Europe’s instant grocery start-ups deliver frantic summer of dealmaking

It was a sweltering, stressful summer for Kağan Sümer, the 33-year-old head of Gorillas, as he cut and recut deals with some of the biggest players in the booming world of instant deliveries.

Founded in May 2020 as Europe battled with the coronavirus pandemic, Gorillas promised to reinvent grocery shopping by biking goods to customers inside 10 minutes. A year later, it was one of the continent’s hottest start-ups, passing a $1bn valuation, expanding across Europe and even to New York.

But as a result of that rapid growth it was already running short of cash and its rival Getir, which had raised $550m in June, had pulled ahead in key markets such as London.

Sümer was struggling with protests about working conditions for its Berlin couriers, and with what some at Gorillas believe was a campaign by rivals to spread allegations of his drug use. He later told technology publication The Information that his use of “performance enhancers” was “in the past”.

So when Tony Xu, the head of the US food delivery company DoorDash, flew from California to Germany in late July, Sümer felt it was his last shot at survival. The two companies quickly agreed a deal for DoorDash to invest hundreds of millions of dollars at a $2.5bn valuation.

The transatlantic battle to replace convenience stores with fleets of delivery riders has become the frothiest tech trend of the past 12 months, with billions of dollars of venture capital funding going into start-ups in the US and Europe.

But what might have seemed like a happy conclusion for Gorillas and DoorDash was only the start of several more weeks of frantic dealmaking and deal-breaking as players in the nascent market jostled for advantage.

One investor in the sector described the action as “like a movie”, while another veteran tech executive, now working with one of the delivery apps, said he had “never seen such a wild party”.

“It’s insane, it’s beyond anybody’s imagination,” he said. “Everybody is talking to everybody.”

Today, it is Gorillas’ fierce rival Flink that has taken funding from DoorDash, while the German takeaway giant Delivery Hero has come to Gorillas’ rescue with a $235m investment that closed this week.

This account is based on interviews with 10 people involved in the merry-go-round. Gorillas, Flink, DoorDash and Delivery Hero all declined to comment on the financings.

Gorillas and DoorDash fall out

It did not take long for Gorillas and DoorDash to start to quibble over the fine print of their deal. DoorDash wanted to restrict Gorillas from expanding too quickly in the US, according to people with knowledge of the negotiations.

The German start-up also bridled at other “accountability” measures that were designed to encourage Sümer to focus on improving his business fundamentals in Europe. Some Gorillas investors felt the terms smacked of anti-competitive behaviour and that DoorDash sought too much control over the start-up’s destiny.

Sümer looked for other options. He had already been talking to one of his closest rivals, Flink, about a merger, and then he hit it off with Niklas Östberg, chief executive of Delivery Hero.

Östberg, who has rolled out hundreds of his own “dark stores” or DMarts, from which he can deliver groceries to Delivery Hero’s customers in 35 countries, had overcome his earlier misgivings about the sector, voiced on Twitter, when he compared Gorillas to the cash-burning bubble for escooters.

Gorillas had strong customer retention even after the pandemic, and had rebuilt its top team after the departure of two co-founders, bringing in experienced executives to run finance, operations and talent.

So Delivery Hero offered Gorillas the cash it needed, with other investors lining up several hundred million dollars more, though this part of the deal — which seems likely to be heavily dilutive to the stakes held by Sümer and other early shareholders — has not yet been finalised.

Gorillas and Flink to merge?

Even while discussing an investment, however, Delivery Hero revived the idea of merging Gorillas with Flink into a $5bn company. Delivery Hero’s largest shareholder, Prosus, had previously invested in Flink and both Prosus and Delivery Hero discussed a new investment in the merged company.

But the talks foundered over branding, management and the respective stakes of the two companies. Prosus did not respond to a request for comment.

While Sümer was distracted with seemingly endless fundraising negotiations, Oliver Merkel and his Flink co-founders were trying to keep their heads down.

Like Sümer, Merkel had previously worked at Bain, consulting for retailers. Both founders raised big rounds in record time for European start-ups. But that is where the similarities between them largely end. Two of Flink’s investors say media-shy Merkel is a more mature executive who has been less profligate in the expensive dash for market share.

In the end, two competing Americans crashed the party, both with eyes for Flink. Gopuff, which raised $1bn in June and had already bought up two smaller grocery apps in the UK, Fancy and Dija, held acquisition talks with Flink. But it failed to agree a deal, in part over valuation. Gopuff declined to comment.

Around the same time, DoorDash, still smarting after being dumped at the altar by Gorillas, also approached Flink. While Merkel had not been planning to raise any more money after a $240m round in June, seeing Gorillas land a strategic backer in Delivery Hero — and aggressive competition from Getir — made him more open to taking DoorDash’s calls.

DoorDash has now agreed to invest $400m in Flink, as part of what is expected to be a $600m round.

From the perspective of DoorDash, which has seen its market capitalisation grow to more than $70bn since December’s initial public offering, Flink seemed to offer a more stable partner with strong retail experience and connections, including a partnership with German supermarket Rewe.

More shake-outs to come

As summer turns to autumn, the market for rapid grocery delivery, which barely existed in western Europe a year ago, is already starting to see a shake-out.

Gorillas and Flink now both have the same $2.1bn valuation, before including the new funds raised, according to multiple people familiar with the two investments. If all goes to plan, Getir, Gorillas and Flink will have each raised close to $1bn in funding by the end of the year.

Monthly app download figures from mobile analytics group Sensor Tower show that Flink overtook Gorillas in July and August in Germany. In the UK, app figures show Gorillas’ incredible growth in May and June fell off dramatically in August, while Getir has grown larger than all its rivals combined.

Line chart of Monthly download numbers (000) showing Grocery delivery app downloads in UK

New players are still coming in: UK-based Jiffy and France-based Cajoo have secured $28m and $40m respectively this month. Atomico-backed Zapp is gaining momentum in the UK.

Still, few investors expect more than two or three start-ups will survive the next year. Some investors still see potential for a Gorillas-Flink merger once the dust has settled.

“These are classic land-grab, monopolistic deals where the winner owns the category and that has enormous long-term value,” said Ben Narasin, founder of Tenacity Venture Capital, which has not invested in the sector.

Additional reporting by Martha Muir and Dave Lee.

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