Last week, on-demand food and grocery delivery businesses MilkRun and CoLab collapsed. The pair join former competitors Voly and Send, as well as the local operations of Deliveroo and Foodora, on a list of failed on-demand delivery operators taking on the Australian market. While CoLab fell into voluntary administration, MilkRun’s founder Dany Milham, along with its leadership team, is killing the business off. According to Forbes the business was unprofitable, losing $10 for every delivery
ry it made (that figure was closer to $40 per order at one point), and after being unable to secure a new line of funding, it simply couldn’t afford to operate anymore.
Milham took to Linkedin to explain that the business’ cost of delivery was better than many people on the outside believed, but that the “funding conditions shifted beneath our feet”.
“We did our best to shift with the market, or even ahead of it, and rapidly accelerate the path to profitability in a fraction of the time originally envisaged,” Milham said. “Unfortunately this proved to be an insurmountable task”.
“The days of cheap capital are over, for now”
As suggested by Milham in his LinkedIn post, the business’ biggest challenge wasn’t that its operations were unprofitable, or that customers don’t want fast delivery. Instead, its biggest issue was that, in the current financial environment, venture capital firms are no longer willing to take a risky bet.
Ecom Nation chief marketing officer Mal Chia told Inside Retail that MilkRun’s failure to secure a new line of credit is a signal that “the days of cheap capital are over, for now”.
“In the 30 years leading up to the pandemic, it got cheaper and cheaper to borrow money, therefore increasing the appetite for risk,” Chia said.
“[But post-pandemic], investors are no longer interested in speculative, ultra-high yielding investments with long payback periods. They want as sure a thing as possible.”
Chia noted that the economics of MilkRun never looked good, and that in order for on-demand delivery to be profitable, businesses need to keep marginal costs as low as possible – something competitor UberEats is able to do by utilising its drivers to deliver both food and people, keeping costs down.
MilkRun, on the other hand, had a salaried workforce, and operated its own warehouses – in an effort to enable faster and more reliable delivery times. But, thiskept costs high regardless of demand.
Adding to that is the fact that both major grocery players in the Australian market, Coles and Woolworths, have invested heavily in their own delivery fleet since the pandemic made it a near-necessity, that more people are looking to get out of the house following the pandemic, and that investors were not sold on MilkRun’s model moving forward.
According to Chia, the supermarket duopoly is “unassailable” in the grocery space.The fact that these organisations are offering their own versions of ‘fast’ delivery – with Woolworths guaranteeing delivery within two hours in certain areas, and Coles partnering with UberEats to drop its own delivery time to one hour – meant that on-demand delivery firms faced giant competition.
However, he said that fast delivery isn’t going anywhere.
“Customers love the convenience and the choice, especially when it is such a huge timesaver,” he said.
“UberEats is a proven business model and the fact that they are leveraging the same flexible workforce to do all kinds of delivery means that their operations are diversified and active in all parts of the day, not just in peak periods.”