The end of COVID-19 restrictions and a return to “normalcy” will challenge Australia’s instant delivery startups, a retail expert says, after reports rapid grocery firm VOLY has cut its office headcount and shuttered some of its Sydney distribution centres.
VOLY is one of several buzzy startups founded last year promising to challenge supermarket giants like Coles and Woolworths with quickfire grocery deliveries across inner-city regions.
Unlike Uber’s grocery-grabbing service, VOLY operates its own micro-fulfillment centres, where workers can quickly pull groceries from a shelf and package them for delivery.
The company raised $18 million in a seed funding round late last year, and counted 35 office staff and around 100 employees in December.
Citing an unnamed former employee, The Age reports VOLY this week halved its office staff numbers, jettisoned its promise of 15-minute grocery deliveries, and closed warehouses in four inner-Sydney suburbs.
The source claimed staff were informed Wednesday, a day after co-founders Mark Heath and Thibault Henry met with investors.
While the instant delivery service remains operational, The Age reports VOLY seems to have put its Melbourne expansion plans on ice.
Reports of VOLY’s change of course arrive weeks after competitor SEND entered voluntary administration, with administrators circling the firm’s cash burn rate as a key factor in its financial challenges.
SmartCompany has contacted VOLY for comment.
Instant grocery delivery services now operate in a very different environment compared to when they first sprung up, says Professor Gary Mortimer, a retail and consumer behaviour researcher at the Queensland University of Technology.
Services like VOLY first appeared when COVID-19 lockdowns were fresh on the minds of users, he said, but the gradual reopening of Australian cities has influenced what shoppers see as convenient.
“I think the challenge though, that these smaller players are facing, is that we’ve returned to a ‘COVID normal’ situation where people are back to shopping for the groceries as they normally did,” Mortimer told SmartCompany.
“They’re going back to work and cities and office. So life is returning to normal.
“Being able to pop into your local supermarket on the way home is an easy and efficient way to access food and groceries, so the demand for that service is decreasing.”
At the same time, rising costs are likely to dig into the margin of instant delivery services, Mortimer added.
The cost of many everyday grocery items is rising as producers shoulder higher costs themselves.
Inner-city rents are also set to rise, putting further pressure on micro-fulfilment centres in densely populated areas.
Since many instant delivery riders are hired as employees, not independent contractors, wage hikes may also stretch the viability of the model.
“Margins, particularly in food and groceries are incredibly tight,” Mortimer said.
“Even the big supermarkets really are making very, very low EBIT numbers, or very low margins,” he added.
“So if the big guys are only delivering, you know, 5, 6, 8%, it makes it incredibly difficult to run that in a small business.”
Those concerns are compounded by a turnaround in tech investor sentiment. As inflationary fears rise, VC firms are suddenly less likely to invest in growth-focused companies than they were even six months ago.
Now, as Coles and Woolworths are bolstering their own fulfilment capabilities, smaller players must find their value proposition compared to the incumbents, Mortimer said.
Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
