City center residents who enjoy receiving food in 10 minutes from services like Milkrun should enjoy it while it lasts.
Analysts say rising inflation and interest rates have made venture capitalists, who over the past decade, have been willing to throw billions of dollars at “disruptive” companies like Uber with the possibility that one day they will make a profit, they will be much more conservative with their cash.
Two companies that offer fast food delivery to selected suburbs of major Australian cities have collapsed in the past two months: Send, which promised to deliver in 10 minutes to Melbourne locations, and the smaller Quicko, which operated in Sydney and was allowed two hours. to get to the door.
The collapse leaves Milkrun, which operates in Melbourne and Sydney and has the support of investors such as Atlassian billionaires Mike Cannon-Brookes and Scott Farquhar, and Voly, which operates in Sydney, fighting for grocery orders.
Both are backed by venture capital funds that have amassed significant sums of money: $ 85 million for Milkrun and $ 18 million for Voly. But the collapse of Send shows that startups can burn money almost as fast as they can deliver fruits and vegetables.
A report to creditors submitted to the Australian Securities and Exchange Commission by Send’s directors Matthew Kucianski and Matthew Jess de Worrells shows that a total of $ 11 million was spent during the eight months negotiate.
As sales grew, so did losses. In October last year, Send had sales of $ 8,113 and a loss of more than $ 658,000. In March, sales had more than 50 times increased, to nearly $ 417,000 a month, but losses also skyrocketed to $ 2.38 a month.
The main expense incurred by the competitor of Milkrun Send was in person, according to a report submitted to Asic. Photo: Blake Sharp-Wiggins / The Guardian
Managers said staff costs of $ 5.5 million were the main expense over the eight-month period.
“Significant wage and salary expenditure is associated with the business model of grocery delivered in 10 minutes, as the company had to hire a large number of staff to meet its business model,” they told the ‘report.
“Consequently, despite management’s attempts to reduce losses, it is clear that without external funding the company’s business model would not be sustainable.”
Patrick Coghlan, executive director of credit reporting group CreditorWatch, says start-ups may have more difficulty getting crucial financing while working to make a profit.
“Supply chain issues, interest rates, inflation; they will be discussed for at least another six months, ”he says.
“Therefore, we will not see a quick solution, and this will only put special pressure on those companies that depend on raising capital to stay alive, basically, not even for continued growth.
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“If you’re … a company that requires a round of fundraising right now and there’s no obvious path to profitability, you’re probably in trouble.”
Even large supermarkets, experts in storage and logistics, have had problems with home delivery, which has grown during Covid confinements over the past two years. Neither Coles nor Woolworths offer delivery as soon as 10 minutes. On the other hand, delivery spaces that can last several hours are reserved hours or days in advance.
Still, even though they both make money with their online shopping services, the margins are thinner than those they enjoy in-store.
Woolworths, which has led the online upload, has suffered the biggest erosion in its profit margin due to the change, 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 faster deliveries have to be, the more warehouses are required.
Milkrun founder Dany Milhan says “our ambitions have not been dampened by recent examples of [grocery delivery services] poorly managed and executed ‘. Photo: Blake Sharp-Wiggins / The Guardian
Coghlan says the costs involved mean heavy transportation companies need to be able to grow big to survive.
“If you look at it from an investment or venture capital perspective, you need scale and you need a lot of investment until you really reach profitability,” he says.
“The most extreme version, even if it’s not about deliveries, is Uber. In ten years, no matter how much they’ve spent, [they’re] not yet necessarily profitable and certainly have a global scale. “
He says Australia’s suburban expansion also challenged delivery companies.
“Australia [is a place] where there is not as much density of people as there would be in, say, New York and other big cities in the world, you are more distributed.
“So how many of these companies can really survive? Is it some kind of scenario where the winner takes it all in?”
Voly co-founder Mark Heath could not be reached for comment.
However, Milkrun founder Dany Milhan says that “his company’s business model is definitely sustainable and we are surpassing the original forecasts and projections.”
He rejected any comparison with Send or Quicko. “Companies enter the administration every day in categories where competitors are thriving and doing very well,” he says.
“We have reviewed (confidentially) Send ‘s financial information and can confirm that we are a substantially different company in all respects.
“The fundamentals of escalating this business model have not changed since its launch eight months ago and our ambitions have not been dampened by recent examples of this poor management and execution.”