“If you can go to the moon, why are you still going to the supermarket?”
In the world of venture capital, there’s a fine line between stupidity and genius. Or to put it more precisely: many venture capitalists struggle to tell the difference.
At the height of the pandemic in May 2020, when going to the supermarket seemed as risky as a trip to the moon, Kağan Sümer founded an app-based grocery delivery start up called ‘Gorillas.’ Equipped with little more than chutzpah, Sümer tried to get venture capitalists to hand him hundreds of millions using inane one-liners like the one above about the moon.
It worked. Gorillas took just nine months to achieve ‘Unicorn’ status – a valuation of at least $1 billion – the fastest European company ever to reach that landmark. The Berlin-headquartered startup was not alone. In 2021, $5.5 billion of venture capital was invested into European app-based grocery delivery, also known as ‘Q-Commerce.’ In cities across Europe, adverts for Zapp, Flink, Getir, Rocket, Cajoo, Frichti, GoPuff, and Gorillas started appearing everywhere.
Four years on, most of these companies no longer exist. The few that remain have retreated to operating only in their domestic markets. Tens of thousands of workers have been chewed up and spat out during this rapid boom and bust. Billion dollar valuations have evaporated like snow off a dike. And someone, somewhere, has seen Kağan Sümer walking – with his legs – to the supermarket.
The First Mistake
“Faster than you” was Gorillas’ motto. Promising grocery delivery in just 10 minutes, Sümer’s startup sought to build a brand based around speed. Delivering on this promise required a grand logistics operation. Gorillas needed to establish mini-warehouses in every neighborhood they operated in. These came to be known as ‘dark stores,’ which for a time looked like they were both physically and metaphorically displacing newsagents, as they sprung in empty lots deserted by the humble local convenience store, put out of business by COVID-19 lockdowns.
The dark stores needed two things to function properly: just-in-time inventory and lots of workers. This was a labor- and goods-intensive business. ‘Pickers’ were needed to package the purchased items, while ‘riders’ would deliver them on bikes. Perishable goods had to arrive on time, enough to service demand but not too much to generate huge amounts of waste. Behind the slick marketing and the app was a serious logistics challenge.
This was Sümer’s first mistake. What the Turkish entrepreneur needed was experienced hands to run his dark stores, people who knew about logistics and human resource management. Instead he relied on a posse of tech bros who were big on grand visions but knew nothing about practicalities. As the company began to expand rapidly, setting up new dark stores every week including in France, Italy, the Netherlands, and the UK, it didn’t take long before chronic mismanagement came to the fore.
One former warehouse manager, fired while he was still on sick leave due to the stress of the job, summed it up:
I experienced the strongest ever hurricane on the British Virgin Islands, with 300 kilometre per hour winds. After four hours the entire island was turned upside down; the infrastructure, which was pretty weak before, was destroyed. Gorillas has been much harder than even that, so that should tell you what you need to know.
Systemic problems included: workers being paid late, not in full or not at all; backpacks weighing more than 10 kilograms, breaching the company’s own policy; faulty bicycles with poor brakes, increasing the risk of accident; a lack of heating and air conditioning in the dark stores, causing workers to freeze in the winter and boil in the summer; and cack-handed union busting.
In Berlin, the heart of the company’s operation, a group of riders and pickers known as the Gorillas Workers Collective decided to take action, after one of their colleagues was fired for sharing an article on social media about strikes. A wildcat strike, including roaming picket lines to block the doors of the dark stores, caused chaos. The strike started with the sole demand of having their colleague reinstated, but soon spread to a long list of changes that the workers wanted implemented in Gorillas’ operations.
“It’s very simple: we are simply blocking the doors, the warehouses are very small and sometimes one person is enough to block one warehouse,” one of the strike leaders said at the time. “But when we block warehouses they have to seize up operations, and they cannot make money, and they lose their customers.”
The strike tactics revealed an important difference in the industrial strength of riders in grocery delivery versus restaurant delivery. Whereas in restaurant delivery riders work individually, have no set place of work, and are paid on a piece-rate basis, in grocery delivery they are employees paid by the hour who congregate collectively around the dark store. This gives grocery delivery riders a ‘choke point,’ as radical industrial relations experts call it: a link in the value chain which, if broken, can sever the company’s entire operations.
Despite personal efforts by Sümer to speak to the workers and bring a quick end to the strike, it lasted for two months over June and July 2021, a remarkably long time for an industrial action with no formal union backing. The strike garnered national and international media attention, and even attracted mainstream German politicians to the picket lines. For the first time, doubts started to creep in about the hot new thing in Europe’s tech start up scene.
After one article appeared titled ‘Gorillas falling under the inexperience of CEO Kağan Sümer,’ the CEO emailed all of his riders and pickers.
“The funny thing is they are correct on one point,” Sümer wrote of the article. “I am inexperienced. I am inexperienced to build something that has never been built before. And I love it.”
Downfall
Despite the turmoil, Gorillas and the other big players in Europe’s burgeoning grocery delivery scene continued to expand into late 2021 and early 2022. They were in a race to capture market share. Sümer and his rivals all had the same idea: growth before profits. By operating at a loss, they would keep prices low, attract customers to the app, and take over the market. Once established as the dominant player, they could safely raise prices knowing there was no serious competition, and the profits would roll in.
What this strategy was predicated on was that venture capital would continue to bankroll their loss-making operations and that consumer demand for grocery delivery would continue to grow. Neither turned out to be true.
As the pandemic eased, many customers felt comfortable walking to the shop again. In hindsight, this couldn’t have been a more obvious development, but at the peak of the grocery delivery hysteria many people who consider themselves business gurus were convinced that Q-Commerce was part of a permanent shift in consumer behavior towards never leaving your home, rather than an app which offered temporary convenience in unique circumstances.
Even more significant was the dramatic shift which took place in the financial world in 2022. A combination of the Russo Ukrainian War and COVID-related supply chain disruptions had led inflation to surge around the world, and with it came rising interest rates.11. See Steven Mann, “Notes Toward a Theory of Inflation” in Strange Matters Issue 1 (Summer 2022) and Tim Di Muzio, “Do Interest Rate Hikes Worsen Inflation?” (15 August 2022) in the online section of the magazine. –Eds. The post-2008 crisis era of ‘cheap money’ came to a sudden halt.
Venture capital suddenly became very hard to come by, in what became known as the ‘tech downturn.’ This twist of financial fate destroyed the growth-before-profits strategy of grocery delivery platforms almost overnight. Now the likes of Gorillas and Getir were under pressure from their existing investors to prove that they could make their operations financially sustainable. This came as a shock to a sector which had been operating on an entirely different business logic.
Gorillas was one of the first of the big European grocery delivery platforms to run into problems. The company was burning through $60-90 million in cash every month. In May 2022, at which point the company was operating in nine countries and still valued at over $3 billion, Sümer realized he needed to go into reverse gear. He started by laying off half of his employees at the company’s lush Berlin headquarters, cutting around 320 jobs.
As office staff were fired, stories started to emerge about what Sümer had been doing with all that VC money. Over €200,000 a month was being spent on an office in Berlin that was not being used. They’d splashed €11,000 on a luxury office sofa. The company had even set up an in-house music record label.
Gorillas’ riders and pickers could submit their music to ‘Pedal Records,’ and if it was deemed to be good enough they would be signed, taking a 30% cut of any profits made on sales and streams. Those who were given record deals included a Ghanaian rap artist, a Chilean electronic music producer, and a Polish pop singer. When the record label was closed as part of Sümer’s cuts, the sacked manager of Pedal Records explained the office culling:
They pretty much fired anyone who is not in operations – they got rid of all the culture, community type of workers in the company. They got rid of some random roles, my role was totally weird; I would have probably fired me as well!
Cutting the fat was not going to be enough to save Gorillas. The fundamental problem, seemingly overlooked by giddy investors at the height of the pandemic, was that grocery delivery was and is a very low margin business. As one trade union study found, profit margins for grocery retail in Europe and the US are between 1 to 3%. Supermarkets make their money through a high volume of sales on low margin products. Once you add on top of the groceries the additional costs of labor and infrastructure for app based delivery, the only way you can make the unit economics add up is by hiking the customer price for delivery, which then puts more pressure on already shrinking customer demand.
It soon became clear that Gorillas couldn’t survive, and that if it wasn’t eaten up by a competitor it would be in liquidation by the end of the year. The company struggled on until Getir finally put for $1.2 billion. As a species of Unicorn, Gorillas went from birth to extinction in the space of just 18 months.
In hindsight, Getir’s purchase price seems to have been overly generous, given Gorillas was on the verge of going under. What Getir wanted was the infrastructure that Gorillas had built up, the network of dark stores across Europe, which it could use to cement its empire. With American platform GoPuff retreating from mainland Europe and other competitors going into liquidation, Getir had few rivals left across the continent. The Turkish platform, valued at $11.8 billion at its peak, was crowned undisputed king of European Q-commerce. What Getir hadn’t yet realized is that they sat on a throne built on quick sand.
End-Game
Getir (meaning ‘Bring’ in Turkish) had proven in their home market that they could make profits out of the grocery delivery business. CEO and founder Nazim Salur presumed that once they had beaten off the competition in the rest of Europe, translating their Turkish success elsewhere would be a piece of cake. But it never happened. One of the reasons Getir failed outside of Turkey was because it found a regulatory context which was not so compliant.
The dark stores model worked because Getir was able to set up in the communities they were delivering to, keeping delivery times to a minimum. The problem was that those same communities became increasingly disgruntled with having a dark store in their neighborhoods. They were noisy late into the night, and the large groups of riders hanging about outside waiting for deliveries got in the way of people going about their daily business. The dark stores soon became a political issue.
Politicians seeking to get dark stores out of their voters’ neighborhoods didn’t have to work too hard. The empty lots which the dark stores occupied were set up to be shops, not warehouses. By 2023, Amsterdam, Barcelona, and Paris had banned dark stores in residential areas, forcing the platforms to set up further away from customers in more expensive industrial units. Getir blamed the “complex legal environment and regulations imposed by local authorities” for its decision to pull out of the French market ahead of the ban entering into force.
In truth, the much bigger problem Getir faced was that it was losing $100 million a month and was struggling to raise new VC funding. Reports emerged across Europe of equipment being auctioned and food being left to rot. Its major investor, Abu Dhabi state investment fund Mubadala, became increasingly disgruntled with Salur’s micromanagement of international operations, despite the CEO having little knowledge of the foreign markets he was operating in.
Salur wanted to hold on to Getir’s empire as one by one the competition disappeared. But by April 2024 he was forced by Mubadala to exit the US, Netherlands, Germany, and the UK, leaving the company back where it started: in Turkey. In a leaked audio recording announcing the company’s retreat, a teary-eyed Salur told Getir executives that “market conditions and the investment climate do not allow us to continue.”
The final throw of the shortlived Q-Commerce era was an ugly court-room battle between Salur and Mubadala over what remained of Getir and its various subsidiaries, including a bank it had launched in 2023. Salur was forced to step down as CEO, losing control of the company he founded, in what he described as “a coup.”
“Knowing what I know now, I would have never taken Mubadala as an investor,” he complained bitterly.
With Getir’s demise, there was no one left to take its place as European grocery delivery leader. Some Q-Commerce platforms live on in Europe (Flink in Germany and GoPuff in the UK), but mostly what’s left of app-based grocery delivery has been taken over by the big players in restaurant delivery (UberEats and JustEat) and by the big supermarkets – all of which offer home delivery options. The era of the Quick-Commerce specialist ended very quickly.
Why Did VCs Fund This?
The issue raised by the rise and fall of grocery delivery in Europe is not fundamentally one of viability. Getir continues to accrue profits in Turkey, Flink is expected soon to be in the green in Germany, and Instacart, another Silicon Valley Q-Commerce creation, reached profitability in the US in 2022, although it does not operate at anywhere near the scale it once promised. It’s possible to make money from app-based grocery delivery, just not the sort of money that would usually interest the high risk, high reward world of venture capital. So why did Q-Commerce attract a VC funding bonanza?
The answer lies in looking at the world through the eyes of the super-rich. Dominique Locher, an early investor in Q-Commerce, said he became convinced of its potential when he was sitting in a boardroom in Istanbul and ordered a can of Coca-Cola and a bag of pistachios on Getir’s app, while all the other directors just gave coffee orders to staff. Locher’s Cola and pistachios arrived quicker than the coffee.
This is by no means the only story of this type. Will Shu, the founder of UK food delivery platform Deliveroo, says he came up with the idea when he was working late at night as an investment banker in the City of London and couldn’t find good delivery options. I once interviewed a senior figure at investment advisory firm Jeffries who waxed lyrical about how much time Q-Commerce saved him and his wife.
For the rich, paying for someone to fetch you things that you could fetch yourself is convenient and cheap. It also satisfies a deep seated psychological desire among the wealthy to be served. Venture capitalists are human beings; like the rest of us they see the world through their own experience of it. From their myopic vantage point, investing in app-based grocery delivery was investing in a solution to a real-world problem.
Investment hasn’t always been this way. Arthur Rock, a Silicon Valley founder who invested in semiconductors, started the conversation about venture capital in the 1950s. Before Rock, no one had ever heard of the term. Even by the start of the 1980s, there were just a few dozen VC firms. Venture capital is a by product of the rising inequality of the neoliberal era. VC firms expanded as finance was deregulated and the number of people with sufficient wealth to put some of it into high risk investments grew.
Venture capital has of course had its spectacular successes alongside many failures: it’s the possibility of getting in at ground level on an Amazon or Apple which keeps investors coming back for more.
There is an argument to be made that failing is the price we pay for experimentation. But there are other ways to do experimentation, ones less focused on the parochial desires of the super-rich.
When Arthur Rock was investing in semiconductor startups in the 1950s, he was commercializing years of public innovation by the US military and NASA into chips. It’s only government that can do R&D at a sufficient scale and for sufficient time to make big technological breakthroughs. US government R&D peaked in 1964, making up 67% of all R&D. Today, the government’s share of R&D is just 21%. A similar, but even steeper, decline in public investment in technology has taken place in Europe over the past 60 years.
Economist Mariana Mazzucato has been one of the leading figures advocating a revival of “the entrepreneurial state,” drawing on NASA’s Apollo program from 1961 to 1972 as an example of a “mission-oriented industrial policy” which had important innovation spillover effects including “camera phones, foil blankets, baby formula and software in response to the many problems that needed to be solved, such as what would the astronauts wear, how would they move, how would they eat?”
Concentrating tech investment budgets around public missions to meet urgent societal objectives like decarbonization is likely to lead to more fruitful outcomes than leaving it in the hands of fickle investors. This of course would require a fundamental re distribution of economic power, which is not around the corner. Until then, we’ll likely continue to see the Kağan Sümers of this world handed boatloads of cash – despite lacking the knowledge to execute their tepid ideas – while the real societal problems churn and multiply. ~
