Aussie grocery delivery startup faces funding difficulties as venture capital exits | Australian Economy

Inner city dwellers who prefer to have their groceries delivered in under 10 minutes via a service like Milkrun should enjoy it.

Analysts say rising inflation and interest rates have made venture capitalists — willing to pour billions of dollars into “disruptive” companies like Uber over the past decade in the hope that they might one day turn a profit — more conservative in their investment strategies . cash.

In the past two months, two companies offering fast grocery delivery in select suburbs of Australia’s big cities have collapsed: Send, which promises Melbourne locations within 10 minutes, and the smaller Quicko, which operates in Sydney, allowing only two hours deliver goods. to the door.

The collapse has left 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, battling for grocery orders.

Both are backed by big-money VC funds: $85 million in Milkrun case and Voly $18 million. But Send’s collapse shows that startups are burning cash almost as fast as delivering fruit and vegetables.

A creditor’s report to the Australian Securities and Investments Commission, sent by Send’s managers, Worrells’ Matthew Kucianski and Matthew Jess, shows it burned through a combined $11 million in the eight months of its trading.

As sales grew, so did losses. Last October, Send posted a loss of more than $658,000 on sales of $8,113. By March, sales had grown more than 50-fold to nearly $417,000 a month, but losses had also skyrocketed to $2.38 a month.

milking bike
According to a report submitted to Asic, the main expense of Milkrun’s rival Send is staffing. Photo: Blake Sharp Wiggins/The Guardian

Executives said the $5.5 million in staff costs was the main expense over the eight-month period.

“The large wages and payroll expenses incurred are related to the company’s business model of delivering groceries within 10 minutes, as companies need to hire a large number of employees to meet their business model,” they said in the report.

“So, despite management’s attempts to cut losses, it is clear that the company’s business model is not sustainable without external funding.”

Patrick Coghlan, chief executive of credit reporting group CreditorWatch, said businesses at the start-up stage may find it harder to secure critical funding as they struggle to turn a profit.

“Supply chain issues, interest rates, inflation; they’re going to be a topic of discussion for at least another six months,” he said.

“So we’re not going to see a quick fix, it’s just putting pressure on companies that are relying on raising capital to stay afloat, basically, not even sustaining growth.

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“If you’re … a company that’s currently in need of a funding round, and there’s no obvious path to profitability, you’re probably in trouble.”

Even big supermarkets – warehousing and logistics specialists – have struggled with home delivery, which has boomed during the last two years of Covid-19 lockdowns. Neither Coles nor Woolworths offer the fastest 10-minute delivery service. Conversely, delivery slots that may last hours are booked hours or days in advance.

Even so, while both make money from online shopping services, the profit margins are still lower than what they enjoy in-store.

Analysts at investment bank UBS said in a note to clients in April that profit margins at Woolworths, which led the trend, have suffered the most from the shift.

Businesses such as home delivery are expensive to start and operate. In addition to employees, they also need a network of warehouses close enough to customers to make deliveries—the faster the delivery, the more warehouses are needed.

Milkrun bike delivery man
Dany Milhan, founder of Milkrun, said: “Our ambitions have not been thwarted by recent examples. [grocery delivery services] Poor management and execution”. Photo: Blake Sharp Wiggins/The Guardian

The costs involved mean transportation-intensive businesses need to be able to get bigger to survive, Coghlan said.

“If you look at it from an investment or venture capital perspective, you need scale, and you need a lot of investment to be really profitable,” he said.

“The most extreme version — though not delivery — is Uber. Ten years on, no matter how much they spend, [they’re] Still not necessarily profitable – and arguably, they already have a global scale. “

He said the expansion of suburban Australia was also posing challenges for couriers.

“Australia [is a place] There isn’t a place as densely populated as New York and other big cities around the world – you’ll be more spread out.

“So how many of these companies will actually survive? Is this a winner-take-all situation?”

Voly co-founder Mark Heath could not be reached for comment.

However, Milkrun founder Dany Milhan said his company’s “business model is absolutely sustainable and we’ve outperformed our initial forecast and forecast”.

He declined to make any comparisons with Send or Quicko. “Businesses are entering management every day in categories where competitors are thriving and doing well,” he said.

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

“The fundamentals of scaling this business model have not changed since launching eight months ago, and our ambitions have not been affected by recent examples of poor management and execution.”

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