Nadine Schimroszik and Toby Sterling

AMSTERDAM, (Reuters) – The struggling grocery delivery sector is now facing a difficult period of adjustment. Investors believe that only a few firms will survive each market and that they’ll be in very different shapes.

Investors poured billions of dollars into quick commerce grocery companies that promised to deliver everything from soap powder to pasta within fifteen minutes from dark-store hubs.

With the tightening of lockdowns and consumers facing rising living expenses and elusive profitability, capital flows have slowed to an absolute trickle. Firms are now shifting from expansion to restructuring.

Getir, Turkey – The largest and most established of fast food delivery companies – Germany’s Gorillas as well UK-based Zapp all stated in recent weeks that they were cutting back staff while Flink, Berlin-based has also slowed down hiring.

London’s Jiffy announced last month that it would cease delivery operations. Zapp raised $200 million in January and assumed its customers.

Zapp said in an email that the current macroeconomic environment has made it extremely difficult, and there is little to no visibility into when they will improve.

Monique Pollard, Citi analyst, estimates that 7-8 smaller businesses have had to sell or close their operations this year. It’s going faster than we thought,” she stated.

However, executives and investors believe that there are still solid business reasons for grocery on demand. This is due to the convenience it provides consumers.

Larry Illg (CEO of Prosus – Technology Investor) NV’s online food businesses, stated that the current shakeout will ultimately be in favor of survivors.

He said that there are fewer dark-store rollouts, less marketing investment and less discounting to competition. So, aggregate growth slows down but the economics in this space are better.

BLURRED LINES

Illg made this presentation earlier in the year to investors. He said that he saw blurring of lines between grocery delivery, restaurant food delivery, and fast commerce. Illg stated, “I believe you’ll see different variations of this around the world across the various inventory mixes and business model.”

Deliveroo and Uber are promoting the use of big meal delivery services like Just Eat Takeaway, Deliveroo and Uber (NYSE) Eats in grocery stores is already happening as these companies strike deals with grocery chains and convenience stores.

Others are joining forces to deliver with established delivery businesses. DoorDash, an American delivery company that bought Finland’s Wolt for $3.5 billion last week, closed the acquisition.

Germany’s Delivery Heroes has agreed to purchase a controlling interest in Spain’s Glovo. The deal, which is valued at $2.6billion, will be closed later in the year. Both offer quick grocery services.

Flink was another delivery firm that has benefited from industry acquisitions. In December Flink raised $750million at $2.85billion valuation. Last month, Flink bought France’s Cajoo.

Flink refused to comment but investors informed Reuters that the company doesn’t plan on entering new markets.

It is becoming more crucial to build profitability as weak equity markets make it hard for fast delivery businesses to raise outside capital.

Citi’s Pollard explained that “if private market capital doesn’t want to invest in the business model, then it is necessary for a company to depend on its cash generation capability.” Although some European quick delivery firms have made operating profits in their respective cities or stores, they are not making any money overall.

Kagan Sumer, CEO of Gorillas, told Reuters that the company values profitability. Gorillas is seeking to reduce 300 employees and “review” operations in Italy Spain Denmark Denmark Belgium.

In October, the company was valued at $2.1 billion by investors that included Delivery Hero (meals delivery company), but it has had difficulty raising more.

Getir will be laying off 14% staff, but it said that it would not leave any of its nine operating countries. With backing from Sequoia Capital, Tiger Global and Sequoia Capital, the group was able to raise $768 million in March at a valuation of $12 billion.

TriplePoint Capital’s co-founder, Sajal Shrivastava (a Silicon Valley firm providing debt financing to startups like Flink), said that there has been a rise in demand for his services from companies who cannot raise equity on favorable terms.

He stated that while there are many business models for food delivery in the world, some combination of fast grocery delivery, hot meal delivery, and convenience delivery is likely to be the most successful.

Every country will have several players. Do they actually need six? Most likely not. Are they going to need more than one? “Yes, I believe so.