Grocery Delivery Startups Are Signing NYC Retail Leases At Breakneck Speed
A new group of startups is spreading across New York City's empty storefronts like wildfire, signing long-term leases and turning them into mini-warehouses.
Three companies — Gorillas, Jokr and 1520 — each opened their first New York City location this year, and between them, they have leased dozens of storefronts, catching the attention of retail experts with the speed at which they have expanded.
While local grocery chains such as D'Agostino and Gristedes have been offering delivery for at least a decade, these venture capital-backed companies have entered the market promising deliveries within 10 to 20 minutes. To deliver on that promise, they are signing long-term leases for former retail spaces, converting them to last-mile hubs. But the speed at which they have expanded has raised eyebrows in the city's retail market.
“I think that the model is among the most absurd that I've ever seen,” Phil Lempert, a supermarket expert and the food trends editor for Today on NBC, told Bisnow.
Gorillas has signed 12 leases in Manhattan, Queens and Brooklyn since March, when the German firm first decided to enter the New York City market, said Ripco associate Estelle Holm Pedersen, who represents Gorillas in New York City.
Its most recent deal — a 7K SF lease at 426-430 East 14th St. — is for 10 years. The long-term nature of these leases will allow the retailer to lock in pandemic-era rent deals, Pedersen said.
The company first launched in Europe last summer and now has 180 locations around the world, a Gorillas spokesperson said in a statement. Pedersen said a steady increase in its customers' order sizes since opening in Europe gave the company confidence to expand.
When Gorillas was ready to take up space in the United States, New York was the first place it looked, she said.
“New Yorkers are used to getting things delivered,” Pedersen said. "Deliveries are just a big thing in New York, so it was just an obvious place to expand."
Gorillas' spokesperson said it plans to open several new locations in the next few weeks, but the company didn't respond to a question about specific expansion plans in the near future, saying it would grow further in New York before moving elsewhere in the U.S.
"Prior to our entrance into New York, there was a gap in the market for a platform that provided New Yorkers access to immediate needs," the spokesperson said in an email. "Our expansion strategy is a direct result of the local demand for our on-demand services. It’s also a direct result of the research we conduct before entering a new market."
Another German grocery delivery startup, Jokr, had six leases signed by April and 15 more in negotiations, The Real Deal reported. 1520, which launched on the Upper East Side in January, has multiple locations in tony Manhattan neighborhoods and Long Island City, Grocery Dive reported.
These companies are funded by a variety of private investors. Atlantic Food Group led Gorillas’ seed round of funding in August 2020, according to Crunchbase. Since then, it has raised $1.3B from 10 different investors, including the real estate venture capital firm Fifth Wall, in three more rounds of funding over the past year.
In March — less than a year after the company was founded, and around the time Gorillas started eyeing space around New York — Delivery Hero invested in Gorillas at a $3B valuation, Bloomberg reported.
Jokr secured $170M in Series A funding led by Balderton Capital in July, per Crunchbase, a month after it launched its U.S. business.
Before these companies expanded to New York, they launched in London. Their rapid growth has been cited as the cause of sharp rent increases, even as property experts cautioned landlords against jumping into deals prematurely.
“Because of that delivery promise, there are certain locations that these companies just have to be in if they are going to be able to deliver to certain districts,” Knight Frank Senior Surveyor Tom Kennedy previously told Bisnow. “They know that if they don’t take the unit, then one of their competitors will. You have got a lot of VC-backed firms paying miles above what they should be.”
Lempert said he is skeptical that these businesses will be able to compete with traditional grocers in New York City in part because of the scale of their product selection. The startups only carry the most popular items, a total product selection that can be a fraction of supermarkets, which carry 40,000 products on average, Lempert said.
“I think you're gonna see a lot of disappointment from consumers in the assortment of products,” he said.
Meanwhile, the presence of these new companies in the leasing market is raising the pressure on the grocery space, Lee & Associates Executive Managing Director and principal Brad Schwarz said.
“If anything, it’s become a little more challenging for markets around the city because now you have a lot more of these grocery delivery services that are taking space,” he said.
What's more, these startups are taking spaces that are, in some cases, a third of the size of traditional grocers, if not smaller. Gorillas' most recent deal was for 7K SF, while Schwarz recently brokered a new lease for traditional grocer Brooklyn Fare on the Upper West Side, where it leased 22K SF. That difference could put legacy grocers at a disadvantage
“I think it's too early to know how they're really going to impact the grocers around the city, but it could only pose a challenge for the existing grocery stores that are paying for 30K SF of space, and a lot of it is walk-in business,” Schwarz said. "All they're doing is delivering and taking away business from the grocers that are paying a higher per-square-foot [rent] for more visible locations.”