Gorillas had long tailwinds. Founder Kagan Sümer registered the company just before the first corona lockdowns, and from June 2020, the first bicycle couriers went on the road. The flash delivery concept was so successful with customers and investors that more than a year later it achieved unicorn status. Never before has a German startup been valued at a billion dollars so fast.
A year later, the future of ‘Einhorn’ suddenly looks completely different. At the end of May, 300 office workers were suddenly out on the streets, and branches in various other countries are also in danger of being closed or significantly reduced.
According to the German startup platform Gründerszene, the company wants to leave Spain, Italy and Denmark, and Handelsblatt reports that the Germans are withdrawing from Belgium. Online supplier Efarmz takes over part of the company here.
Gorillas now wants to focus on Germany, France, the UK, the Netherlands and New York. But jobs in the Netherlands would also be in jeopardy because the official head office has recently been located here. The eyes are primarily focused on the HR department, German media say.
Been restless with flash delivery guys for a long time
Things have been raging for some time among bike suppliers and warehouse workers. Following previous strikes due to lack of co-operation committees and criticism of working conditions, recent weeks have been due to lack of pay.
With the hashtag #MyNextBigTrip, founder Sümer wants to visit all 40 department stores in Germany by bike over the coming weeks, collaborate for a few hours and talk to employees. The clash is big, writes Der Spiegel, who took part in a heated conversation between the CEO and the bicycle bidder. ‘It seems more like a PR trip for the founder’s bulging image than that the focus is on the deliveries’ work situation.’
Gorillas are in trouble, but how big are they? And what does that mean for competitors like Flink and Getir?
1. High cost
Money is the biggest problem right now. If there is no new round of financing in the foreseeable future, the bottom of the treasury is quickly in sight. German media estimate that Gorillas have a monthly price of $ 80 million. Redundancies and withdrawals from markets are therefore primarily a rapid cost reduction. The company recently expressed its ambition to generate profits across the board within 12 months.
The soaring monthly costs are the reason why investors are now looking extra critically at the flash delivery companies’ revenue model. “We know food delivery services have low margins,” investment director Maria Wagner of US private equity firm Beringea told Gründerszene. “It’s all about scaling quickly to gain as much market share as possible before competitors do. That’s why it takes big marketing costs and therefore big rounds of financing to win.”
2. Crisis in the capital market
Six months ago, these high costs were not an issue for lenders. Last year, many investment records were broken in the international capital market. But in 2022, it will be difficult to free up money for startups. And in the stock markets, tech startups like Delivery Hero are falling sharply. Funds with many shares in startups therefore therefore have fewer available resources to invest.
In addition, the US Federal Reserve announced in early May that it would raise interest rates and that the European Central Bank plans to do the same this summer. Then loans become more expensive – and risky investments in technology become less attractive.
As long as financial markets remain volatile, lenders are more likely to fund startups that are well on their way to becoming profitable, writes Die Welt. “It’s a major reason behind the layoffs of several major startups that have moved from the U.S. to Europe this spring.” Aggressive growth is no longer the goal. “To remain attractive to venture capitalists, it is now better to aim for break-even.”
3. The market is changing rapidly
Earlier this year, the future looked even brighter for gorillas. Sümer then announced a $ 700 million round of financing, in which the company was valued at $ 6 billion.
But rising inflation and interest rates make the situation different. Higher food prices and poorly performing technology companies in the stock market make investors cautious. They are not so quick to invest in a company that must grow so fast to become profitable, writes Handelsblatt.
4. Completion of corona measures leads to different consumer behavior
Gorillas were the ultimate example of a startup that took advantage of the corona crisis because people were more at home, avoided shops, and were more likely to have groceries delivered at home. It stimulated investors’ imagination and gave the flash providers a boost.
Now that the measures melted like snow in the sun in the spring, consumers’ interest in super-fast delivery is also ebbing away. The idea that this market is growing indefinitely has faltered.
5. Pioneer role
Although the founder Sümer copied the idea to his company from Getir from Istanbul, the company played a real pioneering role in Germany and thus Europe. The law of inhibitory lead seems to apply to him. First, he had to wade through some difficult bureaucratic procedures, make expensive choices, and it turned out that the 10-minute delivery promise put a lot of pressure on warehouse workers and couriers. This has repeatedly led to strikes, criticism from customers and complaints from residents living near the warehouses.
The competition could learn from these mistakes. Although Flink started a few months later than Gorillas, he seems to be using it as an advantage. While gorillas were busy with these scandals, the pink delivery service was able to focus on their growth. What also helps is that the management team already has extensive experience in delivery services and e-commerce.
What is the next step for gorillas?
Money worries put the future of gorillas in grave danger. According to German media, the German unicorn is now seeking talks with competitors such as the German-American Jokr and the American Gopuff. Both a merger and a sale are on the table, Gründerszene writes on the basis of insiders. Both companies could enter the European market with Gorillas, but they also have money problems themselves due to the crisis in the payment market, changing consumer order behavior and rising inflation.
Direct competitors in Germany such as Flink and Getir may also be interested. Although they also have to deal with a changing market, they are in better economic shape, according to German media. Supermarket chains are also mentioned as potential interlocutors, such as Dutch Jumbo and British Tesco, with whom there is already a partnership.
If a merger or sale fails, it could soon be over for Gorillas, investors fear. Handelsblatt writes that the investment bank JP Morgan has not yet found any official interested parties. “
Frustration as motivation
It is therefore necessary for tech companies to become more efficient, says M&A expert Julian Riedlbauer in Die Welt. “The fastest way to save money is to cut staff costs, especially by closing teams abroad that have just started. For them, the road to profitability is the longest. “
Die Welt read the letter that founder Kagan Sümer sent to his employees. He ended up understanding their frustration. “It’s exactly this frustration that made me create Gorillas when I myself was fired at the time.”