Instant Commerce – First-Party Model Benefits and The Road to Profitability

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Instantly delivering groceries and everyday essentials is hard. Doing it profitably is even harder. We have all heard of the rudimentary attempts at instant delivery during the dot-com era. Since those early false starts, a nagging question has loomed over the space: “Can Instant Commerce be profitable?”. 

In 2013, when all of Silicon Valley was opting for the third-party asset-light marketplace model, our co-founders Rafael and Yakir took a completely different approach by focusing on executing instant delivery of inventory owned locally. They sold used office furniture to bring in around $50,000 to get the business off the ground, bootstrapping a business built around a vision that not everyone could see. But it was also Gopuff’s earliest exercise in generating strong unit economics without relying on outside capital. 

It’s no secret that this is an operationally complex business and, like any company creating a new category, there were steep learning curves. It took time to optimize Gopuff’s model and economics, build the technology and establish the infrastructure needed to do this sustainably, all while ensuring an excellent customer experience. With these learnings, Gopuff built a business that is optimized to profitably handle the costs of online fulfillment and delivery over the long term. 

Nearly nine years and billions of dollars in sales later, the commitment to building the business around a proven profit engine remains core to Gopuff’s culture and strategic operating principles. We believe the future of commerce is instant and our vertically integrated business model is uniquely suited to deliver it.

Our differentiated core model

Gopuff’s vertically integrated model starts with leasing local sites. By placing our operations and products close to consumers, Gopuff is able to offer fast delivery at a low fixed cost and gain operating efficiencies to drive down the costs of fulfillment and delivery. 

Gopuff owns its inventory and stores its selection of products locally. In order to deliver on the promise of instant commerce, we offer consumers competitive pricing at a low flat delivery fee. Gopuff makes its margin on the product, meaning we don’t have to charge excess fees to third party merchants or consumers.

In the beginning of a Gopuff location’s lifecycle, we typically see lower volume, leading to higher costs to fulfill and deliver an individual order. Before a site accrues significant demand it generates operating losses. However, as it matures and is able to capture more demand, we unlock greater operating efficiencies and drive down the cost to deliver an individual order. When we reach this threshold, we generate enough profits to cover the fixed costs of the building. More orders generate more operating efficiency, leading to lower delivery costs and more profits, all while our facilities’ costs remain fixed. The operating leverage of our model unlocks the profit flywheel above and allows us to pay back our upfront investments and accrued losses in as little as 18-24 months – less than half the time of traditional brick and mortar models.

Gopuff has spent years perfecting this playbook and continues to improve it with more sophisticated technology and experience. The advantages of this vertical approach include the following:

  • The offering is optimized to offer fast delivery at a low flat fixed fee
  • What a customer orders is what they get, we have real-time access to our inventory by location
  • Customers can get everything they need in a single basket, we have an ever-evolving and localized selection of product categories
  • By both optimizing our offering for online fulfillment and owning our inventory we can generate greater profits per order
First party delivery model benefits

Today, Gopuff generates more than $4 in contribution profit per order, and this number continues to rise. In short, Gopuff is answering the question of “can instant commerce be profitable?” with a resounding yes.  

We have an incredible opportunity for growth in front of us and will continue to invest in that opportunity thoughtfully, against the backdrop of our disciplined cost strategy.

*Contribution Profit is defined as Product Revenue, Delivery Fees, Subscription Revenue, GMS – Product Costs, Fulfillment and Delivery Costs on a per order basis

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