Commentary: Diving into mass market expansion to meet unprecedented consumer demand for fast delivery of food and other consumer staples.

It didn’t take long for Gopuff’s principals to recognize they needed another change in course. During the pandemic, the company dove headfirst into a mass market expansion to meet unprecedented consumer demand for fast delivery of food and other consumer staples.

But as consumer habits and preferences undergo another evolution and competition revs up, the company is having to demonstrate the same awareness and flexibility it did at the onset of COVID-19. Based on its analysis of the current food landscape, Gopuff is now shifting gears again — betting it all on the gritty, high-density, urban canyons of cities like New York, Philadelphia, and London.

The Q-commerce market’s destiny seemed assured after the enforced cloistering of humanity brought by government responses to COVID-19. Concerns about the potential spread of the airborne virus led many consumers to test the waters on delivery services in the same way they had tried Amazon to deliver their books a generation earlier. While the Q-commerce sector did benefit from the change in consumer habits, long-term success will again depend on companies meeting the post-pandemic market as well as they did the pandemic market.

According to Forbes, the Q-commerce sector is set for revenues to reach $72 billion by 2025, of which GoPuff is expecting to contribute $1 billion, nearly three times its $340 million in revenues in 2020. The company has seen similar bursts of growth in downloads of its app – to 11.3 million in 2022 from 4.4 million in 2020; and in active users to 2.6 million in 2021 from 1.8 million in 2020 and 0.3 million in 2019. Some have marked the company’s 2021 value at $15 billion, nearly twice the $8.9 billion valuation given in 2020.

Despite the growth, Gopuff isn’t without its challenges from well-financed competitors like Doordash and UberEats, both of which have announced new potentially high-volume partnerships with BJ’s Wholesale Club and BP, respectively. Nor are these competitors without their challenges. Doordash shares lost 50% of their value in the six months prior to the BJ’s deal. Likewise, Instacart saw its market value drop 39% in recent months, to $24 billion, even as it was unveiling its Instacart Platform for grocers to run their own digital businesses, and inking deals with third-party sellers like Office Depot.

Its competitors also may be headed for the same reckoning Gopuff faced just a few months ago. The Philadelphia-based Q-Commerce firm discovered a different dynamic in its brief foray into less-urban, lower-density markets, a dynamic that couldn’t produce the kind of volume that quick deliveries can produce.

The strategic reversal away from attempts at securing new markets and toward further immersion in existing ones brought with it a $1 billion investment. Delivery to customers it already knows will help keep costs in check.

The expansion, then, will be in what is delivered, not where, as those customers want dinner, alcohol, groceries, and items like medicine or cleaning supplies delivered at the drop of a dime.

Aiding this immersion strategy is the company’s vast network of micro-fulfillment centers which maintain inventory across multiple product classes, giving customers access to more than just food through a single ecosystem without going through third-party sellers. To date, the approach has garnered 70%-75% of the market share of the first-party convenience market. Others like DoorDash see opportunity in the same business model and are looking to establish their own fulfillment centers.

Q-commerce is a market in a high degree of flux, so nothing is a given at this point. Nevertheless, Gopuff’s quick response to changes in that market points to a nimble organization that may have what it takes to endure whatever changes are in the offing. And by returning to its urban roots, the company could emerge as the industry leader in the share of key markets, but also in profitability.

James C. Allen, CFA, who works in the field of corporate finance, investment analysis and financial markets regulation. He is principal at Delahaye Advisers LLC in Charlottesville, Va.

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