The latest apps promise fast service, but can they deliver? | Economic news
By TALI ARBEL, AP Technology Writer
NEW YORK (AP) — When Mahlet Berhanemeskel returns home to New York from her 90-minute commute, she doesn’t feel like cooking. Instead, she orders food like BLTs, Cheez-Its, and cookies from an app called Gorillas. It’s affordable and takes 10 minutes.
“It’s instant gratification,” she said.
Gorillas is one of many companies venture capitalists have poured billions into in the latest pandemic delivery craze: companies that promise to get you a bottle of Tylenol, an iced coffee, hummus, a cucumber or a roll of paper towels in 30 minutes – or even 15 minutes – or less. They usually deliver from mini-warehouses located in residential and commercial areas.
Experts say they are unprofitable. Big companies are getting into it, though. And officials in European cities and New York, which has become the launch pad for the United States, have already started complaining about how they operate, saying it’s bad for employees and residents.
“The problem I see is that fast trade players, despite the huge valuations they enjoy and the seemingly unstoppable flow of money they get to grow, at some point they will have to find a path to profitability. said Bain associate Marc-André Kamel, the co-author of a recent report on the online grocery market.
Services are already closed. One, 1520, closed in late December, and two others, Buyk and Fridge No More, closed in March, apparently running out of money. Buyk’s Russian founders were reportedly unable to provide money due to restrictions put in place during the Ukrainian War; he did not answer questions. Fridge No More, in a tweet, said it was closing after two years “due to increasing competition and other industry issues.” Its founder did not respond to questions.
Other delivery companies are experiencing growing pains. Gorillas has dropped its “10 minute” delivery promise from its US marketing – now it’s just “in minutes”. Gopuff recently laid off 3% of its workforce, or more than 400 people.
It’s not a sustainable business model, says Len Sherman, adjunct professor at Columbia University’s business school. “There is going to be a lot of consolidation on very painful terms.”
Getir, a Turkish company that operates in Europe as well as Boston, Chicago and New York, said the key to profitability is adding more mini-warehouses in the cities it delivers to.
“We are here for the long haul,” said Langston Dugger, head of US operations at Getir.
The company recently raised $768 million, valuing it at nearly $12 billion, and plans to expand into the United States. in between,” he said.
Lee Hnetinka, the founder of FastAF, a delivery company with a two-hour delivery model in New York, San Francisco and Los Angeles, said profitability is “just not a priority” right now because it invests in customer experience, saying their strategy is a long-term one and pointing to Amazon’s early days when it was also not profitable.
There are new competitive threats from well-established restaurant delivery companies DoorDash, Grubhub and Uber and grocery delivery service Instacart who have noticed the appeal of fast delivery apps.
DoorDash has three “DashMarts” in New York that promise delivery of groceries and convenience store items in 15 minutes, and advertises that more locations are coming; it also aims to deliver from Albertsons Cos grocery stores. in more than 20 cities in half an hour. But its chairman, Christopher Payne, told a recent conference that making 15-minute delivery might not be profitable.
Grubhub delivers items from 7-Eleven and other convenience stores, usually in less than 30 minutes. Uber is partnering with Gopuff and FastAF, allowing people to choose items from these companies in the Uber app. Uber also delivers from local grocers, though delivery times are often over 30 minutes. And Instacart expects 15-minute delivery, starting with customers at grocery chain Publix in Atlanta and Miami.
It’s unclear how quickly services could be out of the densest US cities, like New York, or neighborhoods where they cluster in more sprawling cities.
“For this kind of model to work — 15 minutes, 10 minutes, 20 minutes, you name it — you need density, right?” said Stanley Lim, a professor at Michigan State University, specializing in supply chains. “In a rural area, you can serve those customers but not profitably. That’s going to be a limit to the spread that those businesses can achieve.”
But in the bustling city, regulatory pressure may be looming. New York City Council members have spoken out against fast delivery apps, saying they could violate zoning laws. The New York City Department of Buildings is working with other government agencies to “explore appropriate zoning districts” for mini-warehouses. The centers are not listed in existing city zoning regulations because they are a new type of business, said Andrew Rudansky, spokesman for the agency.
There are also concerns about delivery apps offering discounts that will squeeze local businesses such as bodegas and convenience stores, as well as worries about the safety of delivery people. Manny Ramirez, who works for DoorDash and a service called Relay and is an organizer for Los Deliveristas Unidos, which advocates for better terms for app deliverers, says he was seriously injured by a car while he was cycled twice in the past year, and is still in physiotherapy. And the larger the order, the more dangerous it is for the cyclist.
“We don’t have laws to protect bikers,” he said.
The citywide lack of bike lanes, time constraints and fear for their safety are pushing delivery people to the sidewalks, advocates say. This worries the townspeople.
Deborah Koncius, who lives on Manhattan’s Upper West Side, said she felt her neighborhood had become more dangerous with delivery people riding electric bikes on the sidewalk. Although neither she nor any of her family members were affected, “I feel like it’s only a matter of time.”
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