‘Built On Quicksand’: How The Rise And Demise Of Rapid Grocery Delivery Will Shape And Scar Retail
Rapid grocery delivery concepts that saw meteoric growth, with venture capital-backed promises to deliver goods at lightning speed, are experiencing something of a flameout.
Layoffs, political blowback, pay investigations and market contractions dominate the headlines when it comes to the sector — less than a year after operators blazed into markets as the latest retail darling. As these outfits look to rightsize their businesses and stop the financial bleeding, they are being forced to consider how to navigate shifting consumer demands, tight economics and what could be a frosty reception from the retail real estate community.
“We’re definitely not inclined to have any other grocery fulfillment tenants in there,” Compass associate Zev Sonkin said of a retail condo space at 150 West 26th St., previously leased to Buyk, a rapid grocery delivery app backed by Russian money that went bankrupt in March after the war in Ukraine curtailed its funding.
“The landlord wasn't really left with much recourse, as somewhat overnight, we were notified that [the company] had ceased operations. It was a bit abrupt.”
Sonkin is representing the landlord in its search for a new tenant.
Some landlords are learning to be gun-shy of these kinds of operators, said Meridian Capital President of Retail Leasing James Famularo, who in the last 12 months arranged three leases in the city for Getir and one for Fridge No More.
Getir laid off 14% of its workforce in May and is now being investigated by the New York State Department of Labor over employee pay disputes. Fridge No More shut permanently in March.
“After you burn your fingers once, you’re less likely to put your hand over the flame again,” Famularo said, noting the Getir locations his team arranged are still in place, unlike the Fridge No More lease. “That’s the thing about trends: After it fizzles out, nobody wants anything to do with it going forward.”
"Fizzling" isn’t the word everyone uses when it comes to the rapid grocery apps that have been forced into retreat.
“It was built on quicksand,” Phil Lempert, a supermarket expert and the food trends editor for Today on NBC, told Bisnow. “I'm surprised that it didn't implode faster.”
Just nine months ago, companies like Gorillas, Getir, Jokr and 1520 were making headlines with their rapid expansion, leasing dozens of storefronts in the city to make good on promises to deliver in 15 minutes or less. Lempert told Bisnow at the time he considered the model “absurd” — and within months, cracks were beginning to show.
Last week, Gopuff co-founders and co-CEOs Yakir Gola and Rafael Ilishayev told investors Gopuff is closing 76 U.S. warehouses and laying off 10% of its global workforce. Gopuff will have 18 locations in New York after consolidation, down from 24.
In June, Jokr, which previously said it planned to ultimately have 100 micro-warehouses in New York City alone and hit a valuation of $1.2B in December, announced its complete withdrawal from the U.S. market. By December last year, 1520 had shut down completely after running out of money and failing to negotiate a sale to Jokr.
“What we're seeing are so many companies that have had brilliant leaders who are able to sell concepts to raise huge amounts of money from venture capitalists,” Lempert said. “And nobody at the venture capitalists' firms seems to get a reality check and really understand what the business is or whether or not consumers want it.”
The challenges aren’t just financial.
In December, then-Manhattan Borough President Gale Brewer sent a letter to multiple state and city agencies saying companies were flouting zoning laws by operating as warehouses in areas zoned for retail.
Last week, the New York City Council introduced bills to regulate app-based rapid delivery companies and their dark stores, The City reported. Under the legislation, they wouldn't be permitted to guarantee a 15-minute delivery and would be forced to comply with a cap on the delivery load cyclist employees are carrying. New York City would have the power to issue licenses — and violations.
“Getir operates successfully in nine countries and we always pay utmost attention to being fully compliant with all applicable laws and regulations,” Getir Head of Government Relations Nico Probst said in a statement to Bisnow. “Getir values our people, as evidenced by the fact that we fully employ all team members as W-2 employees who earn health benefits and retain 100% of their tips.”
Getir isn't closing New York locations, but it has paused expansion.
“Rapid delivery will look quite different by this time next year; the players, models and use cases will be changing,” Celia Van Wickel, senior director in digital commerce at data analytics and brand consulting company Kantar, told Bisnow.
She said New York City warehouses will be consolidated to serve a larger radius, reducing speed for some neighborhoods, and that only one or two models may survive.
“I do believe the on-demand delivery need is there, but it is balancing the business, monetizing, selling services, automating, finding partnerships and balancing for larger basket sizes to sustain,” she said.
The big challenge for online grocery companies on the grand scale, according to Brandon Isner, the head of retail thought leadership for the Americas at CBRE, is going to come down to price in an inflationary environment.
“People don't want to pay for delivery necessarily. They want value,” he said. “So I think that's where a lot of the companies have run into trouble — just paying for the services is something they don't want to do because grocery prices are already rising.”
Compass Vice Chairman Robin Abrams said she expects there will be plenty of uses to pick up where the rapid delivery apps have dropped off.
“There's still new concepts that are coming in and expanding, and all the restaurant operators are still taking advantage of available space,” she said. “I see the whole health and wellness sector continuing to want to expand.”
Rapid delivery isn't especially hard on spaces, Meridian's Famularo said, since it largely involves installed shelving. He is shopping around about a dozen New York City locations once used by quick delivery apps.
“If it can be vented, we turned it into an F&B space. If we can't, we look for one tenant — or we look for options to divide the space,” he said, noting that smoke shops are the latest trend on the retail market.
“There are different options; maybe we can try a SoulCycle or Barry's BootCamp. That was another trend before Covid. … In any given year, there's two or three trends. Everybody kind of jumps on the bandwagon and drinks the Kool-Aid.”
Manhattan’s retail real estate is showing promising signs of a gradual recovery, with rent prices stabilizing and availability down across several of Manhattan’s most sought-after retail corridors. The focus these days is trying to find users that will serve the neighborhood as opposed to simply paying rent, said Jay Norris, who runs Guesst, a provider of tenant sales data to landlords.
“I think there's a responsibility for a lot of property owners to actually nourish their communities,” he said. “Like Placemaking 101.”
That is going to be the approach at the former Buyk space in Nomad, Compass’ Sonkin said, adding that the focus is now on finding a tenant for the mom-and-pop landlord that will both fit well in the area and remain in the space long-term.
“This space lends itself well to the [The Fashion Institute of Technology] and creative community in Chelsea,” he said. "There are a lot of vintage clothing and secondhand stores on that block. … There's also Goodwill in the area and a few others, so we've had interest.
“We want to focus on the longevity of the tenant.”