An on-demand grocery startup founded less than two years ago has raised $200 million (£150 million) to accelerate its growth in the cut-throat market.
The start-up is part of a growing number of “quick commerce” companies vying to win a share of Londoner’s wallets in the post-pandemic era. Zapp promises to deliver grocery and convenience store items to your door in as little as 10-minutes. It has a network of “dark stores” across the capital that allow it to deliver at such speed.
Steve O’Hear, Zapp’s head of strategy, said the company’s sweet spot was “last minute socialising or life savers such as over the counter medicine or nappies at 2am.”
Despite being founded so recently, the company has grown rapidly and is on track for annual revenues of close to $100 million, according to a source close to the business. It operates in London, Amsterdam and Rotterdam.
O’Hear said the fresh funds would go towards building out its infrastructure as part of what he called a “20 year journey to rebuilding the supply chain”. Zapp plans to open new “dark stores” in Canary Wharf and Kentish Town as it expands coverage.
“What we think will win in this space is good old fashioned customer experience. It’s about under-promising and over delivering,” O’Hear said. “That requires a lot of hard work behind the scenes.”
Zapp’s $200 million “Series B” fundraising was led by Silicon Valley VC Lightspeed, with participation from 468 Capital, BroadLight Capital, and existing investors including Atomico. Singapore’s sovereign wealth fund GIC reportedly took part though the company declined to comment on its involvement.
O’Hear wouldn’t comment on Zapp’s valuation in the round, nor on Lewis Hamilton’s exact stake. He said the seven time world champion’s support was “fantastic”.
Zapp’s war chest comes amid fierce competition in the “quick commerce” market, which has grown from nothing to a multi-billion pound sector during the pandemic. The startup competes directly in London with Germany’s Gorillas, Turkey’s Getir, and US-headquartered Gopuff, which bought up startups Fancy and Dija in the UK last year.
“We don’t pay too much attention to competitors,” O’Hear said.
Rivals have struck deals to partner with grocers and supermarkets, with Gorillas striking a deal with Tesco.
O’Hear said: “When you partner with a supermarket you run the risk of just becoming an app for the supermarket. Our focus remains on a fully vertically integrated model.”
Some market watchers have questioned the longevity of the sector as the pandemic eases and people begin to move around more.
O’Hear said: “As the pandemic and restrictions have eased, we’ve actually seen even more demand as people lead busier and busier lives.”
Rytis Vitkauskas, partner at Lightspeed Venture Partners said: “Convenience retail is one of the last segments of retail to move fully online, but is really having its moment post-lockdown.”
Despite fast growth and keen investor interest, analysts have raised questions about whether the on-demand convenience delivery model will ever be profitable given high infrastructure costs and low order values.
O’Hear said two thirds of Zapp’s orders currently turned a profit and said the company was “on a definite path to profitability”. Its average order value is in the “mid-20s” of pounds he said, declining to give a specific figure.
“There’s been questions around whether these quick commerce companies can ever make money and the answer is yes, if you have the right model,” he said.
The latest investment takes the total raised by Zapp to $300 million. JPMorgan advised on the deal.