Over the past few weeks three online delivery startups ceased activities, having failed to turn a profit or demonstrate viable business models.
The e-grocery delivery service Golama made the news last year as it completed a $2.3 million round of funding, then agreed with VEB Ventures an additional $7 million capital injection.
In mid-January 2020, however, VEB Ventures renounced the deal, as reported by Kommersant, considering the risks to be excessively high. According to Golama, the transaction could have been confirmed with the involvement of a co-investor, which the startup failed to secure.
Golama said it invested nearly $8 million (500 million rubles) in logistics, order management and CRM systems. The company claims it was “close to break-even” when it ran out of cash.
Perspicacious investors
Foodza, a startup that organized direct supplies of fresh fruit and vegetable to retail stores, restaurants and cafés, is also going bankrupt. In 2018, the startup secured $1 million from such prestigious investors as Mail.Ru Group; Larix VC, the fund of famous entrepreneurs Oskar Hartmann and Igor Rybakov; and FJ Labs, the investment firm of international business angels Fabrice Grinda and Jose Marin.
The company was led by Vladimir Kholyaznikov, an e-commerce veteran who made his name at the helm of flash sales platform KupiVIP. Kholyaznikov told Rusbase Foodza “didn’t find a sustainable business-model” after two years of operations, having to compete with traditional distribution networks.
Foodza was in a position to close a new round of financing just before shutting down, claims Kholyaznikov. The entrepreneur ultimately renounced the deal, considering the company to be to weak financially.
Superbro, another delivery operating in Moscow with 1,200 retailers of various types, also shut down. The company was a spinoff of courier delivery service Dostavista, which had injected nearly $1 million into it. Superbro failed, however, to demonstrate the “skyrocketing growth” expected by its instigators.
No market slowdown
These failures do not reflect any slowdown of the Russian online delivery market, which grew by more than 40% in 2018, according to DataInsight.
“There hasn’t been any slowdown since then. But “old leaders” like Utkonos and OKey tend to grow more slowly, reducing their market share, while newer companies are grabbing more and more ‘share of voice’ in total market growth,” DataInsight co-founder Boris Ovchinnikov told East-West-Digital News.
A series of important moves took place in the summer of last year. Food delivery startup iGooods attracted nearly $5 million from Joom, a Russian-founded international marketplace. PIK Group, a leading residential property developer, invested in a St. Petersburg-based e-grocery service.
Most recently, the Russian sovereign fund RDIF announced its intention to invest in Elementaree, an online meal kit delivery service operating in Moscow and St. Petersburg. Through previous rounds of funding (the last one took place in 2017), this startup already raised nearly $3 million from Russian individual investors.
Russia’s largest tech companies are also active. Last summer Mail.ru Group and Sberbank joined forces to develop ride-hailing and food delivery activities.
In late 2019 the bank – now a tentacular tech conglomerate – launched its own delivery service, ‘SberMarket.’ Focusing on grocery products and essential items, the service is available in dozens of Russian cities.
Yandex has its own food delivery service, called Yandex.Eda (Yandex.Eats), following the acquisition of the startup Foodfox in 2017. More recently, the company launched a new service called Lavka, spreading small warehouses across the capital. These are stocked with about 2,000 items and uses bike couriers to deliver orders in just 15 minutes, as reported by Bloomberg.
Meanwhile Perekrestok.ru, the online branch of a leading food retail network, grew at an impressive pace: in 2019, the company processed some 1.4 million orders, a threefold increase from 2018, as reported by its owner X5 Retail Group.
While online groceries are one of the fastest-growing segments of Russia’s domestic e-commerce market, neither a booming demand nor generous funding are enough to ensure startup success.
In 2019, according to DataInsight’s preliminary estimates, total domestic online sales of material goods in Russia amounted to around $25 billion (1.6 trillion rubles), up 25% from 2018.
