Catch goPuff if You Can – A Vertically Integrated Consumer Tech Company Delivering Instant Needs

• goPuff’s delivery volume rose 400% in the first half of 2020, according to sources
• goPuff now reaches 500 cities through over 200 distribution facilities
• Raised $1 billion from investors including Accel and SoftBank
• Vertical integration provides better customer experience and margins
• goPuff’s rapid expansion gives it head start and wide moat versus potential rivals
• History of fiscal responsibility points to strong underlying unit economics

The coronavirus didn’t just cause a spike in demand for local delivery, it more likely accelerated a need for convenience that consumers will expect forever.  But with so many players in the game, investors need a discerning eye to spot the technology companies that will endure.

One under-the-radar company to watch: goPuff, a seven-year-old “consumer technology” firm focused on delivering all manner of needs from diapers to beer to cold medicine – in 30 minutes or less and for a flat fee of $1.95. The idea for goPuff was originally cooked up by two Drexel University students, co-CEOs Yakir Gola and Rafael Ilishayev, who have expanded from one campus to 500 cities supported by more than 200 distribution facilities.

To understand what sets goPuff apart, it’s important to see where others have stumbled. Much of today’s last-mile delivery – be it restaurant meals, liquor, or groceries – is handled by third parties such as GrubHub Inc., Drizly, and Instacart.

Such business models can be unpleasant for both consumers – who discover aggressive markups and unpredictable inventory – and retailers – who find their margins squeezed and customer relationships hijacked. In many cases, the third parties themselves face fierce competition that forces them to consolidate: Just witness the frantic dealmaking by Uber Technologies, Inc. GrubHub, Postmates, and others.

But goPuff, which operates in a unique category of its own, can avoid all of those challenges thanks to a vertically-integrated model. The company, whose backbone is a logistics technology platform, gets items directly from manufacturers, manages them in owned distribution facilities, and delivers them to doorsteps through a fleet of drivers.

Such a model eliminates uncertainty around inventory, allows optimized scheduling, and is free from dependence on local retailers. goPuff’s technology allows it to optimize picking, packing, and even routes for drivers. In turn, the company can ensure faster, more accurate orders than any third party operator.

goPuff has also proven to be highly scalable. Delivery volume rose 400% in the first half of 2020, according to people familiar with the matter. The company’s staff quadrupled in 2019, now totaling 4,000 and growing.

goPuff is appears to be a more attractive employer for drivers as well. Unlike an Uber Eats or GrubHub gig, a driving job with goPuff always has the same pickup point – reducing time spent at grocers or restaurants that were never designed to handle heavy takeout volume.

The company’s expansion, which has been known to consumers but perhaps less to the financial and media community, has given it a head start and a wide moat. In addition to its strong relationship with customers, the company stocks a wide assortment of 3,000 or more items.  goPuff also has taken time-consuming steps such as securing liquor licenses, which can take a couple of years in some places.

Further expansion is likely afoot. And when goPuff enters new cities, it doesn’t depend on local partners to get started. (Though goPuff does sometimes team up with hometown favorites,  such as Federal Donuts in Philadelphia).

There are likely many more cities or dense suburban areas where goPuff can find success beyond its current 500 locations. Looking further ahead, the company’s proprietary software could also work internationally in countries where quick delivery is also in demand.

goPuff’s recent rapid growth was helped partly by a second round of funding from Palo Alto venture capital heavyweight Accel last year. Accel was joined by Masayoshi Son’s Softbank Group Corp, who helped bring goPuff’s total funding to $1 billion.

However, it is important to note that goPuff has fiscal responsibility in its DNA. The company was bootstrapped in its early years, relying on cash its founders raised from side jobs such as buying and selling furniture online.