Zapp Snaps Up $200 Million To Expand Its Instant Grocery Play
Zapp snaps up $200 million to expand its instant grocery play
A significant round of funding has been raised by Zapp, an on-demand grocery delivery startup that will launch in London in 2020 and will compete with Getir, GoPuff, Jiffy, and other delivery services. Zapp was founded in 2020 by former Google employees. It has raised $200 million in a Series B round of funding, which Zapp intends to use to expand both in its home market and into what co-founder and COO Joe Falter refers to as "mega cities." In addition to London, Zapp is currently live in Manchester, Cambridge, Bristol, Amsterdam, Rotterdam and is running a soft launch in Paris.
According to Zapp, the round is being co-led by Lightspeed, 468 Capital, and BroadLight Capital, with Atomico, Burda, and Vorwerk Ventures — all of whom have previously invested — as well as Formula One champion Sir Lewis Hamilton also taking part in the funding round.
However, this is not the only thing that has been reported about this round. According to PitchBook, when the first tranche of this investment closed last month in December, "rival Gorillas" was included as a part of the investment. Finally, Sky News claimed last week that the fund was backed by an unnamed "Singaporean state fund." Neither of these sources is mentioned in Zapp's announcement today; we've reached out to the company for confirmation and will update as more information becomes available.
A Zapp spokesperson declined to comment on the Singaporean investor in any way.
Zapp makes no mention of its valuation or the number of customers or orders it has processed to date. It has now amassed a total of $300 million in assets under management.
With the desire of both startups and established grocery players to establish themselves as major players in the convenience market, and given the size of the market — the convenience grocery sector in the United Kingdom alone is expected to be worth approximately £43 billion by 2021 — there is likely room for more than one winner.
An enormous number of questions remain unanswered regarding the course of this story's development. How many consumers will eventually use these services, and for how long will they do so? How many customers does a typical instant grocery store require in order to break even financially? And how many of these delivery services can a city support at a given time period?
Interest from Investors
Despite this, investors continue to be extremely interested in investing in the more interesting plays in the space. In addition to this round of funding for Zapp and Gorilla's $1 billion raise last year, Flink raised $750 million in December; Zepto in India raised $100 million; Jokr raised $260 million; and GoPuff and Getir both raised billions from investors.
Zapp believes it has found a formula that balances customer service; a strategically placed network of smaller dark stores ("Zappstores") with a massive distribution center to fulfill orders; a mix of products that are both extensive (50 varieties of ice cream; 21 brands of tequila); a supply chain that connects directly with brands — n Zapp be the first to say
The opposite is true for startups like GoPuff and Flink, which have built their businesses on the belief that mass-market consumers can be persuaded to shop in more frequent, smaller bursts of instant groceries rather than larger weekly baskets of groceries. Numerous participants have also engaged in the costly game of direct marketing.
"We place a high value on the customer experience, and we believe that this will be the case in this instance," Falter said in a telephone interview. How competitors have chosen to pursue market share by effectively subsidizing orders through multiple discounts offered to customers, he thought, was "funny." He agreed. "'We do not offer vouchers or discounted products,' he clarified quickly, "apart from the initial order, which receives a 50 percent discount, but not on the scale of repeated vouchering that you've seen.' We value the customer experience, a supply chain that consistently delivers superior products on time, and an assortment relevant to convenience over interrupting the weekly shop."
He stated that Zapp's average order is "mid-£20," whereas Gorillas' average order is "sub-£15" (a figure provided by Zapp). He also stated that approximately two-thirds of Zapp's orders are profitable.
Business owners with smaller average order sizes and those who reward customers with multiple discounts, he said, "would be a little nervous if I were them." "This is not a viable foundation," he added.
As a number of instant grocery companies emerged and matured in the aftermath of the Covid-19 pandemic, this round is about Zapp preparing to demonstrate that it has a life beyond that.
"As people return to their hectic lives, rapid delivery enables them to 'live in the moment,' and Zapp was built from the ground up to capitalize on this consumer behavior, resulting in exceptional customer loyalty," said Rytis Vitkauskas, a partner at Lightspeed Venture Partners. "We're honored to be a part of the company's rebirth," he added."
