Gopuff is the most overlooked US company in the grocery/food delivery market. goPuff has entered the market starting on the steepest road with a fully integrated model with its own small warehouses which distributes across the country your orders of essential products in 30 minutes or less. It's harder, way harder, but goPuff is nailing it. With sound unit economics and a total control of the customer experience, goPuff business model is winning the market.
How Does Gopuff Work?
Gopuff is an on-demand food and grocery delivery service operating in 550 cities across the United States.
Shoppers can order from goPuff through its website or mobile app for iOS and Android. After entering their delivery location, the customer is directed to the inventory and selection available from their local goPuff warehouse. They can then add items to their cart and pay online, similar to traditional digital order platforms.
Once an order is placed, warehouse workers are notified, pick the items from the warehouse shelves, and bag them. Bags are then held in bins specific to each driver, often grouping multiple deliveries to locations in close proximity when possible. Drivers then collect the bags from their bin and head out to complete the deliveries.
Shoppers are notified of each step in the delivery via playful, often customized text messages, and then called by the driver upon arrival. Since their vertically integrated delivery model cuts out the middleman, goPuff is able to deliver orders to customers as soon as they are received, usually taking around 15-30 minutes.
Who Makes Gopuff Unique?
The company isn't a household name yet - compared to, say, delivery service Instacart - it's because goPuff simply doesn't care about being a household name. It isn't out to conquer Amazon. Its service is something more intimate: delivering essential goods - well, if you consider munchies and smoking supplies and condoms and booze "essential" - any hour of the day, within 30 minutes of when you tap the app.
Unlike Instacart, goPuff doesn't fetch your grocery list by buying directly from stores like Whole Foods. Instead, it stocks roughly 3,000 items at a centralized warehouse in each delivery radius.
How Does Gopuff Make Money?
Gopuff makes money by marking up products, through delivery fees, subscriptions, as well as advertising on its platform.
Let's take a closer look at each of these in the section below.
Markup
Products sold on Gopuff are purchased and sold directly by the company. This is unlike its competitors which deliver products from other supermarkets and restaurants.
Therefore, Gopuff makes money whenever it sells a product. The difference between the sales price and all associated costs, such as buying and storing the product, is the profit it makes.
Many investors believe that this model is much more lucrative. For once, since Gopuff owns the products, it has real-time information on its availability. Other platforms may struggle with out-of-stocks due to missing integrations with supermarket partners.
Second, its order fulfillment is substantially faster. It has designated workers that pick the products and hand them to the delivery driver. This saves time for the driver who doesn't have to sift through countless shelves.
Third, the company's warehouses are opened well into the night. As such, its window of opportunity is much greater.
Nevertheless, it has to be mentioned that this model is also a lot riskier since Gopuff has to invest in warehousing space whenever it enters a new city. Furthermore, in order to sell alcohol, it needs to apply for a liquor license, which can cost well over $1 million.
Delivery Fee
Ordering a product on Gopuff incurs a delivery fee of $1.95. Another $2 is added to all orders containing alcohol.
The fees are used to cover the cost of delivery and not a take-home profit for the company. Since Gopuff operates its own warehouses (and drivers don't have to sift through shelves), its delivery times are oftentimes substantially faster.
The delivery fee is waived off if the order is above $49. At that point, the company generates enough profit from the margins that it can substitute the delivery fee.
Membership
Gopuff offers a membership program called Gopuff Fam, which offers consumers a variety of benefits.
These include no delivery fee on all orders as well as other discounts. The subscription costs $5.95 per month.
The membership is used to entice customers to order more frequently. By committing to monthly subscription payments, customers feel obliged to 'make up' for that investment by ordering more.
Advertising
Gopuff sells preferential product placements to various brands that want to promote their items on Gopuff's platform.
With millions of eyeballs every month, being placed first on any given product category can be extremely valuable to brands.
Apart from preferential treatments, Gopuff also sells anonymized customer data about those products. Data points include how often a given product was bought, by what demographic, and when it is likely to be bought.
How Is goPuff Different & Revolutionary?
goPuff is unique within the delivery service space as it has become the first and only offering to cut out the middleman, making it a literal "one-stop" shop. The supply chain factors that help contribute to this are:
- Personally owned warehouses: Rather than acting as a service that picks up items from partner businesses, goPuff owns local facilities to house available inventory in the cities it services. Orders simply go directly from the warehouse to the customer, cutting down on the logistics involved.
- Upfront inventory: Because goPuff owns physical distribution centers, it buys product inventory in bulk at wholesale price from suppliers. This keeps prices low and eliminates the need to rely on delivery fees for profit. The company also has developed a predictive algorithm that allows each location to stay on top of stock levels, reducing the risk of out of stocks and the need to substitute products.
- Contract drivers: goPuff does not hire third-party courier services or middlemen to transport orders. Instead, they contract individuals with their own vehicles to act as gig workers in their free time. This approach not only speeds delivery times, but also eliminates the company's cost for fuel. In addition, while goPuff shoppers have the option to tip for deliveries, a driver's paycheck does not depend on it. Drivers are paid based on order volume and tend to make an average of $10-$12 an hour.
This combination of factors results in a truly convenient and quick offering. Bottom line is that goPuff can sell the same products as their competitors and deliver it straight to the customer's door, with even lower overhead costs.
Gopuff Funding, Revenue & Valuation
The go-to platform for consumers' everyday needs, today announced that it has secured $1.15 billion in new funding, more than doubling its valuation to $8.9 billion in just five months and solidifying its position as the market leader for instant needs. Investors in the round include D1 Capital Partners, Fidelity Management and Research Company, Baillie Gifford, Eldridge, Reinvent Capital, Luxor Capital and SoftBank Vision Fund 1
It is also poised to enter the crowded European market after agreeing to acquire Fancy, a small UK-based delivery outfit.
Gopuff currently operates a network of more than 250 microfulfilment centres - or "dark stores" - in the US, each containing between 2,500-3,000 products.
What's Next For goPuff?
Below are some ideas of what goPuff could do next in the upcoming years:
- Adding breadth and depth to its operations in North America. goPuff still has a long way to go to cover and penetrate the US market: opening new cities, adding product categories to its offerings, tapping into weekly grocery purchases by adding fresh products etc.
- Expanding geographically beyond North America. goPuff has the right playbook to penetrate key cities in Europe like Paris, Berlin or London.
- Building a truly unique shopping experience for each customer based on the data they have. A millennial should have a completely different offering on the app compared to a family with a baby.
- Building the western super app by adding additional services to the app. You start with an app that is used 3-4 times per month and you have detailed data on your consumer behaviours. The logical next step would be to add adjacent services like GoJek, Grab or Rappi have been doing in other geographies.
- Pushing forward the vertical integration by making goPuff labelled products like what we have seen in brick and mortar retail stores.
You can develop your own unique grocery delivery app like GoPuff. All you need is the right company which has excelled in developing apps for the delivery sector.