Has Gorillas Reached its Peak Already?

Founded in 2020, Gorillas rapidly grew during the pandemic as an on-demand grocery delivery business that offered city dwellers – at least – the promise of delivering consumer goods within just a few minutes. However, recent news emanating from the German company may indicate that all is not well with the business model in the post-pandemic world. Of course, time will tell as to whether Gorillas remains a leading brand in the months and years ahead. After all, it had a starting rise to prominence, attracting close to $1 billion (£794 million) in investment as recently as October 2021 with its Series C funding round. That came some seven months after Gorillas had successfully gained $290 million (£230 million) in venture capital funding during its Series B investment drive in March 2021. As such, few industry commentators would write Gorillas off. However, there are certainly some structural changes afoot with the company, something that may speak more widely to the local delivery and last mile courier service industries in the UK and continental Europe.

When it began trading, the Berlin-based start-up seemed to be at the very heart of the last mile delivery business during various periods of lockdown across Europe in 2020 and 2021. Unlike the likes of Deliveroo or Uber Eats, however, Gorillas’ offering was somewhat unique insofar as it made use of so-called dark stores. From the customer’s perspective, they would receive their order as though a Gorillas employee had been to their local supermarket and found everything that was needed on the shelf, only to pay for it at the checkout and get it to the client within about 10 minutes. However, Gorillas’ business rationale meant that it used dark stores – distribution centres and shops that aren’t open to the general public – to fulfil locally placed orders more rapidly than would be possible by heading to a store.

Despite its initial rapid growth as a start up enterprise, Gorillas announced in May that it would be pulling out of several trading territories in Europe altogether for the time being. In a statement, the company said that this would allow it to focus its attention on what it regarded as its key markets more closely. Crucially, for anyone working for Gorillas at the moment, the company said that the UK remained one of its most important markets. In its statement, Gorillas executives said that the firm was currently moving from a “hyper-growth” model that it had been used to for the previous 24 months to one that offered a clearer “path to profitability”. Clearly, such as move has raised eyebrows in the sector because the once all-conquering Gorillas seemed to be able to do no wrong. So, is the change something to do with the way Gorillas is set up or does this move say something about the wider grocery delivery sector as a whole?

Gorillas’ announcement came with the news that it had decided to shed about 300 jobs from its global workforce. “With this difficult decision,” Gorillas’ statement read, “[We are]… ensuring that we strengthen our position in the long term, both strategically and financially.” The firm also said that its move came as a result of a difficult economic period for the tech industry as a whole. It is understood that the majority of the jobs being lost are those in the company’s German headquarters in Berlin, perhaps offering an indication that the move is more to do with the technological side of the business rather than the delivery aspects of its service. That said, on top of the German staff cuts, Gorillas said it intending on ceasing its current operations in Spain, Denmark, Italy and Belgium altogether. This indicates that the success – or otherwise – of its business model hasn’t always been evenly distributed in different markets. “Gorillas will now focus on five strategic markets,” the statement read. Along with the UK, these will be made up of Germany, France, the Netherlands and the United States.

It may not be that surprising that Gorillas has made the move to limit its backroom staff and the territories it operates in for a time when you consider that in the region of 90 per cent of the company’s turnover is generated from the five markets it intends continuing to offer services in. In short, the strategy appears to be focusing on trying to achieve a profitable business model in those countries rather than trying to achieve market dominance at a loss in places that haven’t necessarily seen the value in Gorillas’ business model. Perhaps the decision-makers at Gorillas have looked at the way other delivery tech startups have invested so heavily to achieve market penetration that they haven’t always given sufficient attention as to when spending should stop and profit generation ought to begin. It is also worth noting that when Gorillas first got going in 2020, it was one of a number of rapid delivery start ups that responded to the pandemic and the public’s demand for groceries without having to attend stores in person. Gorillas might have started out with some competitors in its chosen marketplace but it certainly seems to have gained the greatest reputation among them as the leading brand.

Gorillas’ growth has undeniably been rapid even though it may not have grown as evenly across Europe as it might have liked. After it achieved such spectacular inward investment last year, Gorillas’ publicly shared valuation had reached an enormous $3.1 billion (£2.5 billion) which constituted a remarkable feat for any company that was only in its second year of trading. Nevertheless, as many industry commentators have observed, while large amounts of investment have been thrown at various delivery service start ups operating in the rapid delivery market since the pandemic struck, operating profitably has remained a significant challenge across the entire sector. For some, as the leading light in the sector, Gorillas may have had the furthest to fall, not least because of the great expectations that it continues to inspire among investors. Indeed, despite the fact that it has raised so much investment in such a short period, some have said that the company faces significant debt liabilities with some of its key suppliers. One report cited a monthly expenditure of up to $75 million (£60 million) just to handle its cash flow situation with its suppliers.

It should also be noted that Gorillas is just one of numerous technology firms that have decided to take organisational steps to protect them from changing consumer demands in the light of the so-called cost of living crisis. Other companies that have felt the heat of harsher economic times include the buy-now-pay-later Swedish fintech business Klarna. It announced that it would be cutting 10 per cent of its employees about the same time as Gorillas made its announcement. There again, Hopin, the London-based online events platform, said that it had decided to shed at least 12 per cent of its staff earlier in the year. More direct competitors with Gorillas, such as Deliveroo and Just Eat, also faced some financially challenging times. JP Morgan downgraded stock valuations in both firms – Deliveroo dropped by 1.4 per cent, or 1.24 pence, to 85.92 pence per share in May while Just Eat’s valuation fell by 0.8 per cent, or 14.2 pence, to 1,706 pence per share in the same period. The investment bank cited a lack of consumer funds for takeaways and delivery services as the reason for its decision.

Of course, how such changing macroeconomic conditions will affect Gorillas – and other operators in the last mile grocery sector – remains to be seen. One academic, Sianne Ngai from the University of Chicago, warned that firms with gimmicky business models could be in for difficulties as household budgets tighten. Speaking to the British press, the cultural historian noted how quickly things had changed for Gorillas. “Everyone was a winner when everyone had access to capital… when trillions of dollars had been injected into the global economy,” she said. “As many companies enjoyed high valuations, [at that time]… this was favourable for Gorillas, as well.” However, Ngai noted that the global markets had been turned on their heads in March and had continued to worsen since then. She noted that cautiousness was what was driving markets and that tech companies, particularly those with low or negative margins, faced a strong economic headwind. As such, Gorillas decision to concentrate its efforts on only certain markets may be the right response to a changing world economy.

If investors are now looking for lower-risk but more profitable businesses, Gorillas – and others in the technology-based last mile delivery sector – will only have a short period of time to alter their business models, shifting from a time of rapid expansion and attempt to gain market dominance to that of profitability. Based on its public recent announcements, this appears to be exactly what Gorillas is trying to do. Few will be able to ignore how successful Gorillas may be in pulling this off given its spectacularly meteoric rise in the sector.