Australian grocery delivery startups face funding difficulties as venture capital checks out

Inner-city residents who enjoy getting groceries delivered in 10 minutes from services such as Milkrun should enjoy it while it lasts.

Two companies offering quick delivery of groceries within selected suburbs of big Australian cities have collapsed in the past two months: Send, which promised to deliver within 10 minutes to locations in Melbourne, and the smaller Quicko, which operated in Sydney and allowed itself two hours to get to the doorstep.

The collapses leave Milkrun, which operates in Melbourne and Sydney and is backed by investors including Atlassian billionaires Mike Cannon-Brookes and Scott Farquhar, and Voly, which operates in Sydney, fighting it out for grocery orders.

Both are backed by venture capital funds that have stumped up serious amounts of money: $85m in the case of Milkrun and $18m for Voly. But the collapse of Send shows that startups can burn cash almost as quickly as they can deliver fruit and veg.

As sales grew, so did the losses. In October last year, Send had sales of $8,113 and made a loss of more than $658,000. By March, sales had exploded by more than 50 times, to almost $417,000 a month, but losses also soared, reaching $2.38m a month.

The administrators said staff costs of $5.5m were the main expense over the eight-month period.

Patrick Coghlan, the chief executive of credit reporting group CreditorWatch, says that businesses in the startup phase may find it harder to get crucial funding as they work towards a profit.

Even then, while both make money from their online shopping services, the margins are thinner than the ones they enjoy in-store.

Woolworths, which has led the charge to online, has suffered the most erosion of its profit margin from the shift, analysts at investment bank UBS said in a note to clients in April.

Coghlan says the costs involved mean transport-heavy businesses need to be able to become large to survive.