The Gopuff Business Model – How Does Gopuff Make Money?

Executive Summary:

Gopuff is an on-demand delivery platform. Customers can order from a selection of 3,000 products in categories as diverse as pet food and office supplies.

Gopuff makes money by marking up products, through delivery fees, subscriptions, as well as advertising on its platform.

Founded in 2013, Gopuff has become one of the biggest delivery startups in the United States. Its business is currently valued at $8.9 billion.

How Does Gopuff Work?

Gopuff is an on-demand food and grocery delivery service operating in 550 cities across the United States.

Gopuff customers can choose from thousands of items, including alcohol, pet food, office supplies, cleaning equipment, and plenty more.

Using Gopuff is as simple as it gets. First, customers register for the service, either on the company’s website or by downloading any of its mobile apps (available on Android and iOS).

After entering your location and payment details, users can go ahead and browse the thousands of items on its platform.

You then simply order the product and wait for it to be delivered to your home. Gopuff works together with independent contractors on a per-delivery basis to fulfill these orders.

Users can pay in a variety of formats using credit cards (Mastercard, Visa, and more), debit cards, or mobile payment solutions like Apple Pay, Google Pay, and Venmo. Paying in cash is not possible due to COVID preventive measures.

Users can, furthermore, sign up for a membership service called Fam. The membership grants users various benefits such as free deliveries or special discounts on orders.

Gopuff Company History

Gopuff, headquartered in Philadelphia, was founded in 2013 by Rafael Ilishayev and Yakir Gola. Both founders still lead the company as co-CEOs to this date.

Ilishayev and Gola, whose parents immigrated to the US when they were young, had entrepreneurship essentially running through their blood.

Ilishayev, who was born in Russia, began working for his dad’s sandwich shop when he was 11. Later on, the family expanded the business and acquired a banquet hall, which he helped run.

Gola, on the other hand, helped out his father who operated a cash-for-gold store named Joe the Jeweler. During his high school days, he even helped to modernize the business by installing sales-tracking software.

Fueled by the thirst for entrepreneurship, Ilishayev and Gola signed up to study business at Drexel University in Philadelphia. They met during a class and instantly became friends – and roommates later on.

As proper college students, they always found themselves making last-minute runs to the local convenience to fuel their late-night activities. At the time, Ilishayev was the only one who possessed a car, so he ended up having to make all those store runs.

The hassle of being the designated driver sparked an idea: what if you could simply order those items via the internet and have them instantly delivered to your apartment?

They began working on the business in their Junior year. As first-time founders and university students, money was obviously tight. Luckily, the stars somewhat aligned for them.

After launching the business, the founders were looking for office furniture and space. They ended up vacating a space owned by a close family friend who offered them to take whatever was left in the building.

Much to their surprise, they stumbled upon four floors of office cubicles which came with chairs and tables. They ended up selling most of the equipment on Craigslist, netting them over $60,000.

The cash influx allowed them to hire Ukrainian software developers who built the initial version of the Gopuff app, which they launched in December 2013.

In the early days, Gola and Ilishayev worked on the business all by themselves – and without raising any outside funding. They convinced their professors to pitch the app to fellow Drexel students, handing out free bottle openers and lighters in the process.

Since products on Gopuff are stored and sold directly by the company, they also needed to convince local distributors to work together with them. Normally, distributors require upfront payments, which they couldn’t provide since they spent all the money on developing the app.

They eventually managed to negotiate 30-day credit terms – without having any meaningful credit history – by greatly exaggerating how big their customer base was (a true example of ‘fake it ‘til you make it’) and promising distributors that their business would grow substantially.

What was even more impressive was the fact that both founders stayed enrolled in university and kept attending classes all while making deliveries well into the AMs. They used the profits from the business to then expand into new cities. Before raising any sort of funding, Gopuff was able to expand into two other cities (Chicago and Washington).

In December 2015, three years after launching the business, Gopuff was able to raise its first-ever round of venture capital funding. That same year, Gopuff also launched another delivery brand called Gobeer, which as the name suggests allows the company to deliver alcohol.

Over the coming years, the team continued to add more cities as well as funding to its balance sheet. Despite raising some monstrous rounds ($108.5 million Series D in November 2018, for instance), the firm and its leadership kept operating behind the scenes.

This was a stark contrast in comparison to other food delivery startups like DoorDash or Instacart, which used funding announcements to bolster interest in the company (from both customers and investors).

The firm’s trajectory completely changed with the involvement of the SoftBank vision fund. Led by Masayoshi Son, the investment arm of the Japanese conglomerate invested $750 million into the company in January 2019.

Apart from the inflow of new cash, Gopuff also substantially benefitted from the coronavirus and subsequent stay-at-home mandates. As a result, Gopuff grew by more than 400 percent in the first half of 2020. By the end of the year, Gopuff was available in over 500 cities in the United States.

The company even made its first-ever acquisition, paying $350 million for alcoholic beverage chain BevMo. The acquisition added 161 stores across California, Arizona, and Washington to Gopuff’s network.

In recent times, Gopuff was also rumored to expand its delivery service into the United Kingdom. The European market is currently being dominated by local players such as Gorillas.

Despite the firm’s overwhelming success, it also suffered some headaches along the way. In 2020, for instance, the firm had to move one of its Philadelphia warehouses amidst complaints from locals over piles of trash and congesting traffic.

Gopuff has recently expanded into its first foreign market with its acquisition of UK-based delivery service Fancy.

Close to 2,000 people are now employed by Gopuff which is now available in over 550 cities across the United States.

How Does Gopuff Make Money?

Gopuff makes money by marking up products, through delivery fees, subscriptions, as well as advertising on its platform.

Let’s take a closer look at each of these in the section below.

Markup

As previously stated, products sold on Gopuff are purchased and sold directly by the company. This is in stark contrast to many of its competitors which deliver products from other supermarkets and restaurants.

Therefore, Gopuff makes money whenever it sells a product. The difference between the sales price and all associated costs, such as buying and storing the product, is the profit it makes.

Many investors believe that this model is much more lucrative. For once, since Gopuff owns the products, which allows it to have real-time information on its availability. Other platforms may struggle with out-of-stocks due to missing integrations with supermarket partners.

Second, its order fulfillment is substantially faster. It has designated workers that pick the products and hand them to the delivery driver. This saves time for the driver who doesn’t have to sift through countless shelves.

Third, the company’s warehouses are opened well into the night. As such, its window of opportunity is much greater.

Nevertheless, it has to be mentioned that this model is also a lot riskier since Gopuff has to invest in warehousing space whenever it enters a new city. Furthermore, in order to sell alcohol, it needs to apply for a liquor license, which can cost well over $1 million.

Delivery Fee

Ordering a product on Gopuff incurs a delivery fee of $1.95. Another $2 is added to all orders containing alcohol.

The fees are used to cover the cost of delivery and not a take-home profit for the company. Since Gopuff operates its own warehouses (and drivers don’t have to sift through shelves), its delivery times are oftentimes substantially faster.

The delivery fee is voided if the order is above $49. At that point, the company generates enough profit from the margins that it can substitute the delivery fee.

Membership

Gopuff offers a membership program called Gopuff Fam, which offers consumers a variety of benefits.

These include no delivery fee on all orders as well as other discounts. The subscription costs $5.95 per month.

The membership is used to entice customers to order more frequently. By committing to monthly subscription payments, customers feel obliged to ‘make up’ for that investment by ordering more.

Advertising

Gopuff sells preferential product placements to various brands that want to promote their items on Gopuff’s platform.

With millions of eyeballs every month, being placed first on any given product category can be extremely valuable to brands.

Forbes reported that Gopuff received $600,000 for priority placements Nightfood, a New York-based ice cream startup.

Apart from preferential treatments, Gopuff also sells anonymized customer data about those products. Data points include how often a given product was bought, by what demographic, and when it is likely to be bought.

Gopuff Funding, Revenue & Valuation

According to Crunchbase, Gopuff has raised a total of $2.4 billion across seven rounds of venture capital funding.

Notable investors include Accel, Softbank, D1 Capital Partners, Fidelity, Baillie Gifford, Valor Equity Partners, e.ventures, and many more.

Gopuff’s most recent funding round (Series G raised in March 2021) valued the business at $8.9 billion. That’s a significant uptick from the $3.9 billion it received back in October 2020.

As a private company, Gopuff is not obligated to share revenue figures with the public. This may occur should the company ever decide to go public.

Who Owns Gopuff?

Since Gopuff is still in private hands, its ownership structure is currently not being disclosed to the public.

Nevertheless, it can be assumed that the founding team still holds the majority of shares from an individual perspective.

From the institutional side, Anthos Capital, as a participant in both the firm’s Series A and B rounds, may hold a significant number of shares (assuming none have been sold in a secondary sale).

Similarly, Accel and SoftBank had also invested through multiple rounds and were said to have purchased stakes from existing investors.

Once Gopuff decides to go public, its ownership structure would finally be revealed to the public.

Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..