Sydney-based startup MilkRun has made waves by promising to deliver groceries inside ten minutes over AUD 85 million from some of the biggest names in Australian enterprise capital, including Atlassian billionaire Mike Cannon-Brookes.
MilkRun co-founder and CEO Dany Milham has already found success with the fast-delivery mattress company Koala. Less than a 12 months ago, he confidently predicted that MilkRun can be larger than Coles or Woolworths inside ten years.
Today the company has come to an end and over 400 employees have been laid off.
It joins a growing list of platform delivery corporations that have made a splash in the Australian market. This includes three other local start-ups promising 10-minute deliveries – Send in May 2022, Crops in November 2022 and et al which went into voluntary administration last week. British company Deliveroo closed its operations in Australia in November 2022 and German Foodora in 2018.
In email to staffMilham attributed the end of MilkRun to the economic downturn:
Economic and capital market conditions proceed to deteriorate and while the company continues to perform well, we are confident that this is the right decision in the current environment.
The impact of things resembling inflation, which increased operating costs (including debt) and limited discretionary spending, definitely didn’t help.
But even in the better of conditions, MilkRun faced an uphill climb.
Will Milkrun ever give you the option to make money?
Milkrun was obviously unprofitable. This wasn’t a problem in itself. Many startups lose money for years before becoming extremely profitable. For example, Amazon, founded in 1994, didn’t have its first profitable 12 months to 2003.
Some startups require large scale to be profitable. Others hand over profits to gain market share. Probably the big enterprise capital firms that pumped money into MilkRun, Cannon-Brookes’ private investment firm Grok Ventures, Airtree ventures (which invested in Canva) and based in New York Global Tiger Management – I saw such potential.
But what exactly was this potential? How could MilkRun ever scale to turn into profitable? Was there really a large enough market for super-fast grocery delivery? Or have they been gripped by the delivery mania that got here with the pandemic, lockdowns, and surge in online orders in 2020 and 2021?
Mark Baker/AP
MilkRun launched during the pandemic – the perfect time for “last mile” deliveries. But until the middle of last 12 months, when lockdowns became a thing of the past, the numbers weren’t looking too good.
It was quiet losing at least $10 on each delivery. While this was much higher than the $40 loss it initially incurred, Milham’s plan to turn into profitable soon was to make it profitable in June 2022. throw MilkRun’s 10-minute delivery commitment – undermines its key branding point.
Costs would increase anyway
Even without inflation unexpectedly hitting the economy last 12 months, MilkRun faced rising costs.
To increase market share, it will need to expand out of densely populated, affluent inner-city areas. Operating in more suburban areas, with longer distances and more dispersed customers, would increase last-mile delivery costs.
Any sign of profitability would inevitably attract competition from a major supermarketswhose hundreds of suburban stores and supply chains enabled it to compete in the express delivery market at any time.
The costs of MilkRun’s “dark store” distribution network, arrange as closed borders suppress rents, are also likely to rise.
Narrow path to profitability
Perhaps MilkRun’s goal was to gain market share until drone delivery becomes profitable or other business lines (resembling alcohol delivery) emerge and profit opportunities arise. But given current unit economics, even in ideal circumstances, this was a difficult query in a post-pandemic world.
The writing has likely been on the wall for about a 12 months, with MilkRun reportedly unable to persuade any investors sink more cash to company.
Venture capitalists know that many of the startups they fund will fail. They support the idea at an early stage when the path to profitability is unclear. But they will not pump in more cash if the path doesn’t materialize.
It’s easy to be a “Monday expert” and criticize decisions in hindsight. However, MilkRun has at all times had a difficult business model, which became increasingly apparent as the world emerged from lockdowns, demand decreased, cost of living pressures increased and the cost of doing business rose.