- Investors are hoping one of many 10-minute delivery apps cropping up will become the next Uber.
- Turkey’s Getir recently hit an eye-watering $2.8 billion valuation for its grocery delivery service.
- Its founder Nazim Salur spoke to Insider about making a low-margin business work.
- See more stories on Insider’s business page.
The hot new consumer trend for venture capital investors is grocery apps that promise deliveries in as little as 10 minutes.
The premise is fairly simple: Take your pick of groceries, alcohol, and other essentials from an app, pay, and a courier will deliver the items to your door shortly afterwards.
It’s a trend that founders and investors will prove popular with tech-savvy users already accustomed to on-demand services like Uber, and amid the pandemic.
Data analyzed for Insider by Pitchbook showed tech investors in Europe had plowed $1.6 billion into grocery delivery startups in 2021 so far, more than double the investment into the sector for the entirety of 2020.
Turkish grocery delivery app Getir bills itself as the original gangster. Founded by serial entrepreneur Nazim Salur in 2015, the company initially struggled to attract investment from top-tier investors.
Six years on, Getir is worth $2.6 billion after a funding round led by Facebook investor Sequoia and faces competition from European clones such as Gorillas, Dija, Weezy, Fancy, and Zapp.
The amounts of cash flooding into the sector and the accompanying valuations are puzzling, given that grocery delivery is famously low margin. Consumers will not pay high prices for fresh food and other everyday essentials. Add in the costs of picking, packing, and delivering these cheap items to your day, and there isn’t much in it for the retailer.
We spoke to Getir’s founder about why investors are seeing dollar signs in a tough sector.
This Q&A has been edited for length and clarity.
Insider: Can you tell me the origin story for Getir?
Salur: Getir, the idea at the time, in 2015 was an original idea. Nobody else was doing 10-minute delivery at the time.
I was doing a taxi-hailing app, which is still around in Turkey and is called BiTaksi. I founded BiTaksi in 2013. And when we came to 2015, we were able to give taxis in an average of three minutes. I was looking at the dashboard of BiTaksi where I can see all the taxis. I just felt a sudden happiness that we hit the three-minute mark, you know, you give yourself some milestone to reach, and then just as you become happy, there’s also an emptiness. So I had that ‘now what?’ moment. A taxi is just one need, people have many other needs.
I thought at the time, ‘Why don’t I have small vans where I put a few hundred items and everyday essentials and bring the stuff to people’s doors in an average of 10 minutes?’
From the BiTaksi days, we knew how mobility worked in a city, the logistics of a crowded city, we had a lot of experience with that. If I hadn’t done BiTaksi earlier, I wouldn’t dare to do 10-minute delivery.
Insider: Running a grocery business is quite different to ride hailing. What are some costs and complexities you hadn’t anticipated?
Salur: A ride-hailing business, or just food delivery, is much easier to operate. The grocery business is at least five times more complex. Ride hailing, food delivery, I don’t own the taxis or the restaurants. It’s a triangle business.
What we do is much more difficult. Let’s say we buy Coca-Cola in bulk by truckload. And then we deliver one bottle or one can cold to your door in 10 minutes. We own the whole chain of events in between. This is mainly a tech company, but also a logistics company, and also a retail company. You have to be good at all three, and act as one business.
Another thing is the investment amounts early are quite high, much higher than other startups need. You need a lot of people, a lot of stores. A lot of customers, and you need them fast.
And now, in selected cities, there’s more than one or two players, so if you’re a little slow, somebody else can win the market.
If you’re not doing the right things early, the investors that back you early may not be there for the following rounds.
Insider: Big grocery players say online delivery is not profitable. Where are you creating efficiencies that enable you to take margin?
Salur: It’s a mix. First of all, it’s really tough to operate warehouses. It’s costly in the beginning, but if you do it efficiently, it’s where you make money. We don’t go buy from the supermarket. There are hundreds of areas where you can find efficiencies, you have to be a real data company.
From the outside, this is a simple straightforward business, but there’s so much to it because you’re never going to have high margins. The selling prices are pretty much what the market says, and you can just be slightly above it, but you cannot sell something double the price, then you can’t scale. The place you’re going to make money is creating efficiency at the back end, use data, use AI, as much as possible, planning everything.
We had many problems in the early years, but we worked it out.
Insider: But where have you been uniquely efficient?
Salur: This is a three-piece business. It’s a detailed logistics and tech business, working in sync. That is very hard to do. We’re a contrarian company, we don’t follow others.
When I visited Silicon Valley and talked to some investors after I founded Getir – Getir had been around for six months – they said, ‘Oh, 10 minutes, very nice’ and then they asked two questions. One was, how do you work with the couriers? Couriers are our employees, so ok, gone, that’s a sin to have employees. And then owning inventory, that’s another sin, or was at the time. Nobody ever really wanted to invest in us. These industries have a playbook, everybody needs to be contractors.
Insider: Is it a concern for you that Getir is not a defensible business model? There’s plenty of competition in Europe like Gorillas, Weezy, and others who promise 10-minute delivery.
Salur: Let’s say everybody does 10 minutes. Which is quite hard to do but let’s say they do that. The game doesn’t stop there. It’s the variety, it’s the freshness, it’s how we treat you as a customer, it’s the details. There are many grocery stores and many supermarkets, and you may be shopping from different avenues. Most of the time, but probably you prefer one to the others in your regular grocery shopping, it may be the corner grocery store or the Tesco Express near to you.
I’m not saying in grocery – it’s not gonna be like Uber versus Lyft or Uber just taking over the world. In grocery, nobody’s gonna take over the world. This is gonna be multiplayer thing going forward. And I made my plans accordingly. I’d like to be the leader in the markets I operate. And I welcome the competition.
The margins are never too high in grocery, because people need it, you know, and they consume it every day. It’s not like listening to music on Spotify, it’s a little luxury. But food, you need to eat it and that’s why, there’ll be multiple players.
Insider: I assume you are looking at an average customer lifetime value and making decisions on acquisition costs. Anything you can say about that?
Salur: The thing I can say about the Turkish business, our KPIs [key performance indicators] are so good. We just need to replicate what we’ve done in one market in another market. Of course, markets are not the same, but they are 70% to 80% the same, there are differences country to country, but people are people and they consume groceries. They don’t like to go grocery shopping, most people don’t.
If it’s just $1 or $2 extra they’re paying for the convenience, most people pay that. And look, Turkey is not is not a rich country, it’s not poor either, it’s a middle-income country and even in Turkey we have millions of customers using us. It’s not just for the for people at the upper end of the spectrum, because although we may be a little more expensive than the regular supermarket, and at times we’re not.
Insider: Does this mean profitability?
Salur: Our earlier investments are profitable, earlier stores. It’s like Uber, some cities are profitable, the new ones aren’t. Last year we saw fivefold growth just in Turkey. We’re expanding really well and we’re also becoming better in the existing cities in Turkey. We added some other services in Turkey too, we’re also in food delivery, water delivery. There’s also GetirMore, where we do cheaper, less expensive groceries, but we do 30 minutes and don’t charge delivery fees. So the Turkish business is in four sections, which enables us to grab more market share.
All those three we introduced later are doing good and are successful. We never added a service, and then discontinued it.
Insider: You have some top-tier investors. Why do you, and they, think Getir is a $2 billion business? We’ve seen Gorillas also get a very high valuation and it’s only a year old.
Salur: I can’t speak for the others, they are quite new to the market. Some of that may be hype. I think we rightfully deserve our valuation because of our KPIs [key performance indicators] and we deserve better going forward. This is the floor when Sequoia gets in. They don’t think we’re just going to double this, they have much higher expectations. One of their main partners [Michael Moritz] was an investor for the last two years, and then now the company came in.
Our last two rounds were all oversubscribed. We didn’t take all the money that people wanted to invest.