$57 to get a customer, then bleeding money on orders: Milkrun’s struggle

Fresh internal figures from the once-feted grocery delivery start-up Milkrun, which last week announced store closures and redundancies, show the company was struggling last year to stem losses on customer orders.

This masthead visited six Milkrun hubs on Thursday and Friday after the company announced on Wednesday it was shutting an unspecified number of its delivery hubs and making 20 per cent of its staff redundant. The hub in Sydney’s Newtown appeared shuttered, with a delivery of fresh bread left in the sun outside the inner-west hub, along with one in North Melbourne.

The shuttered Milkrun outlet in North Melbourne.Credit:Eddie Jim

A company document, intended to encourage potential investors to put cash into the Sydney-based business and seen by this masthead, shows that in some months last year Milkrun was spending almost $60 in marketing to get a customer to sign up and then losing more than $10 per order at its most established store.

The document is dated June 2022 and shows scant improvement in the company’s losses over a previous April document revealed by this masthead last year. The South Bondi hub, for example, was losing $13.36 per order in March 2022 and $12.88 in June. Other hubs show similar losses. Orders at the South Yarra Milkrun hub in Melbourne lost the company an average of $13.39 each that month.

One senior food delivery source, who declined to be named for fear of damaging industry relationships, said the figures showed it would be hard for Milkrun to ever be profitable as an overall business and helped explain why investors had steered clear.

“[It’s] for that exact reason,” the source said. “In order to make that business break even, you have to heroically reduce cost or heroically increase basket size and both will be an enormous challenge.”

Milkrun had ambitions to become a “super app”.Credit:Louie Douvis

Founded in 2021 Milkrun and led by Koala mattresses co-founder Dany Milham, when interest rates were near zero, Milkrun was feted as an “overnight success”. It raised $86 million within months of its founding from backers including the private investment offices of Atlassian founders Mike Cannon-Brookes and Scott Farquhar, along with top-tier Australian venture capital firm AirTree. None responded to a request for comment.

Milkrun’s hopes were lofty: it intended to eventually become a “super app”, taking on some of the largest companies in the country, from Woolworths and Coles to Afterpay and Amazon. And its marketing matched its ambitions, with Milkrun spending monthly averages of between $27 and $57 to get each customer to sign up to its store, according to the Milkrun capital raising document. Those customers initially enjoyed a service with remarkably fast deliveries, prices similar to retail stores and no fees.

The document forecast rapid improvement on almost all measures, predicting major revenue growth, higher order values, and less marketing required to persuade customers to start shopping with Milkrun.

Milkrun chief Dany MilhamCredit:Josh Robenstone

By mid last year, Milkrun was faced with a tough economic reality and began to slash the pay it offered new riders, cut bonuses, raised fees and dropped its promise of 10-minute deliveries.

It attempted to raise more money at least twice and reportedly failed each time amid a worsening economy and rising interest rates that have hit many start-ups. Last Wednesday, Milkrun told staff it was cutting 20 per cent of jobs and closing an unspecified number of its hubs so that its cash reserves last longer.

A Milkrun spokeswoman said the numbers were “outdated/incorrect” and “from a document that was made public without authorisation nearly a year ago”.

The figures have not previously been made public.

The spokeswoman said that the correct and latest figures were that “the changes being made mean that all hubs are profitable or break even”. She said Milkrun had increased its average order value to more than $50 and said it had “runway beyond 12 months”, referring to the amount of time a company can last on its current funds.

The spokeswoman would not answer questions about how many hubs had been shut and how many stayed open, beyond saying a Surry Hills store had closed because Milkrun had outgrown it and opened a larger hub in the area. She said Milkrun had consolidated other hubs as it looked to become more cost and time efficient but was still making deliveries to the same geographic area as before and remained the country’s fastest delivery service.

“Just like Sydney, we’re continuing to service all the same areas where our customers live and work, with the same great range of products,” the spokeswoman said. “We’ve consolidated our operations to best service our growing number of customers in and around the Melbourne CBD.”

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