20VC: The Memo: Never Before Revealed Metrics; A Full Breakdown of Unit Economics Behind JOKR, How Does Emerging Markets Compare to Developed Economies & The Biggest Misnomers on Quick Commerce with Ralf Wenzel, Founder & CEO @ JOKR

Ralf Wenzel is the Founder & CEO @ JOKR, a global platform for instant retail delivery at a hyper-local scale serving both the US and LATAM. Ralf has raised over $260M for the company, most recently valuing it at $1.2BN. Prior to JOKR, Ralf spent 7 years as the Founder & CEO @ foodpanda, as well as, enjoying roles as Chief Strategy Officer @ Delivery Hero, Interim Chief Product and Experience Officer @ WeWork and even moving to the other side of the table as a Managing Partner with Softbank. In Today’s Episode with Ralf Wenzel You Will Learn: 1.) What is the unit economic breakdown for quick commerce business models? What levers can be used to improve it over time? 2.) Comparing the US to LATAM: What is the AOV (average order value) in the US vs LATAM? What is the order frequency in the US vs LATAM? How does labour cost vary when comparing LATAM to the US? How does real estate cost for fulfilment centres differ when comparing LATAM to the US? How do product margins on a per product basis differ when comparing US to LATAM? 3.) New Market Growth and Maturation: What is the payback period for new markets? How has this changed over time? How does the payback period reduce with every new market being opened? What % of AOV is spent on marketing when a new market is opened? How does this marketing spend change over time? In mature markets, how much new customer acquisition is organic vs paid? What is the average weekly growth rate in new vs mature markets? 4.) Business Model Expansions: How does Ralf and JOKR approach the potential for private label goods? How does private label change the margin structure of the goods? What have been their lessons from starting their first private label goods? How does Ralf approach the ability to integrate advertising and paid search? What is needed for paid search and advertising to be a meaningful part of the business?

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Harry Stebbings?

  Welcome back. This is the latest episode of 20 VC The Memo with me, Harry Stebbings. Now, usually in The Memo, we're joined by an investor who led a round in a company, and they walk us through their reasoning for leading the round. Today is slightly different. I feel there's so much confusion around the business model of quick commerce in particular, how and when these businesses start throwing off cash, and being sustainable businesses. And so I'm thrilled to do a deep dive today on this exact model with Joker and answer these questions. Hence, joining me in the hot seat today, I'm so excited to welcome Ralph Wenzel, founder and CEO at Joker. Now Ralph has raised over $260 million for the company, most recently valuing it at $1.2 billion. And prior to Joker, Ralph spent close to seven years as the founder and CEO of Food Panda, as well as enjoying roles as Chief Strategy Officer at Delivery Hero,

• 0:43Harry Stebbings?

  and even moving to the other side of the table as an investor and managing partner with SoftBank. Today was such a fun episode, there's a lot of data, we go quite deep, but I really do so hope you enjoy it. But before we dive into the show today, fast, granular, and most importantly, reliable data is so crucial to successful decision-making and venture capital today. And that's why PitchBook provides a comprehensive platform for all your venture and capital market needs, supported by world-class research, dedicated customer success teams, and award-winning technology. With PitchBook, you can track the activity of markets, firms, and individual investors to identify potential prospects, or even your next limited partner, offering the extensive exclusive data you need to make informed investment and business decisions, and the tools to carry them out.

• 1:25Harry Stebbings?

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• 2:10Harry Stebbings?

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• 2:55Harry Stebbings?

  Head over to Linktree, that's L I N K T R dot E E to find out more. It really is a must. But that's enough from me. And so now I'm thrilled to hand over to Ralph Wenzel, founder and CEO at Joker.

• 3:13Speaker 01

  You have now arrived at your destination.

• 3:16Harry Stebbings?

  Ralph, this is such a joy to do. What can I say? I so enjoyed our first discussion. We had to make this second one happen. So thank you so much for joining me today.

• 3:23Speaker 02

  No, thank you so much for having me again. I highly appreciate it.

• 3:26Harry Stebbings?

  Not at all, but I want to start today. There's a lot of misnomers around the space. There's a lot of gossip around the space and I want to start today on really the core, because I think this is where the misnomers actually lie. Diving straight into the deep end here, Ralph, can you walk me through the unit economic breakdown of how this business works?

• 3:44Speaker 02

  Yeah. So I think, Harry, before we go into the unit economics, what I want to put at the very beginning of our talk today is that there are secular trends whereby customers, more and more looking into getting things delivered, customers appreciate a more social, a more personalized, a more speedy consumer proposition. And I think what we are doing first and foremost is to adhere and to react to very clear secular trends that we are seeing out there in the market. On demand is a reality. It's not an illusion. It's not a wish. It's not that we are forcing something onto someone else. We are reacting to a clear demand profile and those secular trends. Got accelerated through COVID, but even before, as we see city populations exploding,

• 4:24Speaker 02

  as we see evolution of younger generation that spends more time behind the mobile screen than in face-to-face interactions. So that's what we're trying to build and that's what we're trying to respond to. And now to your question around the unit economics. And I think understanding the unit economics needs to be contextualized with how do usual supermarkets work, right? So we're not comparing ourselves to potentially other online platforms, but we're comparing ourselves against traditional, mostly offline supermarkets. And what do offline supermarkets do? They allow us as customers to fulfill our weekly or monthly grocery shopping demands. And depending on the country in which we're in, and we're spending a substantial amount of money in weekly and monthly grocery shopping.

• 5:05Speaker 02

  And obviously it depends on the size and magnitude of our own households and how many people we need to feed on a daily basis. But what we are building with Joker is a replacement for the offline supermarket. We're not building a convenience on-demand store. We're not building what others refer to as, I don't know, a quick commerce business that is centered around just snacks and alcohol. And we think that going forward, grocery shopping will be more spontaneous. So instead of going to the offline supermarket and do a monthly shopping or grocery shopping every two weeks, that going forward, people will decide more spontaneously. And that's what we are seeing proven by the data that we're generating. So instead of doing a monthly grocery shopping, people would do a weekly shopping or maybe like twice a week. And that's what we see articulated in our frequency.

• 5:47Speaker 02

  So first and foremost, and now making reference to the US market, which is one of our core markets, obviously next to the very important Latin American markets that we're in. Instead of doing like a 200 US dollar monthly grocery shopping, people would do on average like a 50 US dollar weekly grocery shopping. Basically, our people would come back every single week. That explains our order frequency that is converging towards four to five orders per customer per month. And they would on average spend approximately 50 US dollar when coming to the Joker proposition. Key to the proposition that we are building is that we have said we are taking care of the procurement ourselves. And we're trying to procure as direct as possible by vertically integrating, by disintermediating the different middlemen that do it.

• 6:30Speaker 02

  Exist in the global supply chain and procurement environment and go as directly as possible to the producer. So with the approach to empower, enhance our offering with regards to local brands, we increase our ability to directly procure from those local brands. And especially with our strong focus on fresh products, we do have the ability to directly procure. Whenever we directly procure, our product margin is around the basically forty percent benchmark. We're generating that product margin already for some of our most mature cities and some of our most mature markets. As we already have a direct procurement share of above forty percent. So even though we are very, very early and have only like around forty percent of products that we are procuring directly,

• 7:12Speaker 02

  we are already able to secure a product margin that is now converging towards the forty percent. So if you take like a basket of fifty US dollars and a product margin of approximately forty percent, that gets you to what we would refer to as our net revenue or our first contribution margin of give or take maybe like eighteen to to twenty US dollars. And let me know if you want to interrupt me because otherwise I will keep on going through the unit economic breakdown.

• 7:34Harry Stebbings?

  Keep on going down. So we have that eighteen to twenty dollar, as you said, that contribution margin.

• 7:39Speaker 02

  Yeah, so give or take, if you take the fifty US dollar baskets, even at a direct procurement share of not yet above fifty percent. So there's a lever in the future that as we increase our ability to directly procure, then I think we would be able to get to product margin even above the forty percent. But let's take the forty percent as a baseline because the forty percent is also something that we've achieved already for our most mature markets and cities that would get us to a first contribution margin of round about like twenty US dollars. And then as we run the fifteen minutes delivery model, and why do we run the fifteen minutes delivery model? There's a lot of mentioning in the press and in social media whether or not people need the fifteen minutes grocery delivery. Our response to that can get separated into two different parts.

• 8:21Speaker 02

  The first thing is customers want to have grocery products delivered as fast as possible. And that's articulated in our data. The more we are able to adhere and stick to the fifteen minutes delivery guarantee, the higher the order frequency, the higher our retention rate, the higher the customer lifetime value. So there's there's proven appreciation by our customers. Customers for a delivery proposition that is as fast as possible. The second thing is your ability to drive delivery efficiency, which is measured by the utilization rate of your rider workforce, is one of the sweet spots that determines the profitability of this model. And only in a situation, and that's what we have figured out and it's proven by the data that we have, only in a situation where you consistently stick to a fifteen minutes delivery window,

• 9:06Speaker 02

  only then your ability to drive a higher rider utilization can allow you to drive a significant gross profit margin. So obviously, if the single rider takes one hour to deliver a certain product, your ability to drive a high utilization of the rider workforce is very, very limited as compared to fifteen minutes, which mathematically would allow you to drive up to four orders per rider per hour and with that significantly reduce the cost of delivery or the cost for every single delivery that is being carried out.

• 9:36Harry Stebbings?

  Speaking of the cost of delivery now, the one thing that, you know, people do say with the elongated delivery time is that you can actually batch it to have multiple customer orders in one delivery trip. How do you think about that? Does it always have to be one trip for one order? And I guess, you know, what for you is really great driver efficiency, say on like a per hour basis?

• 9:57Speaker 02

  So I think the first thing that we have determined is, and that is the reason why some of the marketplace companies, and we came out of that marketplace context as well, where you are supply constrained, where you need to work with like third-party supply, third-party stores, third-party restaurants, is that you can't basically efficiently optimize the demand to supply type of consideration. You can't bring the supply closer to the demand because you're constrained by the available stores or restaurants that are out there, which are not optimized for an on-demand delivery type of environment, but they're optimized for basically working customers. The first dilemma that we have learned from, coming from this like marketplace type of context that we have been working in for many, many different years,

• 10:41Speaker 02

  how do we make delivery first of all more efficient by moving supply closer to demand? How on top of that do we increase delivery efficiency? By reducing the size of our delivery polygons and allowing for delivery time that is as short as possible. So those two elements are the main drivers behind a delivery efficiency in our model. That is twice as high on average than with a typical marketplace companies. And hence allows us on top of our higher gross margin that we have because of the ability to procure directly. To then drive a significantly higher net margin as comparable public companies that have been engaged for like many different years in a marketplace proposition. And on top of moving your supply closer to where your highest online demand is.

• 11:24Speaker 02

  And on top of structuring delivery polygons that as tight as possible. You do have the ability at scale to obviously engage in some kind of stacking. And that's why we have said there might be single instances where it makes sense to broaden the delivery time. In between the fifteen to potentially thirty minutes window. As long as we're able to use that flexibility on the delivery time for an overproportional ability to stack certain orders. Because we have seen that in between the fifteen to thirty minutes delivery corridor. The difference in customer frequency on order frequency and customer lifetime value and retention rates is relatively minor. As long as you move above the thirty minutes delivery corridor. You will start losing out on customer appreciation on retention rates and hence also on customer lifetime value.

• 12:09Speaker 02

  So we have a window in between the fifteen to thirty minutes corridor. In which we can navigate for achieving the highest delivery efficiency. And the delivery efficiency is always a function of our ability to reduce idle times. And make riders be as efficient as possible. Plus the additional ability to potentially stack orders where and when it makes, when it is possible.

• 12:28Harry Stebbings?

  Can I be crass and ask, what's a good drops per hour? I know it's very commoditized granular, but what is good? Is it four? Is it two? Is it six? Where do you look at it and go, good, we're doing well?

• 12:39Speaker 02

  I think there will be a ceiling, but in terms of our business, and again, we are ten months old business. So we are far away from having reached maturity. We are far away from having reached the scale that we think we can reach over the next few years to come. Most mature cities, we are already at a so-called drop rate of in between three point five to three point seven drops per hour per rider. And that is a Function of consistently sticking to the fifteen minutes delivery guarantee. More than ninety percent of our orders that we're fulfilling worldwide within the fifteen minutes delivery time. But also to flexibly structure within the fifteen to thirty minutes delivery timeframe. In order to allow for additional stacking, which then brings another the positive impact on our ability to drive a higher basically drop rate, as you've called it.

• 13:23Harry Stebbings?

  Totally get you. Can I ask, going back to the discussion we had around the kind of eighteen to twenty contribution margin. When you have that then as your kind of wiggle room, as we'd call it in the UK, so academic. But when we have that wiggle room in particular, on a kind of at scale per order basis. What are the largest concentration points in the cost structure then? When you look at that eighteen to twenty and where that goes from a cost basis.

• 13:46Speaker 02

  I think the biggest cost lever that you have in this business is indeed your ability to procure efficiently. And procure efficiently is a function of procuring as direct as possible. Which only works if you make a shift towards more local producers. If you keep on relying on the large global CPGs, your ability to drive a significant product margin is limited. Because they are forcing a certain pricing on you. So fortunately, consumer demand is trending towards more and more local products and more and more local brands. That goes in our favor because we can use that demand consideration that is out there. For building an assortment that is predominantly physically generated or built by a lot of local brands.

• 14:31Speaker 02

  Especially on the fresh and and fresh grocery side. And again, as we increase the share of local products and local brands. As we increase our data pool that tells us what customers need and when they need it. So that we only procure what is actually needed and bring down inventory losses to a negligible degree. I think that product margins can converge at scale towards even fifty percent of revenue over time. And again, we're very, very satisfied and very happy that even though we are like a very early stage business. We're now converging globally to the forty percent gross margin benchmark.

• 15:03Harry Stebbings?

  How do the product margins vary when comparing the US to LatAm?

• 15:08Speaker 02

  I think in between LatAm. And the United States, I think they are very different, basically product margin corridors for different product categories. So the product margins for fresh produce in Latin America are significantly higher than the product margins for fresh produce in the United States. So as we move more towards a very fresh focused proposition in Latin America, our ability to drive an even higher product margin in Latam is even higher. In the US, it's kind of like a balance because the agriculture market has higher costs attached to them, especially the domestic agriculture market. So we're not able to yield the same margins on fresh produce in the US as we do in Latin America.

• 15:49Speaker 02

  However, in the US, with a large amount of local brands that are not the Unilabors, the Nestleys, the Coca Colas anymore, and with those local brands, we can build a more direct way of procurement. In the US, we have a slightly lower margin on fresh produce as in Latin America. In Latin America, we have a significantly higher margin on fresh produce because of a low cost and very large domestic agriculture market. However, in the US, we have a bigger ability to procure local brands because there's a very, very fragmented and very attractive markets of small local brands, especially on the food and on the grocery side, on the convenience product side.

• 16:30Speaker 02

  So what generates the margin for us in Latin America is rather on the fresh side. What generates the margin for us in the United States is rather the basically small local food, convenience and grocery brands that we're able to procure directly into our warehouses.

• 16:45Harry Stebbings?

  How do the blended margins on a per order basis compare? Per order, say fifty bucks, how do those margins compare across all?

• 16:53Speaker 02

  I think on a percentage basis, our gross margin, so after COGS, after product cost and inventory losses, they converge to pretty much the same level across all of the geographies we are in. So they are around like the forty percent type of threshold. The big difference is then rather on the cost of delivery and the lease costs for our micro warehouses that we are operating.

• 17:16Harry Stebbings?

  Well, I want to dive into that because that is like one of my big beliefs around, again, emerging markets, which is like the arbitrage you have on labour and real estate that you don't have in emerging, in like, you know, economies like the US or Europe in a lot of cases. So how do those differ when you look at those two elements, the cost of delivery and the, you know, labour, and then the actual warehouses?

• 17:37Speaker 02

  Yeah, let me also do the comparison again. Let's take a market such as Mexico and let's compare that against potentially like the US market. So if in Mexico, our basically average order value would be fifteen US dollars at a forty percent basically product margin, we would get to an approximate contribution dollar margin of six US dollars. And that compares with the US to an average order value of close to fifty US dollars, which would then give us an approximate like dollar contribution margin of maybe around like eighteen. So you have six for Latin America, you have eighteen for the United States. So you start with a different baseline for those two geographies. And then obviously underneath,

• 18:17Speaker 02

  you have very, very different costs for picking and for delivery, which are the other main cost items for this type of business model. And in Latin America, your delivery and picking costs are converging in between, depending on the country, between the basically seven to fifteen percent of revenue of AOV. And in the United States, it's converging in between rather the basically twelve to seventeen percent. Again, also here, depending on the type of cities that you're in, depending on like different salary levels for your pickers and for your riders, which in the case of Joker are always like full-time employees, and hence includes all social security contribution, health insurance, and so on. And if you factor in the different delivery and picking costs, you get to a contribution margin after picking

• 19:02Speaker 02

  and delivery of roundabout five US dollars for the Latin American markets and roundabout a ten US dollars for the United States.

• 19:09Harry Stebbings?

  Okay, so that makes total sense, and that's absolutely fascinating. God, I'm loving this, Ralph. So that's on the like labor costing side. When you look at the real estate costing side and on the micro fulfillment and the warehouses, how does that cost structure differ when comparing, say, Mexico to markets in the US?

• 19:25Speaker 02

  Yeah, so in Mexico, our average lease cost for the type of warehouses that we're leasing is in between the three thousand to five thousand US dollars per month, which is obviously a fraction of what we would pay in the United States, where lease costs are then rather in between the fifteen to twenty thousand US dollars per month. However, with the higher contribution margins, and again, coming back to the contribution. Margins after cost of picking and after cost of delivery that are for Latin America and the United States in between the five to five for Latin America to ten US dollar type of contribution margin per order at scale for any of the hubs at maturity that we are in.

• 20:03Speaker 02

  You can then easily calculate how many orders we would need on a monthly basis to break even on the respective lease costs in any of the given areas. So if we have, let's take the higher amount for a country like Mexico and Brazil of approximately five thousand US dollars per store per month. At a five US dollar contribution margin, we would need one thousand orders per month in order to break even on the actual lease cost. And in our most mature hubs in Latin America, we are already generating five hundred orders per hub, whereas we would only need one thousand per month in order to break even on the actual lease cost. So we're already in a situation in most of our Latin American cities and geographies that we're in, where we are either close to break even on the actual lease cost

• 20:47Speaker 02

  or have already achieved break even and having profitable margins after our respective hub costs.

• 20:52Harry Stebbings?

  Can I ask, when you break those down, maybe I'm being too much of an emerging markets fan here. When you break those down to the five and the ten dollar contribution and the five, I'm taking the high end on both, but the five to, I think, the fifteen thousand you said on the real estate. Surely the emerging markets is a better business. It's two, it's three X more expensive on the real estate, but it's only two X more on the contribution margin.

• 21:13Speaker 02

  Yeah, I think over time and as we increase consumer adoption, as we broaden our assortment, as we personalize more, as we really start becoming not only a convenience on demand type of proposition, but indeed able to offer a comprehensive supermarket assortment that is faster, that is more personalized, that is more social, more engaging, more fun to interact with. I think the ability on our side to drive significantly higher AOVs. In addition to that, leverage additional revenue streams, merchandise revenue, such as advertising revenue, such as certain placement revenue, sampling revenue by allowing brands to use our infrastructure for basically sampling, for testing certain products, which we would charge a fee for, our ability to drive higher.

• 21:57Speaker 02

  AOVs, higher average order values and our ability to drive additional revenue, be it on the advertising side, on the merchandising side, on the sampling side, is over proportionally higher in the US as compared to Latin America. We will have that effect in Latin America as well. If we make the calculation, and this is like how our whole business place is, has been built over like a 10 years horizon, and look into customer lifetime value on a net contribution basis, on a net contribution margin basis, we think the countries in between Mexico, Brazil, Colombia and the United States will pretty much converge. However, the upfront investment for the US is obviously higher. Countries in Latin America, in some of our cities in Latin America,

• 22:39Speaker 02

  are the edge of breaking even already because we have very low initial investment costs. We have very low basically lease costs, we have very low infrastructure costs, we have the ability to procure directly significantly faster than in the US. We're able to leverage benefits of scale in our procurement structure much faster than in the United States. In the US, you have higher upfront costs, you have higher lease amounts, you have certain deposits that you have to put in place for securing those leases and you have an initial higher employment cost for riders and figures that only once you reach scale and maturity then converge into profitable margins. So it takes twice as long for the United States to achieve the same contribution margins as in Latin America, but over a five to 10 years horizon,

• 23:24Speaker 02

  you will see margins converging to very, very similar levels. And then obviously, both Latin America and the US present an enormous market potential, but it's also, I think, fair to say that the US market in comparison to Latin America has a substantial size where basically there's enough room for multiple players to grow and succeed.

• 23:44Harry Stebbings?

  Does fulfillment center implementation, does that reducing cost over time? And if so, what efficiencies drive cost reduction of setting up the core fulfillment centers?

• 23:56Speaker 02

  So what we are doing is we are both implementing and building micro fulfillment centers, which are those facilities that we've spoken about before. And in addition to that, we are setting up so-called larger distribution centers, larger warehouses. Typically, we have one of those like large distribution centers for every single city that we are in. The larger distribution centers allow us to build a stock of products ourselves. They allow us to tap into higher product margins because we're able to procure a higher amount of certain products and SKUs at once, and hence leveraging certain procurement discounts as well. And second of all, they allow us to have a much more frequent replenishment of our micro fulfillment centers,

• 24:38Speaker 02

  where we're targeting to have a twice a day replenishment cycle of the inventory in our warehouses to increase the inventory turnarounds and to adhere to changing customers' ordering habits, which are different in the morning of a given day, then at lunchtime, then in the evening. And as such, as we increase replenishment frequency and inventory turnover, we can increase the amount of available SKUs to the customer outside of the physical space that we have available by just rotating the inventory significantly faster.

• 25:10Harry Stebbings?

  Can I, I'm jumping around here, but I'm too fascinated. You know, you mentioned kind of the payback periods on each market. I'm intrigued because you have a choice now as the leader and the CEO to go aggressively for growth in as many markets as possible, or you have the choice to focus on unit economics and make that payback period as fast as possible, make AOVs as high as possible, and really make the core zones profitable zones. How do you balance between growth at all costs, and not all costs, but you know, a priority towards growth, or a priority towards make zones profitable as soon as possible?

• 25:45Speaker 02

  Yeah, so that's a very good question. So first and foremost, and just coming back to what I said at the very, very beginning, there are very, very strong secular trends out there. There's a strong demand for a better, a more personalized, a more convenient, a faster online grocery offering out there. So there's demand out there and we're capturing that demand. And already more than fifty Fifty percent of our new customers are generated by us organically. They're coming to us through word of mouth, through organic referrals, or basically other type of like organic channels that we've opened up. So more than fifty percent of our new customer growth is organic, free of charge, without any marketing. So that growth we have anyway. In addition to that, we are tailoring marketing campaigns,

• 26:28Speaker 02

  complementary marketing campaigns to the organic growth that we are seeing to adjust for the most efficient way of growing our business. So we're putting already most marketing dollars where we have already established the most efficient procurement capabilities and delivery infrastructure and where we already have been able to have a high-quality type of assortment available to our customers. So marketing spend is already adjusted towards those cities and those geographies where we have created ourselves the strongest ability to yield positive unit economics, and we will keep on doing so. So we think that in our business, which is driven by strong organic growth, our business is a business that where strong growth and positive unit economics are not a contradiction.

• 27:13Speaker 02

  And we have already in the vast majority of our cities and in our neighborhoods and in the vast majority of our more than two hundred micro fulfillment hubs, we are already yielding positive contribution margins after all, delivery costs, picking costs, inventory losses and product costs. So we are already in a situation where the vast majority of our business is yielding positive unit economics and hence contributing to a positive return for every marketing dollar that we invest.

• 27:39Harry Stebbings?

  Can I ask, on the marketing dollars, what percent of AOV is spent on the marketing dollars?

• 27:44Speaker 02

  It's very different at the beginning of a certain activity in a given city and a given neighborhood. So as we open new hubs, as we activate new neighborhoods, as we get into new cities. Initially, we engage in a lot of marketing to what we call activate the given neighborhood, to activate the given city, to create a certain brand awareness for what we are doing and for kickstarting the generation of new customers, which then over a time horizon of three to six months yields into the situation that we now have almost on a global basis, where then more than fifty percent of new customers. Customers are generated organically. So you start with a very, very high marketing investment and over time, already after the first like three to six months in any given neighbourhood,

• 28:25Speaker 02

  slightly start to reduce to have profitable payback periods within a reasonable timeframe. And you might appreciate that especially on the marketing side, there are some sensitivities that we prefer to keep to ourselves.

• 28:36Harry Stebbings?

  I do want to ask, you mentioned the expansions that you have available to you. And I think this is a gap, a gap so much. You know, GoPuff announced the other day that they're very much going to focus on private label. How do you think about private label and how does that change your business, Ralph?

• 28:49Speaker 02

  We want to build an online grocery proposition that looks into what is it that customers want and when is it that they need it? So to be really specific and data driven in understanding which type of products, which type of SKUs, which type of brands is what most drives customer interest? And how is it also changing over time? And how can we contextualise that to time? Hour of the day, day of the week, week of the month, to really have at any given point of time, the right assortment that customers, that a single customer most cares about in our inventory. And then the question is, where do we get that assortment from? Do we get that assortment from the large CPGs? Do we get that assortment from like local producers?

• 29:29Speaker 02

  Or do we get that assortment by filling some of the gaps by building out our own private brands? And by sourcing certain products or by kind of like engaging in building products ourselves and labelling that with our own brand? So first and foremost, we want to make sure that we do have the assortment available that customers care about. And we already have a mix of CPGs, the larger CPGs that are part of our portfolio, of local brands that we see an increasing demand for. And we have already launched our first private label brands, which are a function of filling assortment gaps, but also looking into those type of product and articles that are most demanded. Whereas a function of building it out as a private labelled product,

• 30:13Speaker 02

  we can then yield an additional margin and create a uniqueness factor towards our customers and engaging in brand building a more fragmented set of brands that we can build underneath the Joker umbrella.

• 30:23Harry Stebbings?

  How does it specifically change the margin profile when you move from a local CPG, which as you said, in the thirty five to forty percent range? How does that change when it's private label?

• 30:34Speaker 02

  I mean, based on our experience, and again, our experience is very early, so by no means we are yet the absolute professionals when it comes to building our private label. But we're strongly engaging in that. We're building a very large team. We're focusing on that as one of our key investment areas. We think that at scale, we have like a five to 10% additional margin potential that we can unlock while building private label.

• 30:55Harry Stebbings?

  Got you. Okay, that makes total sense. When we think about final one that I do want to discuss before a quick fire. I think that people forget that like businesses are levers. And actually, you could build the world's largest search engine for groceries through the Joker platform. And use that to subsidize a break even delivery platform. I think people completely forget this. My question to you is, how do you think about that advertising element and building in the search engine play, which could be a huge, huge business?

• 31:21Speaker 02

  We see that as one of like the strongest future levers for additional value generation. Not only because we have enormous scale, not only because we still keep on having 15% weekly growth in new customers. So we're accumulating a lot of customers that are highly engaged, that keep on coming back on a weekly basis, that have very, very strong retention rates. So that makes us a very, very attractive platform because we have stickiness, we have loyalty in what we are building. And wherever there's loyalty, there's interest from brands and services to look into how to monetize that in addition to what we're doing already. So yes, we see a strong opportunity for integrating some of those services. And the other element is that we're disintermediating between the producers and the customer.

• 32:03Speaker 02

  We don't have like three, four, or five middlemen involved, which you usually have in the offline retail world. That in between the producer, in between the farmer and the customer, you have many, many different layers so that one side doesn't understand the other. So while disintermediating that, we also can create a more direct way to communicate, to promote, to potentially advertise. And to appreciate each other, which I think builds into and fits into the overall long-term plan. To monetize on the type of platform that we're having outside of the product margins and delivery efficiency that we can build into our system. For that, you need scale. For that, you need relevance. And for that, you also need to have a proven core business model. Because we want to make sure.

• 32:44Speaker 02

  That we are very strong in the cities that we're in, that we are relevant, that we have a relevant customer base, that we have loyalty not generated by discounts but by customer experience and by our overall product proposition and by the type of assortment that we have and keep on adjusting. So we need to build relevance, we need to build scale, we need to build healthy fundamentals. We need to make sure that our core business will never ever run out of money and is self-sustainable. And once that is ensured, I'm sure we have one of the most attractive advertising propositions out there for all type of local and international brands that want to engage with us.

• 33:19Harry Stebbings?

  Tell me, my friend, the final one, I'm just too intrigued. You know, I sit here in London, you know, Dijon got acquired, there's acquisitions left front and centre. Is this a sheer market consolidation? How do you see this playing out in the next? I think it'll happen quite quickly, in the next eighteen months to two years. What happens on the consolidatory element?

• 33:36Speaker 02

  So from our point of view, this industry, it does not face a demand issue. If fifty percent of customers are coming to us organically, that's a proof point for this business to be at the right time and in the right markets and fulfilling a customer demand that is not fulfilled differently. The key to success in this business, how do you structure your procurement and supply chain capabilities? How are you able to disintermediate middlemen to procure what is needed and when it is needed? Based on a very data-driven, machine-learning-based type of engine that you have to create. How do you balance in between local brands, private label brands, and the last CPGs that there's still demand for? And how do you yield a product margin of forty percent and more in a logistically very, very complex way?

• 34:19Speaker 02

  Because it's not only making an agreement with a local producer, but you need to make sure that the product somehow gets from the producer into your warehouse. And existing supply chain and procurement infrastructures are not made for that. So you have to build it yourself and have to look into how to structure that in the most efficient way. And then later on, and to look into, how do you then build an even more efficient delivery machine? Where the fifteen minutes delivery time promise is key to success in order to drive high margins after your delivery cost. We think that in one hour or two hours delivery type of basically system, we'll never be able to yield the same profit margins. As a fifteen minutes delivery model. So the fifteen minutes is not only something that we built to adhere to customer demand, but it's something that we built and adhere to and stick to and want to guarantee to ourselves

• 35:04Speaker 02

  in order to keep on driving very, very profitable margins other than on-demand delivery systems. So the key to success is efficiently building or building an efficient last mile delivery type of engine that engages in a delivery that is as fast as possible in order to drive high drop rates. And second of all, to build very innovative, state-of-the-art vertically-integrated procurement and supply chain infrastructure. And for us, it would only make sense to potentially engage in combining or acquiring or strategically partnering with other companies if and when they help us enhance the efficiency on the procurement and supply chain side or enhance efficiency on the delivery side. And there are very, very few players out there that have reached the maturity and the level of professionalism that would make it sense to us to look into strategic partnership.

• 35:48Harry Stebbings?

  I could talk to you all day, Ralph, but I do want to move into a quick fire. So let's dive into that. Let's start with what's the hardest role to hire for today?

• 35:57Speaker 02

  I think the hardest role to hire at this point of time is on the sustainability side because you remember, Harry, that we have said we do not only want to build a more customer-centric, more personalized, faster type of online grocery proposition, but we really want to look into what does it mean to build a company that is ecologically more sustainable. We have set ourselves the targets last year to become fully carbon neutral until the end of this year. And that is potentially like one of the most difficult goals to achieve for ourselves. So what keeps me up at night is not the question of economical and operational profitability, which we are on a very, very good path to achieve it. But how do we leverage that in order to create an online retail proposition

• 36:40Speaker 02

  that is not only economically more successful, but ecologically more sustainable? And finding the right people and the right calibers and the right talent that do not only understand sustainability on a macro level, but are able to execute that on a micro level, integrate sustainability into our day-to-day work. That's potentially like one of the big challenges that we're trying to overcome at this point of time.

• 37:04Harry Stebbings?

  Investors always have misconceptions. We always think we're smarter than we are. What do you wish investors knew or saw about the model? That you find across the general investor base, they don't.

• 37:16Speaker 02

  I think the general investor base should look into a traditional P and L of a traditional supermarket or traditional offline retailer. An investor should look into the P and L and also the unit economics of one of these like most successful online marketplace companies, which are purely working on third-party supply. Want to compare that against the P and L that we're having. There's certain metrics that investors can look into. If we compare ourselves against an offline retailer, we yield a significantly higher revenue per square feet of like any retail or like retail space type of infrastructure than they do. We yield at maturity three times higher revenue per square feet, as in Whole Foods, which is an incredibly professional and incredibly beautiful company.

• 37:58Speaker 02

  But even though in terms of the real estate element of our business, and we talked about the lease cost and so on, we generated three times higher revenue per square feet than a traditional retailer. We have the ability to procure more local, more direct, more data-driven, because we know our customers and we know what they're ordering and what they're ordering. So we can bring down inventory losses which are baked into our product margin. So our ability to drive the more positive gross margin than offline supermarkets is significantly higher. So even, and we run on an SG and A structure, on a people cost structure that is significantly leaner, because we don't need as many people as any of those like offline retail companies, because we leverage technology and we leverage central technology. There's one team that cares about the US, Brazil and Mexico and Colombia and Peru and Chile.

• 38:43Speaker 02

  So if you compare SG and A levels, if you compare product margins, if you compare revenue per square feet in between what we are doing already today to a traditional offline retail companies, you see a margin profile and an economic attractiveness that is significantly higher on our side than with any of the offline retail companies, which we all know is a multi-trillion market out there, which will get disrupted if people want that or not. And the second thing that investors should do is to compare ourselves against the largely successful and highly valued online marketplace type of company. Which only work on third party supply, which charge like a fifteen percent take rates for any of the restaurant food or any of the items that are getting picked up by the marketplace

• 39:25Speaker 02

  rider type of network. And this fifteen to twenty percent take rate is what needs to finance all delivery costs, all payment costs, all marketing costs. And it compares rather negatively to the very high margin potential that we have, even including the delivery cost, which we are able to drive higher efficiency with, given the more narrow way of carrying our delivery and by bringing supply and controlling supply ourselves and bringing it closer to where the demand is. So it was a long winded answer now, but I think investors are best off to really make up their minds and compare the P and L of those called like quick commerce type of businesses, compare that against supermarket P and L and against the P and L of some of the more established party marketplace type of companies.

• 40:06Harry Stebbings?

  Final one, the business has changed so much there. How have you changed as a leader, do you think? And how's your leadership style changed?

• 40:13Speaker 02

  I think the way I've changed is I personally have become significantly more focused on understanding, brainstorming and analyzing how we can build a more efficient procurement and supply chain infrastructure, because I've identified that myself over the last few months as the key success factor to build sustainable and profitable business. That's an area of expertise that we as a team didn't have before, because we were coming from the consumer marketplace, last mile delivery type of environments. So my operational focus and my intellectual focus has shifted towards procurement, supply chain, understanding how it works, understanding how we can reshape it, having realized that in no country of

• 40:56Speaker 02

  the world do you find a well efficient and well vertically integrated or sustainable supply chain type of company. So that is how the functional focus has changed for me. Other than maybe like ten months ago, when we started the business and yes, we're seeing that the COVID infections will keep making us busy or having us busy, that I've more and more spent time face to face with the team in our respective countries. And we've started the business remote while working over Zoom calls. Video conferencing and telephone calls and I think my management style has changed significantly towards personal interactions being with the team in every single country that we're in as much as possible.

• 41:35Harry Stebbings?

  Ralph, this has been such a joy to do. You know how much I love our chat. So I so appreciate you putting up with my prior questions and as always, I've just loved the chat with you today.

• 41:43Speaker 02

  Likewise. Yeah, thank you so much, Harry.

• 41:47Harry Stebbings?

  I just love that discussion with Ralph. I really hope you enjoyed it. It's so exciting going really deep on a company and you know bluntly, it's it's down to Ralph and his willingness to share those numbers. Not as many are willing to share the numbers that Ralph did today. So hugely appreciate that Ralph. However, before we leave you today, fast, granular and most importantly, reliable data is so crucial to successful decision making and venture capital today. And that's why PitchBook provides a comprehensive platform for all your venture and capital market needs, supported by world-class research, dedicated customer success teams and award-winning technology. With PitchBook, you can track the activity of markets, firms and individual ambassadors to identify potential prospects or even your next limited partner, offering the extensive exclusive data you need to make informed investment and business decisions and

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• 44:01Harry Stebbings?

  I use them personally. Check out my Twitter, I love it. Head over to Linktree, that's L I N K T R dot E E to find out more, it really is a must. As always, I so appreciate all your support and I cannot wait to bring you a fantastic episode this coming Friday.