One salient feature of capitalism is that it allocates resources efficiently. While market actors can and do make mistakes, those that do err pay a price for that mistake and usually can’t afford to make that mistake again.
Business acquisitions ostensibly add value by boosting market share, reducing costs, and improving economies of scale, thereby boosting profits. However, many mergers--perhaps the majority of them, according to research--fail to pay off.
Late last year, the Turkish on-demand delivery service Getir acquired its German rival Gorillas at a valuation of $1.2 billion, a move experts described as a major consolidation in the instant grocery delivery space. The acquisition was intended to strengthen Getir’s position in the United States and increase its market share vis-à-vis better funded competitors. However, Getir was having problems before the transaction, and it doesn’t appear that the move has improved things for the company.
In May 2022, prior to its acquisition of Gorillas, Getir cut 14% of its global workforce, about 4,500 employees, at both its stores and corporate headquarters, and it also announced that it would be cutting back on marketing investments and promotions as well as curtailing planned expansions. At the same time, employees reported that the company was promoting a grueling internal culture that created a harsh and unsafe work environment, alleging that delivery workers were not only getting injured on delivery bikes and scooters but getting shorted on pay.
Getir’s entrance into the U.S. market has been bumpy. The company planned on following the same model it had implemented in Turkey, which involved opening a small number of shops in a few big cities and then scaling to thousands more through a franchise model. However, actual implementation did not go smoothly, and employees reported that too many workers were being staffed per shift, with packers and couriers waiting around for orders. The management described a very different situation being successful in Europe, where a single manager and delivery driver would cover the shift.
Even weather conditions seemed to have thrown the company for a loop. In Chicago, Getir had to spend down cash to replace electric scooters with rental cars amid snowy conditions. The failure to anticipate the well-known harsh winters of Chicago and then throwing cash down the drain to temporarily solve the problem does not bode well for the company’s strategy overall.
U.S. management of the company has also been unstable. Some employees at the corporate level had not been authorized to work in the United States, and one employee reported that some managers had tourist visas that only allowed for stays up to 90 days. Not surprisingly, this did not provide a solid foundation upon which to build their U.S. business.
While Getir has been around since 2015, Gorillas was among a wave of delivery apps that were born during the pandemic and received millions from venture capital firms. The start-up capital allowed for effective customer acquisition via big discounts. However, as the money ran out, Gorillas was forced to cut some of its own corporate staff and it struggled to raise new funding.
The disappearance of pandemic restrictions resulted in dampened demand for home deliveries, and delivery firms saw sharply higher labor costs and other inflationary pressures. Both of these made it incumbent on the businesses that flourished during the pandemic to adapt and restructure their business models in order to survive.
Gorillas failed to restructure its business model as the industry began to flounder. Even the Gorillas CEO himself predicted that the industry would fall prey to “natural selection,” with only a couple companies able to survive. He was not wrong—the industry has indeed seen a number of competitors fail--but it’s clear that others have proven to be more adept at adapting to the turbulence of our current economic climate.
Instacart, for example, has been successful at diversifying its revenue streams, and the company is currently working toward getting grocery shoppers into “Connected Stores” where they could use a smart cart, a tool created by Instacart, to help them find items and do self-checkout.
Neither Getir nor Gorillas has been able to innovate and diversify to keep up with the changing market, and the industry is still oversaturated. Aside from taking out its main rival in New York City and a few countries in Europe, it’s hard to see what the acquisition of Gorillas adds to Getir. Getir was already operating in these markets, and Gorillas faltered in 2022 just as Getir did, engaging in significant lay-offs and exploring other strategies to cut costs. The merger seems to be simply a consolidation of two struggling companies that may have gone down separately – and may now go down together instead.
