Gopuff Revenue Triples, but Growing Competition to Test Expansion

Launched eight years ago as an app for snack-hungry college students, the Philadelphia-based company has evolved into a full-fledged delivery service offering alcohol and other beverages, groceries, vape pens and, soon, prescription medications. The expansion has been fueled by more than $2 billion in venture capital funding over the last two years, driving the company’s valuation to $8.9 billion in March, up from nearly $4 billion only last October. Investors include SoftBank’s Vision Fund and hedge fund D1 Capital Partners.

Unlike companies such as DoorDash and Uber Eats, who mostly serve as middlemen, Gopuff buys products from food and beverage companies and stores the items in hundreds of warehouses across the country. One of its selling points is that it promises to get orders to customers within 30 minutes. It mostly hits that goal, although about 10% of the time delivery times were closer to 50 minutes last year, the internal presentation showed.

The company isn’t profitable. Gopuff told prospective investors last year that its losses before interest, taxes, depreciation and amortization stood at about $150 million, a person briefed on the matter said. The company told The Information that the markets in which Gopuff has been operating for at least 18 months are profitable, but declined to elaborate.

“We offer unmatched speed and selection to our customers and have seen triple-digit growth every year since inception,” said Eva Behrend, a Gopuff spokesperson.

Gopuff expects to grow much bigger in the coming years. In November, it acquired Bevmo, a West Coast chain of liquor stores. (Revenue totals and projections shown in the internal presentation didn’t include Bevmo sales.) In December, Gopuff’s logistics team set a plan to open its first major distribution center on the West Coast. The group’s key objective, according to the presentation: “Scale network to enable $5B in revenue.”

Growing Competition

Meanwhile, the battle for customers is intensifying. DoorDash, which started out as a restaurant-delivery app, expanded into convenience store products last year and already has overtaken Gopuff in its core business, according to an analysis by Edison Trends, a research firm. Last year, Gopuff’s share of convenience store transactions shrank from 65% to 23%, Edison said. Gopuff took issue with the Edison findings, saying the comparisons weren’t apt because Gopuff’s business model is different from that of a pure delivery enterprise.

Others believe the company’s name, which to some evokes marijuana, is an obstacle to its growth (it doesn’t sell the drug). Some SoftBank investors thought Gopuff should change its name, two people familiar with the matter said. But co-CEOs Yakir Gola and Rafael Ilishayev have stuck by it.

About two years ago Gopuff hired Jonathan Mildenhall, a marketing consultant and CEO of TwentyFirstCenturyBrand, to assess how consumers perceived the brand. He found that younger consumers liked the name and product offerings while older consumers were less interested. Gopuff has started deploying a new marketing campaign, Mildenhall said, that seeks to overcome the company’s “frat boy” image and associate the brand with a “magical theme” intended to appeal to families.

The company’s brand identity is becoming more crucial as it expands business lines. Gopuff told employees in a December presentation that it wanted to nearly quadruple the number of new customers it added to 3.7 million this year from about 1 million in 2020. It is hoping to attract customers by adding fresh food and household items, as well as offer prescription medications at some locations this year through a partnership with a telemedicine firm. In Philadelphia, it is planning speedy deliveries of Viagra, acne medication and birth control.

Unusual Model

While venture capital has flooded the food-delivery sector in recent years, Gopuff’s model of buying merchandise to sell made the company a difficult proposition with investors. Gola and Ilishayev, both sons of immigrants—Gola’s parents are from Israel and Ilishayev’s are from Russia—at one point raised money for the nascent company by selling some of their office furniture.

Jordan Nof, a co-founder and managing partner at New York–based Tusk Venture Partners, recalled the pair pitching the business a few years ago. “Everyone looked at Gopuff. No one funded it. They kept showing back up,” said Nof, who didn’t end up investing. “They proved every VC wrong.”

By 2018, Gopuff was pulling in tens of millions of dollars in revenue as it figured out how to deliver shelf-stable items like cases of beer, Juul pods and Flamin’ Hot Cheetos, mostly in college towns. It still kept a low media profile at the urging of early investor Anthos Capital, but it became better known as it amassed investments from name-brand backers like Accel Partners. The next year, SoftBank’s Vision Fund also piled in, despite the fact that it was also investing in competitor DoorDash. Outside investors now own a combined 71% of the business, a state filing shows.

This year, Gopuff plans to add nearly 300 warehouses, including 100 in big and midsize cities it doesn’t already serve, according to the presentation. It has started using Bevmo stores to house food and other items for delivery on the West Coast.

Battling for Drivers

A potential barrier to hitting its expansion targets could be difficulty recruiting and retaining drivers. While the sudden layoffs last year of millions of service workers made it easier for delivery companies to hire drivers, the labor pool is expected to tighten considerably as the economy rebounds. Uber said recently it was creating a $250 million fund to offer bonuses and lure more drivers.

Another obstacle for Gopuff: Drivers complain about the company’s technology. Houston-based driver Antoinette Labaeka works as an independent contractor making deliveries for DoorDash, Grubhub and Uber-owned delivery services. Gopuff, her latest addition to the mix, requires her to toggle through three different apps to make deliveries. Because one of the apps is buggy, she said, she manually types the address for each delivery. She also finds it frustrating that, unlike with the other apps, she has to work in scheduled shifts for Gopuff, limiting her flexibility.

In surveys, drivers have told Gopuff they find switching between its apps cumbersome, another person familiar with the matter said. Labaeka said that while her pay is decent, she doesn’t think she will still be driving for Gopuff in six months. “They have a lot of kinks to work out,” she said.

The company is trying to make sure its systems can handle significant growth in customers and drivers, the person said, including by developing a single app for drivers and automating most shift assignments.

Gopuff is looking for other ways to boost margins and cut costs. About 5% of its revenue last year came from selling space in its app to food, beverage and vaping companies, a number it wants to keep growing. The company last year hired former Facebook ad executive Andrew Berman to build an advertising system that would allow companies to run automated ad campaigns in Gopuff’s app.

The company also is trying to fill leadership spots by offering sizable compensation packages to lure executives from Uber, Airbnb and Amazon. To oversee logistics, Gopuff recently hired Tim Collins, who started working at Amazon in the 1990s and worked his way up in the e-commerce operations team to become vice president of the retail giant’s global logistics. The company hired a new chief financial officer, Josh Burke, in November.

Gopuff has time to figure things out. Despite the hot stock market, it isn’t likely to go public this year, a person close to the company said.