The demise of Milkrun and the importance of the P&L
The delivery service had excellent branding and a lot of strategically smart positioning. But this can never compensate for an unprofitable product.
Back after an unintentional hiatus. Busy work, lots of sport and gigs, child starting football. Life keeps on turning. Onwards
Milkrun’s lessons for marketers
Plenty of Dispash readers aren’t in Australia. If that’s you, you won’t be familiar with Milkrun. You may be familiar with Getir or Gorrillas or Uber Eats grocery delivery: the quick commerce sector that delivers food and goods you’d usually nip down to the supermarket for.
Milkrun was the most high profile Q-comm business in Australia. Last week, it opted to shutter its doors, blaming “economic conditions”. It leaves Uber as the only real player in this space after two other Q-comm businesses - Voly and Send - folded last year.
We’ll come to economic conditions a bit later. But first - in a nod to the time honoured tradition of LinkedIn marketing broetry - let’s look at what marketers can learn here. Because ultimately no matter how good the Promotion is - ie the ads, brand or social media creative, which were good - it can’t compensate for deficiencies in other parts of the 4Ps, specifically Product and Price.
[A quick note here to make clear that what follows is not revelling in a business’s demise for #content. Being part of a business that goes bust is a horrible experience, especially in the current economic environment. I hope that all the 400 staff manage to quickly find a new role or way of earning. But from a marketing perspective, there’s a lot interesting to dig into. Please view the below as it was intended - dispassionately].
Not-so-fine margins
Milkrun might have been seen as a tech or - at a push - a service business but the questions it had to figure out were retail and grocery questions.
No matter how good your tech is, it can’t build your businesses warehouses to store groceries and reduce the capital costs that come with this investment. It’s one of the biggest expenses.
It also can’t negotiate better margins on everyday commodities such as milk and bread. A customer might quite like the convenience of having a few essentials delivered without leaving the house, but most grocery items - or at least the core of Milkrun’s business - make retailers very little money. Alcohol - which Milkrun latterly pivoted towards - has a much better margin, for example.
And margins matter. Reports suggest Milkrun was losing $13 on fulfilling each order and $57 for every customer they acquired. Those numbers aren’t sustainable, at least not without deep pockets.
Return on investment isn’t necessarily a problem if there’s an obvious path to profitability, or at least growth at scale that means investors can exit with a profit. Uber, with revenues of over $3bn has never made a profit, although the Uber Eats division recently had a positive EBITDA for the first time in its history.
What’s being disrupted?
Venture Capital place a lot of bets with a lot of companies, expecting plenty to fail. But as long as they have a clear view to their potential return - usually via an IPO or sale - there’s historically been a willingness to tolerate losses at the expense of growth or market domination, as can be seen by Uber. It also means they’re not sentimental in cutting losses if something isn’t working.
Historically is the right word, as more recently VCs are cutting back on the riskier or worse performing bets, while also finding it hard to find money themselves.
So when Milkrun founder Danny Milham alludes to economic conditions as a reason for the company’s demise, there is a ring of truth, even if it’s more to do with the backers than the product, which was never profitable.
There were also a number of other issues with the business model that added to that risk, and may have done for Milkrun in the long run.
Firstly, Milkrun wasn’t really like Uber or even Uber Eats in how it could disrupt the market. Taxi booking wasn’t an easy or reliable process and the product appealed to a wide swathe of the population.
Uber Eats and other takeaway delivery services took away a lot of the pain points of ordering a meal: sifting through lots of takeaway menus, Googling food you fancied, getting hold of the restaurant, trying to work out if you could pre-pay or had to get cash out to pay the courier.
Milkrun launched during the height of the pandemic when quick delivery of grocery essentials most definitely solved a temporary problem: avoiding small trips to the supermarket to top up on essentials.
But there was no evidence that this behaviour would continue after the pandemic (it didn’t), and the main issues Milkrun solved were for people who didn’t have time to head to the shops - busy professionals, for example - or for people who it wasn’t practical, such as parents of young kids who’d run out of ingredients for dinner.
For inner city dwellers, where Milkrun was predominantly based, there were plenty of convenience stores available a short walk away, who offered the same goods without the delivery fee.
This audience also presented another challenge for Milkrun. The more the company expanded, the more dispersed the population. Australia is a different market from more densely populated countries.
Once you move out of the inner city areas and into the outer suburbs, logistically, it becomes a lot harder to service with your own warehouse infrastructure. And regional and rural Australia is a very disparate area. Logistic costs to service these areas for low margin essentials becomes challenging.
Growth is definitely possible but it’s a lot harder to make money on grocery delivery than it is on taxis and takeouts. It’s why Uber Eats grocery delivery model of using existing local shops makes much more sense - at a stroke it removes one of the biggest areas of expenditure on low margin items.
Taking on the big beasts
Logistics and growth challenges aside, Milkrun had one other big challenge that loomed large: two huge competitors sitting in different sectors.
On one side Sat supermarket behemoths Woolies and Coles. Neither offered near instant delivery of low margin essentials - probably for the reasons outlined above - but they did offer grocery delivery in itself, which made more sense to pay a fee for large orders.
And if they were threatened by Milkrun, Voly and Send, they had the financial clout to launch a similar service, after assessing the competition. It’s not a fun place to be when a bigger, better funded existing competitor could step into the space - just ask what Buy Now Pay Later companies think of Apple or PayPal.
There’s no guarantee these large companies would succeed, but they already have an advantage insofar as they have strong, well established supply chains, bargaining power over margins, and the existing logistical infrastructure should they wish to launch in this space.
On the other side, you have Uber Eats, who have seemingly bottomless cash to burn, and an existing business model that doesn’t require huge amounts of tweaking to add groceries to their existing service, which is exactly what they’ve done.
Most questions here were grocery delivery questions. Uber’s answer involved dispensing with logistics and clipping the ticket. The big supermarket answer seems to be it doesn’t make business sense to expand into this area.
Milkrun was also competing against brands that have close to 100% mass market brand awareness (I’d assume) in Woolies and Coles, and, in Uber Eats, a competitor that already had a far larger customer base with an existing association with a delivery category entry point.
And much bigger marketing budgets. Uber Eats, Woolies, and Coles (plus Aldi and Menulog) are some of the biggest advertisers in Australia, let alone the category. Achieving ESOV while staying profitable would be a huge challenge.
This would be a challenge for an established brand, let alone a new player that’s taken the decision to heavily invest in infrastructure and headcount. That’s not to say Milkrun couldn’t succeed. But they had a much tougher job to take consumer spend away from big competitors.
Brand can’t compensate for everything
Despite the challenges, there was a lot to like and even admire about Milkrun’s approach.
Faced with a very tough market, they’d picked a segment - in this case, young inner city professionals - and gone after them with unerring consistency.
The branding and creative was spot on, to the point that, if some customers in the press articles are to believed, there was a willingness to pay a higher amount with the delivery fee than nip down to the shops. If that was the case, it would be impressive. Some brands never get to this point.
Their 10 minute delivery proposition clearly positioned them against the bigger, less nimble supermarkets who delivered but weren’t quick. And their commitment to employing couriers on hourly wages rather than payment per delivery would have, I assume, played well with their target segment and clearly signposted that this was a very different company to the ruthless, uncaring Uber Eats.
Although I’d also make an assumption that this may not have been enough to entice a large percentage of their segment to abandon Uber.
So, yes, the brand, socials, creative were all excellent. That isn't surprising. A lot of creatives would love to get the chance to help build a brand like Milkrun. But it also shows one key lesson the industry can easily forget.
Marketing is not about making adverts, creating distinctive palates, and standing out visually (although this all helps). It's also about the P&L, the strategic choices, and ensuring the product fits the market and makes the company money.
Or - and with apologies to David Abbott - crumpets that arrive in 10 minutes are still just crumpets.
Milkrun’s legacy
In future years, Milkrun will be an interesting footnote bookending this particular phase of tech and venture capitalism. It will probably be one of the higher profile failures, of which there are undoubtedly more to come. Cash will get scarcer and investors will either demand a return or profitability much earlier. Milkrun was unlikely to offer either of these.
There may still be a gap in the market for a slightly more ethical delivery service that doesn't do its best to circumnavigate workers rights. It will be more expensive, but then, potentially, the clientele may have more disposable income. It would also be unlikely to be a high volume service.
But the more bigger players dominate the market, the more gaps will appear for smaller competitors. Whether that's enough to make them viable is another question entirely.
Interesting reads
The end of the 2010s internet
BuzzFeed was one of the hottest publishers in the world a decade ago. It was probably the first mainstream publication that really got the internet and what it was about. It went the way of so many companies of that era. But it was fun while it lasted. LINK.
Media regulation enters strange new worlds
Regulating advertising and publishing online is a thankless task. It’s usually about 3-5 years behind the curve and nobody can really agree on what is being regulated. Australian’s ACCC is having a peek at Apple, Microsoft and Amazon’s plays in the advertising space. It may well ask the right questions, but by the time any reports or recommendations are delivered, the answers may be about five years old. LINK.
Netflix is now a real TV company
Netflix’s user growth always had a natural plateau. But user growth and profitability are different things. Netflix now looks a bit more like a TV company in the heydays. User growth - or viewers - may be a lot slower but the money coming in looks a lot better. LINK.
When AI goes wrong, part 790
Unlike other hyped tech, AI definitely feels like it will make some kind of step change in multiple industries, but it’s hard to say exactly what this will be, or whether the impact is good or not. Meanwhile, there’s plenty of things that can go wrong, which means ethicists won’t be wanting for work this year. Libel is one of those. ChatGTP incorrectly labelled an Australian mayor as a a convicted criminal, when he was actually a whistle blower. He’s suing OpenAI for defamation. A case that raises more questions than answers. THINGS GOING WRONG LINK / MAYOR SUING LINK.
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Playing us out this week: Disarm by the Smashing Pumpkins. No other reason than I finally got to see them in concert this week, and they were everything I hoped for. Although I didn’t expect to see Billy Corgan attempt dad dancing. Until next week.