Rapid grocery delivery provider Zapp today announced that it has closed a $200 million funding round, the second nine-figure investment raised by the startup since its launch in 2020.

Lightspeed Venture Partners, 468 Capital and BroadLight Capital led the Series B round. Formula One driver Lewis Hamilton, Atomico, Burda and Vorwerk Ventures participated as well. London-based Zapp previously raised a $100 million investment last March.

Zapp, incorporated as Quickcommerce Ltd., operates a so-called instant grocery app that offers delivery times of as little as 20 minutes. The startup is one of several well-funded players competing in the rapid grocery delivery segment. Another major market player, Gopuff, has raised billions of dollars from investors, while Gorillas Technologies GmbH last year closed a nearly $1 billion funding round at a $3 billion valuation. 

Zapp’s rapid delivery times are made possible by a network of miniature fulfillment centers dubbed Zappstores. The fulfillment centers’ limited capacity makes it practical to set up several facilities in every city where the startup operates. As a result, Zappstores are located in close proximity to consumers, which enables the startup to provide more competitive delivery times than traditional food delivery companies.

The food delivery segment is an area where companies have historically struggled with profitability. However, Zapp is reportedly already making a profit on two-thirds of purchases despite launching less than two years ago. 

That Zapp manages to generate a profit on most customer orders may be partly the result of its product procurement strategy. The startup reportedly sources many goods directly from suppliers, which can potentially be more cost-effective than going through wholesalers.

Fellow rapid delivery startup Gopuff is taking a similar approach. In addition to reducing costs, managing the process of sourcing goods from suppliers in-house has another potentially major benefit. The approach allows grocery delivery startups more easily to adjust their product catalogs when customer demand changes.

The rapid grocery delivery segment has become highly competitive in recent quarters. Several of Zapp’s competitors raised a significant amount of funding in 2021. Meanwhile, more established food delivery companies such as publicly traded Deliveroo plc are rolling out their own instant delivery services. 

Zapp will use its latest funding round to establish a bigger presence in the cities where it currently operates, as well as expand to additional markets. The startup is in parallel working to move closer toward profitability.

The significant number of venture-backed startups in the rapid grocery delivery segment could lead to market consolidation. Acquisitions may become especially likely if more established food delivery companies join the segment, as Deliveroo has done. Buying an existing market player helps established companies speed up market expansion initiatives.

It’s also possible that additional nine-figure funding rounds will be closed by rapid grocery delivery startups in the next few quarters.

Such startups rely on miniature fulfillment centers with relatively limited capacity to facilitate rapid delivery times. As a result, expanding into a new market often necessitates opening not one but several fulfillment centers, which requires a significant investment. Given that many of the rapid grocery delivery segment’s major venture-backed players are not yet profitable, they may raise more outside funding to support market expansion initiatives.

Photo: Zapp