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Can Getir deliver on its $7.5bn Series D valuation?

Turkey's Getir, the original speedy delivery startup, is now valued 10 times more than it was in January. But is it worth it?

By Katja Staple

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Credit: Credit: Katja Staple

European on-demand grocery delivery startups are VCs’ new darlings. In the first half of this year alone, grocery delivery companies have raised $2bn in Europe, according to Pitchbook data. 

One company in particular, Turkey’s Getir, is growing extremely fast. In June, it announced $555m in new funding; its third funding round since January, over which time its valuation has increased almost tenfold to $7.5bn. In the past month, it has also expanded into two big new markets: Germany and France.

This funding bonanza is particularly remarkable considering that many features of on-demand grocery delivery businesses usually send VCs running for the hills. They are low margin, take inventory, lack an obvious moat in a highly competitive market and depend on finding (and often employing) thousands of blue-collar workers — couriers — to achieve scale. 

Past forages in this direction have seen mixed results. Deliveroo’s IPO famously flopped this March and, at the time of writing, the company trades 24% below IPO valuation — despite not taking inventory and benefiting from network effects. Escooter companies, another sector VCs were once falling over themselves to invest in, also struggled with poor unit economics, operational complexities and ferocious competition in their early days. 

None of the above currently deters investors, who have turned their collective enthusiasm to the sector. ”I was the same guy for the last six years, doing super-fast deliveries,” Getir CEO Nazim Salur told Sifted. “But in the last six months the investor community decided to get into it; it is like they have a club.” 

But how did VCs get to Getir’s $7.5bn valuation? 

The business model of on-demand grocery companies

Getir — and its investors — believe that  success in on-demand groceries depends on hundreds of marginal improvements and an obsession with operational excellence. Grocery margins are very slim. Offline supermarkets have operating margins of around 2-3%. 

On-demand grocers can improve those margins in several places: they can charge slightly higher prices and a delivery fee (in exchange for extreme convenience), require significantly less and cheaper real estate and don’t need retail assistants.

Technology could optimise every stage of the process — predicting demand, managing inventory, streamlining the picking process and coordinating the courier fleet — although few of these companies have developed sophisticated software just yet. (Several of Getir’s competitors are still using spreadsheets to manage their stock.) 

Scale will bring additional efficiencies. When several orders are placed almost simultaneously from a small area, a courier can combine deliveries within one 10-minute trip. In Turkey, demand in some areas is already so high that several dark stores are located directly next to each other, meaning that ‘stacked’ trips are probably feasible. Currently in London, couriers are making about three deliveries an hour.

Another margin driver is order size — and repeat custom. Getir did not comment on its order size, although Paris-based competitor Cajoo told Sifted its average baskets come in at €20-30, while UK-based competitor Dija says its customers order £20-25 worth of items at a time. Berlin-based Gorillas told Sifted 92% of its customers are repeat purchasers. All of these businesses will be focusing on boosting how much customers spend, and how often. 

There are limits to how much startups can squeeze the on-demand lemon.

Still, there are limits to how much startups can squeeze the on-demand lemon. Even Amazon — online retailer extraordinaire — reported a 2020 operating margin of just 2.75% on operations, excluding its cloud services division AWS. To make the model work, companies will have to sell huge volumes. 

Can you replicate a Turkish business in the UK?

“Getir is an existing business, not just a project,” says Salur. Indeed, since 2015 Salur has built Getir into a successful business in Turkey covering 30 cities, 400+ dark stores and 10k couriers. Profitability is within reach: according to Salur, Getir would have been “very profitable” in Turkey if it had chosen to grow at 3x rather than 5x last year.

Investors certainly agree that Getir’s success in Turkey has shown that there is the consumer demand, skill and technology for startups to finally tap the European grocery market of over 2tn.

However, Turkey is different to other markets in at least two ways. 

First, competition: Getir was the first mover in Turkey and had limited online competition in its home market. Now there are dozens of well-capitalised competitors fighting for the same turf.

The party line between investors and founders is that the market is so huge that it can feed two to three companies per country. But competition is more than just divvying up the market pie.  

Competition reduces the slim margins still further, as demand for (and therefore price of) drivers, talent and real estate increases.

Competition reduces the slim margins still further, as demand for (and therefore price of) drivers, talent and real estate increases. As a result, marketing and promotional spend will increase while the power to charge delivery fees and higher prices decreases. Consumers in London can practically eat free for a week by taking advantage of all of the apps’ offers — and have little reason to remain ‘loyal’ to one over another.

Second, labour: unlike futuristic warehouse operations like UK online retailer Ocado, where robots pack thousands of shopping bags, on-demand grocers like Getir depend on people picking and delivering goods by hand. In emerging economies like Turkey where labour is relatively cheap (a delivery driver in Istanbul can expect just about £2/hour) and food represents a higher share of consumer expenditure (21%), a labour intensive business model is feasible. 

London, where Getir pays couriers above the London living wage of £10.85/hour and food is more expensive, but not proportionally so (in the UK it represents only 8% of consumer expenditure), will challenge this business model.

Does the VC maths add up?

Most competitors have existed for less than a year, have little sales data to extrapolate from and don’t want to share it. Even Getir, which has delivered food since 2015, recoils at the idea of sharing historic data. With impressive growth rates — Getir’s sales grew by 5x in 2020 — investors want to talk about the future instead and often annualise (multiply by 12) the latest month of sales rather than considering the historic 12 months. 

Competitors and comparable companies give a clue. At its March funding round, investors valued the US first mover, Gopuff, at $8.9bn, 26x its alleged 2020 sales. (According to The Information, Gopuff’s sales tripled in 2020, to $340m.) The multiple to annualised sales will be lower, however. Extrapolating from Gopuff’s 2020 sales figures suggests an ~13x multiple to annualised revenues at the time of the funding round. 

Another comparable are ride-hailing companies. For Uber, market capitalisation equals 8x its annualised Q1 sales.  And restaurant delivery company Deliveroo fell from 4x annualised Q1 sales at IPO to a mere 2.2x multiple today

While Getir investors and the team did not provide exact numbers, it appears Getir was valued in a range set by Gopuff (13x, implying ~$600m annualised revenue) and Uber (8x, implying close to $1bn annualised revenue), ‘cheaper’ than its American counterpart, but at a significant premium to Deliveroo. 

Back-of-the-envelope, the Getir investment is roughly consistent with private valuations of comparable startups (bar Deliveroo). As so often, the tech companies are completely out of sync with old-world competitors. Today, Getir has a similar valuation to the UK’s second largest supermarket, Sainsbury’s, which had 2020 grocery sales of ~£21bn. This gives an indication where investors think Getir is heading with sustained exponential (and international) growth.

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