'The VC FOMO is real': Tech investors are piling into dark store startups that deliver groceries in 10 minutes

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AP19275501955645 Investors are racing to invest in dark stores

  • There’s a boom in investor interest in European dark store startups right now.
  • These startups promise speedy grocery deliveries in as little as 10 minutes, and investors hope the concept explodes as food delivery and ride-hailing have.
  • Business Insider understands that new dark store startup Dija is raising at a large valuation, while German firm Gorillas has raised funding from hedge fund Coatue.
  • Established tech firms such as Russia’s Yandex and Delivery Hero have established dark store networks in the last 12 months and are expanding across Europe.
  • Visit Business Insider’s homepage for more stories.

Europe’s tech investors are piling into dark store startups, hoping that superfast grocery delivery can disrupt retail in the way food delivery apps revolutionized takeaway.

A dark store is essentially a grocery store without customers, dedicated to fulfilling online deliveries of groceries and other supplies. Buying your weekly food supply online is an established concept, but the new wave of dark store startups in Europe promise to cut urban delivery time from days or hours to as little as 10 minutes by using a network of small urban warehouses.

The European grocery retail market is overall expected to be worth approximately €2.3 trillion ($2.7 trillion) in 2022, according to IGD.

Investors piling into these companies hope the boom in online shopping, supercharged by the pandemic, is here to stay and applies as much to daily essentials as clothes and electronics.

They’re also betting that faster delivery will appeal to younger consumers increasingly accustomed to the benefits of the on-demand economy.

In some cases, the startups attracting investor attention and high valuations are so new that there is no information about their services or pricing available yet.

But broadly, like food delivery apps, grocery delivery relies on gig economy workers to rapidly transport products direct to the consumer.

Users pay a delivery and service fee, as they would for Uber Eats, which likely ranges between $2-4 depending on the the proximity. These businesses are early stage so it’s unclear how their pricing model works, and there are likewise questions about their sustainability and margins.

“Everyone is looking at the space, it’s the next e-scooters,” one London-based investor said.

A UK dark store startup incorporated this week is thought to already be worth $75 million

In the UK, investors are circling a new dark store startup called Dija, which was only incorporated this week. The company doesn’t appear to have a live website or app yet, but investor sources described the firm as a grocery delivery startup operating with a dark store model.

Two sources with knowledge of the situation said European early-stage fund Blossom Capital is set to lead a funding round of approximately $13 million into the startup.

Demand from institutional investors was high, the sources said, and unnamed later-stage investors are thought to be providing roughly a further $7 million in capital via convertible notes. In an unusual arrangement, the idea is to give these investors a cheaper route into Dija’s subsequent funding round.

That would put the total deal size around $20 million for a company that is pre-launch and pre-revenue. Business Insider also understands that the company has a valuation of $75 million pre-money, a staggering amount for a newly minted company.

The firm was set up by Alberto Menolascina, previously chief growth officer at dark kitchen startup Reef Technologies, and prior to that a corporate strategy director at Amazon-backed UK food delivery firm Deliveroo. Cofounder Yusuf Saban was previously chief of staff to Deliveroo CEO Will Shu.

Blossom Capital and Dija’s founders did not respond to a request for comment.

In Germany, dark store startup Gorillas is thought to have raised $40 million from hedge fund Coatue, according to a local media report that pegged the startup’s valuation at $200 million pre-money. Two industry sources also said Coatue had backed the deal to the tune of $30 million to $40 million. Gorillas is also advertising job postings that state it has raised money.

Coatue declined to comment, and Gorillas did not respond to a request for comment.

The German startup is still in the early stages, but on its site promises app-based grocery delivery in as little as 10 minutes.

Gorillas Gorillas promises grocery delivery in 10 minutes.

And earlier this year, UK-based dark store startup Weezy raised a comparatively modest £1 million ($1.3 million) pre-seed round led by Heartcore Capital. The round involved former executives from British grocery delivery giant Ocado and Deliveroo investor Greg Marsh.

Sequoia’s Michael Moritz (an early investor in Google and YouTube) led a $40 million investment in Turkish dark store company Getir in January. Getir saw a 150% rise in demand for its speedily-delivered groceries when Covid cases peaked in Turkey, per Sifted

Betting on demand for speedy delivery

An Uber Eats delivery bike rider wears face mask as a precaution against transmission of the coronavirus at Madrid Rio park on March 14, 2020 in Madrid, Spain. Today known cases of Covid-19 in Madrid are 2,940, while there are 86 reported deaths. The cases in Spain are 5,867 people infected of coronavirus and 135 deaths. The Spanish Government has declared the state of emergency to contain the spread of the virus. All businesses which are not of prime interest, such as grocery stores and pharmacies will have to close temporarily. In the UK, grocery chain Asda has teamed up with Uber Eats for faster delivery.

The pile-in comes as venture capitalists look to find the next iteration on successful delivery startups such as Spain’s Glovo, the UK’s Gousto, and the UK’s Deliveroo. “The VC FOMO is real,” a European investor said. 

There are some signs the model works elsewhere, with US-based convenience store startup GoPuff worth an estimated $4 billion, and Latin America’s Cornershop acquired by Uber in 2019.

But the European dark store market is still nascent by comparison and poses its own challenges.

“The European playground is significantly different, with smaller and less dense cities than Asia or the US, a less prominent digital culture and disparate relationships with food among the different countries,” according to research by investment bank Clipperton.

Clipperton research Clipperton research on grocery startups

Like other on-demand startups, the model for dark stores is thought to be capital intensive.

“Only the big guys can really play,” said one London-based investor who has looked at the space in detail. “The coronavirus pandemic has meant there is so much trapped capital that is now essentially borderless, so we’re seeing big funds coming into these early stages.”

Challengers will need the cash, given they will need to rival both incumbent grocers and big tech firms getting in on speedy deliveries.

Russia’s equivalent of Google, Yandex, branched out into dark stores in mid-2019 and has more than 240 dark stores in its home market. The company has also launched its 15-minute grocery service into Israel, under the brand Deli.

German delivery giant Delivery Hero has also moved into the sector, acquiring dark store specialists Talabat, which offers 15-minute delivery 24/7.  The firm has expanded the model to 35 markets, and plans to deepen its presence in Europe.

Established grocers may also catch up, though their offerings remain limited. In the UK, Ocado’s Zoom service offers limited groceries in under two hours, Tesco offered same-day deliveries prior to the pandemic, and Sainsbury’s Chop Chop offers deliveries in one-hour slots in some areas.

Investors hope they can funnel enough cash into the disruptors to “scare others out of the market,” one VC investor said.

“There is no moat here with this tech, it’s a land grab and you have to get out there and hoover up first,” they said.

Bastion Balance Seoul, Korea.