Quick commerce — also known as q-commerce — is on fire right now and it’s an area of tech that’s seeing a huge influx of investment. It’s a tremendous opportunity for powerhouses such as Amazon, DoorDash, and Uber, but it’s also a big risk as insurgents like Gopuff, Fridge No More, and Jokr are flocking to the space, promising to make deliveries in 15 minutes or less. 

Former Uber Chief Business Officer Emil Michael appeared on CNBC’s TechCheck on Dec. 30 to discuss the future of quick commerce. Emil Michael, an early investor in Gopuff, has operated and invested in quick commerce companies. 

The model relies heavily on hyperlocalization. Gopuff and other companies operate “dark stores” where all of the items are stocked and only those making deliveries have access. DoorDash recently launc hed its version, using full-time employees in lieu of general contractors. Investors have pumped close to $6 billion into the space, so the question remains: Will quick commerce dominate in 2022 or become another black hole for venture capital investments?

Rapid Delivery Is Rising

“You’re going to see what I think in the quick-commerce space is a separation very quickly of the wheat from the chaff,” Emil Michael says. “The companies that are getting funded now, including Gopuff, are separating from the pack and have really figured out how to do operations very successfully and profitably. You’ll see some mergers and acquisitions in between there, but you’re going to see some real bifurcation in 2022 — and not too far into 2022.”

Emil Michael feels quick commerce could see adjusted economic profitability in the new year. Instant-delivery platform Gopuff has raised $1.5 billion. Founded in 2013 as a startup catering to hungry college students, Gopuff now delivers to customers in more than a thousand cities. With a mission to make daily life effortless, Gopuff offers food and beverages, cleaning supplies, home needs, and over-the-counter medication with a $1.95 flat delivery fee. Headquartered in Philadelphia, Gopuff has around 500 micro-fulfillment centers offering everything from Ben & Jerry’s ice cream and Bounty paper towels to White Claw hard seltzer, wine, and craft beers. Gopuff has partnered with Chase, and eligible cardmembers can receive a $10 statement credit each month they make a Gopuff purchase. According to Fortune, singer-actress Selena Gomez has also jumped on the grocery-delivery bandwagon by investing in Gopuff, which is currently valued at around $15 billion. Gomez, who is a co-owner and partner in Serendipity Brands and has her own ice cream line, will sell her sweet treats through Gopuff. The partnership came about when Gomez was hanging out with friends and no one felt like driving to the store. Gomez will now be a “strategic Gopuff partner,” according to Fortune. 

Profitability is still a major topic on the minds of potential investors when it comes to quick commerce. Emil Michael offers some perspective into the enigma of quick-commerce profits. 

“What I mean by profitability is you open a micro-warehouse, you acquire customers and have delivery people,” Emil Michael says. “People order goods and the size of that basket matters to how much profit you’re going to make. If that unit works and you’re investing and losing money on opening the next micro-fulfillment center, that’s sort of where the money gets invested as opposed to where it’s being made. It’s not income profitability. It’s unit economic profitability and it’s adjusted.”

Delivery Giants Could Snap Up Smaller Startups

While Emil Michael envisions larger quick-commerce brands to remain independent, he feels some of the smaller ones like Jokr or Fling could garner interest from the larger brands such as Uber and Instacart. “This notion of having a vertical stat where you own the product, you own the whole experience, and you own the whole margin structure is attractive potentially to some of those companies that are in or around the delivery of food.”

When Gopuff started, they had about 150 SKUs and have grown to around 2,000, according to Emil Michael. “Right now the focus for Gopuff is to get the basket size bigger, which is why you see pizza kitchens and coffee kitchens on the site of the micro-warehouse so you can order more in one order.”

As for the future of quick commerce, Emil Michael feels eventually brick-and-mortar supermarkets could disappear altogether. 

“Uber is valued less today because of the management team, not because the core business model is any worse,” Emil Michael says. “With Gopuff, as long as the founders are still there innovating, there will be room for growth. I”m long-term bullish because I don’t think people will be going to supermarkets or 7-Elevens in 10 years. These are the companies that are gonna do it from the bottom up, starting with convenience items and moving to a lot of other items over time.”