Here’s how JOKR became gross-profit positive amid a cutthroat grocery delivery industry – TechCrunch
The instant grocery delivery game is not for the faint of heart. We noted earlier this year that grocery delivery is a tough business to be in, given the competitiveness of the market and later-stage funding drying up for cash-intensive sectors like this one.
Even the giants in the industry aren’t immune. We saw Instacart lower its valuation to be closer to what was happening over at DoorDash in the public markets, where its share price has also gotten hammered over the last six months.
Delivery company JOKR was also not immune to some skepticism in its early months. Last October, The Information reported that the company, founded earlier this year, “lost $13.6 million on $1.7 million of revenue, as of the end of July. It spent $2.3 million just on purchasing and delivering goods.”
However, the company went on to raise $260 million in December to become a billion-dollar company, and despite some growing pains, it seems like it has some believers and a business model that is working, at least for now. It has a new AI-powered app that taps into a customer’s past shopping behaviors to provide product personalization and a new partnership with the decarbonization platform Plan A, with the goal of becoming the “first climate-positive instant-delivery grocer.”
I spoke to Ralf Wenzel, JOKR’s founder and CEO, about, according to him, why his company’s model is doing better than most. The chat with Wenzel was edited for length and clarity.
TC: What is the current environment for dark kitchens and grocery delivery?
Wenzel: I see this from different buckets. First and foremost, we still see a very, very strong shift from offline grocery ordering to online grocery orders. When we talk to customers for surveys and focus groups, we still see that customers are unhappy about existing ways of online ordering. For example, it is inconsistent, it takes too long, it is not very personalized, they are missing certain products and the quality and quantity of assortment. There are still flaws in both the offline and online experience, but customers essentially want a faster and more relevant type of online grocery experience. Second, capital goes where companies are generating the highest efficiency and sustainability. That’s why the whole industry has become more rational. And, as [that happens] it’s easier to compete because the competition is now really for the best user experience and the biggest efficiency.
What have you been focused on lately?
Over the last 12 months, we’ve been very focused on what we call ‘reinventing retail,’ which for us is looking into how to especially disrupt the supply chain and procurement side of things.
How has that strategy worked out so far?
It allows us to now basically rely and benefit from a very good assortment, procured directly from the actual producer and manufacturer. We’ve built our proposition out more towards fresh. In comparison some other players that are rather focused on more convenience, we have more and more shifted to become not only an app and a service that is able to provide convenient articles, but we’re able to cover a very broad range of like grocery products, including a very strong proportion of fresh products, like fruits, vegetables, fish and meat, and hence have established ourselves not only as the online convenience type of alternative, but really as a more comprehensive online supermarket and grocery type of alternatives. We have now become fully gross profit positive on a group level for our local business across all of our countries after 12 months of operations.
What does this mean now for JOKR’s immediate future?
For us, this is proof point No. 1 that the business model works. This allows us also to grow in a more sustainable way going forward. It makes us become more and more independent of outside capital. With every order that we are delivering, we’re now having a positive contribution margin, and that allows us to basically build the business in a very capital-efficient way going forward.
I’ve reported on a number of on-demand grocery delivery companies, and everyone is trying to carve out a niche for themselves. Some focus on speed or being your go-to call if you need an item in the middle of cooking. However, we’ve seen some downsides of the industry, for example, Zero Grocery folded about a month after I reported on their new funding round. Real estate is also expensive, which cuts into costs. What are the challenges to being able to make this work?
By defining what customers need and when, we have been able to procure items more efficiently in a more targeted way and to turn over our inventory faster than any average supermarket, which for them is 30 to 45 days. We can turn over our inventory in, like, 15 days and eliminate waste. The secret sauce is to be very detailed, determined and forecasted in what type of inventory you procure and how you procure it so it is regularly done with high frequency so there is a very fast turnaround of your inventory. Then take that flexibility over to the inventory side where you enable customers to develop a stickiness for a platform by not only having fast delivery, but suggesting items through personalization.
A story was written about JOKR in February about a possible sale of its New York operations. The company denied that was happening. Can you clarify?
We never know where rumors are coming from, and we also didn’t comment on those rumors. We constantly optimize in terms of which neighborhoods we are in and which warehouses are worth operating. There are areas of every single city that are more applicable to these types of business models than others. We aimed to optimize on our footprint in New York. In terms of looking into the warehouse distribution, we opened new warehouses and we closed other warehouses as we looked into what was the right location, what was the right proximity to different customers. But we’ve been operating in New York, and there’s no strategic shifts.
What is JOKR’s global footprint now, and what’s next for the company?
We are in six countries, including the U.S, Brazil, Mexico, Colombia, Peru and Chile. At this point of time, we don’t foresee any expansion, but instead going deeper into the value chain in those areas to unlock more capabilities and broaden the quality and quantity of our assortment. We want to make sure that we have a very comprehensive grocery offering and beyond. We’re already looking into further categories beyond just groceries, for example, expanding on our private label offering, using JOKR as a platform to launch new brands. We have already launched a handful of brands over the last few weeks and upscaling those efforts even more.
We also want to expand on the delivery times to give the ultimate flexibility. We are already in mega cities like São Paulo and Mexico City, but we still have a lot of work to do in order to have entire coverage of the cities and potential to go into additional cities that are not covered at this point in time. We can basically be busy there for the next years to come.