.”

Istanbul-based Getir and Berlin-based Gorillas were among many venture capital-backed fast-commerce companies that have rushed during the pandemic to set up “dark stores” – delivery hubs in downtowns. cities used to quickly get groceries to customers.

The dark store model is fundamentally different from more established groups like Just Eat Takeaway and Uber (NYSE:) Eats, which take restaurant orders and deliver meals, though they are often seen as competitors.

FAST TRADE

The acquisition of Gorillas makes Getir the largest fast-trading company in Europe.

Getir was valued at around $8.8 billion in Friday’s deal, about seven times more than Gorillas due to its strong position in Turkey where it is based, analysts said.

Gorillas and Getir did not respond to requests for comment.

Other consolidators are Berlin-based Flink and Philadelphia-based GoPuff, which operates in the United States and Europe.

“In Germany we see competition directly from Gorillas and Getir. Everyone else is gone,” Flink spokesman Boris Radke said.

Flink operates 190 dark stores, compared to 180 for Gorillas.

Radke said Flink thrives on close partnerships with REWE supermarkets in Germany and Crossroads (EPA:) in France, both shareholders of the company.

Analysts estimate that a dark store center becomes profitable between 500 and 1,000 orders per day.

“We’ve closed a few hubs that weren’t profitable and we’ve definitely shelved any kind of bigger expansion plans,” Radke said.

However, the number of profitable Flink hubs is growing, he said, and sales are increasing “constantly month after month”.

LESS CAPITAL, FEWER COUPONS

More than a dozen small European fast-trade companies have gone bankrupt or been acquired since mid-2021.

Venture capital firms invested $125 million in the sector in two deals in 2022, compared to $1.3 billion in thirteen deals in 2021, based on PitchBook data.

With less competition and less new capital entering the market, the remaining businesses in the grocery and food delivery sectors have reduced their spending on vouchers and promotions.

While most restaurant businesses have experimented with quick trade, the two types of businesses are also cooperating more frequently, a sign of things to come.

Last month, Getir entered into an agreement with Just Eat Takeaway to list Getir’s groceries on the Takeaway app.

This will give Just Eat Takeaway additional high-margin orders, while Getir will get more deliveries and sales in its dark stores.

“I expect to see more activity in the form of mergers and acquisitions or deep business partnerships,” said Larry Illg, head of food business at tech investor Prosus (OTC:), which owns a stake in Delivery Hero.

While profits may still be a long way off for private fast-trade companies, European listed meal delivery companies have all set formal earnings before interest, tax, depreciation and amortization (EBITDA) targets.

Just Eat said its EBITDA was already profitable. Delivery Hero says it will get there in 2023 and Britain’s Deliveroo no later than the first half of 2024.

Shares of European delivery companies are down around 60% from a year ago, but have traded sideways since June.

Uber and DoorDash, both already positive for EBITDA thanks to the strength of their operations in the United States, say that their European subsidiaries are expanding.

“We continue to see strong demand for groceries and we continue to see groceries as a growth engine for our entire business into the next year,” Uber spokesman Caspar Nixon said. .

He said the quick grocery options are “absolutely available on the app, but we don’t think it makes sense to own the entire supply chain” like Getir does.

Sajal Srivastava, co-founder of TriplePoint Capital, which provided venture debt financing for Flink, says negativity about fast trading has been exaggerated.

“Consumers are still using it. The numbers are still growing and the economy is improving,” he said.

So to “all the naysayers who say” the quick trade is over – No. It’s going to exist and the data shows it.”