Fears of an impending recession are forcing rapid grocery delivery companies to slam the brakes on growth.
This week, two of the largest instant grocery apps, Getir and Gorillas, announced decisions to lay off hundreds of employees. Another firm, Zapp, said it is proposing redundancies in its U.K. team.
Getir told staff Wednesday that it plans to reduce its global headcount by 14%. The Turkish company employs more than 6,000 people worldwide, according to LinkedIn.
“With a heavy heart, we today shared with our team the saddening and difficult decision to reduce the size of our global organization,” the firm said in an emailed statement.
“We will also decrease spending on marketing investments, promotions, and expansion.”
Gorillas on Tuesday said it was making the “extremely hard decision” to let go about 300 of its employees, citing the need to reach profitability in the long run.
The Berlin-based company is also evaluating a possible exit from Italy, Spain, Denmark and Belgium, among other “strategic options,” as it shifts focus to more profitable markets like the U.S., U.K. and Germany.
“These are necessary moves that will help Gorillas to become a stronger and more profitable business with a sharpened focus on its customers and its brand,” Gorillas said in a statement.
According to a Sifted report, Gorillas has been struggling to raise additional financing. The company wasn’t immediately available for comment when contacted by CNBC.
Getir and Gorillas have raised $1.8 billion and $1.3 billion to date, respectively. Getir scored a $12 billion valuation in March, while Gorillas was last valued at $3 billion. Both firms have burned through significant amounts of cash to expand in the U.S.
London-based grocery start-up Zapp on Wednesday confirmed reports that it is considering making layoffs of up to 10% of staff. A final decision hasn’t yet been made as a consultation is underway with the firm’s U.K. employees.
“The current macroeconomic climate has become incredibly challenging, with very little visibility of when things will improve. This uncertainty is seeing investors reduce their risk appetite considerably, favouring profitability over growth,” a spokesperson for the company said.
“As a venture-backed scale-up that will need to fundraise again in the future, we therefore need to adjust our business plan to reduce costs and accelerate our path to profitability.”
Zapp raised $200 million in a January funding round. The investment was backed by Formula One driver Lewis Hamilton.
Companies like Getir and Gorillas experienced seismic growth during the coronavirus pandemic. Operating from small warehouses known as “dark stores,” such services promise to deliver items to shoppers’ doors in as little as 10 minutes.
The recent raft of layoffs in the industry highlights a broader shift in investor sentiment toward high-growth tech companies, many of which have taken steps to cut down on costs recently against the backdrop of a sharp plunge in global stock markets. Earlier this week, buy now, pay later firm Klarna said it would lay off about 10% of staff following reports the company was seeking a new round of funding that would reduce its valuation by a third.
Instant grocery delivery services have long faced questions over the viability of their business models, which tend to sell essential goods at a premium to supermarkets while relying on offering generous discounts to lure in new users. Now, with Covid restrictions largely disappearing around the world, and prices on the rise, the future is becoming uncertain for the space.
In March, Gopuff said it would cut about 3% of its global workforce as part of a restructuring plan.
Meanwhile, New York start-ups Fridge No More and Buyk — which both raised money from Russian investors — wound down their operations after facing issues with fundraising after Russia’s invasion of Ukraine.
“Rapid grocery delivery companies live and die based on the amount of capital they raise,” Brittain Ladd, an e-commerce consultant, told CNBC.
“The problem with players like Getir and Gorillas is that they’re gimmick companies,” he added, referring to the platforms’ promise of 10-minute delivery times.
Getir CEO has previously said his company “democratized the right to laziness.”
On-demand food and grocery delivery platforms have already gone through considerable consolidation in the past year, with Getir buying U.K. start-up Weezy, Germany’s Delivery Hero acquiring a majority stake in Spanish food delivery firm Glovo and DoorDash acquiring Finland’s Wolt.
Earlier this month, London-based grocery service Jiffy said it would stop making deliveries and instead shift its focus toward in-person grocery collection, in a bid to convince investors that it can achieve profitability. The company has since announced plans to resume deliveries through a deal with Zapp.