You know, two-day shipping was the fastest way to get something delivered at the time when we launched GoPuff, but we thought that over time consumers are going to want, you know, faster and faster delivery. This is a tough business. It's about getting the basket sizes right, operating really efficiently, and caring about every last cent of cost.
The way of the future is GoPuff is just going to show up to your doorstep and we should be able to know what you want, when you want it, how you want it, delivered instantly.
Hello and welcome to Invest in Progress, the Scottish Mortgage podcast. I'm Claire Shaw, portfolio director. In this podcast, we take you behind the scenes to hear conversations between our investment managers and leaders of the world's most exceptional growth companies. As a UK investment trust, we can only market Scottish Mortgage to certain audiences and geographies. So, check out the podcast description to ensure this episode is suitable for you. And as with any investment, your capital is at risk. You're about to hear from Yakir Gola, the co-founder of the firm that packs, preps, and delivers everyday items to households in less time than it takes to cook a bowl of pasta. GoPuff is a private company that provides super fast shopping at supermarket prices. Goods arrive at your door in as little as 15 minutes thanks to it running its own warehouses and logistics technology. It even lets you live stream your order getting packed. GoPuff has pioneered instant commerce, but it is no instant company. It's taken 12 years to build the business. And while COVID brought complications, the company is firmly in growth mode again. For context, GoPuff is one of our smaller holdings, but as you'll hear, its ambition is huge. And what's more, it can draw on the advice of Starbucks founder Howard Schultz, ex-Disney chief Bob Iger, and Alibaba chair Joe Tsai, who are all connected to the business. So, let's hear from Scottish Mortgage manager Tom Slater and Yakir Gola.
Hi, thank you for coming on the show. It's fantastic to have you with us. We ask all our guests the same opening question. Can you explain what GoPuff does and what the problem is that the company is trying to solve?
Yeah, thank you for having me today. GoPuff is the leading instant commerce platform. We provide 5,000 products delivered in as fast as 15 minutes, available 24/7. We have all of our inventory in our warehouses. Whether it's grocery, household items, everyday essentials, we'll deliver it to you at the lowest prices available 24/7.
And you do that in the US and here in the UK.
Now, GoPuff's origins in Philadelphia. You met co-founder Rafael Ilishaev there at university. Launched the company when you were still students. But that wasn't the start of your time in business. While still in school, you'd already generated millions of dollars in online sales for your family's business. So can you tell us a bit about that and what it was that gave you a taste for entrepreneurship?
So I grew up working with my dad in the family business. My dad had a jewelry business and when I was, you know, really young, I worked with him and I told him, why don't we try selling this jewelry online instead of just focusing on the in-store sales? And when I was in high school, built an online jewelry platform where we would actually take used jewelry, we would polish it, refine it, and then we would resell it online. And was running this family business, you know, throughout high school and then into college. Learning a lot from my dad and working in the family business where you're a small business owner, you have to play every role in the company. Whether it's, you know, focusing on your customers, focusing on getting the lowest prices, giving the best value to your customers, negotiating, a lot of things you learn when you're in a small business setting and a small business owner. And so I think from a young age I saw my dad, you know, worked really hard and the work ethic required to be an entrepreneur that, you know, gave me a passion for starting GoPuff in college.
And when you began your studies at Drexel University, it must have seemed like it would be a stepping stone to follow your father and his father before him into the jewelry trade. So what then led you and Rafael to create GoPuff instead? Where's the origin of the business?
So, when Raf and I were in college together, we were roommates and me, him, and a few other friends lived in a house together, and I was the only one out of our friends with a car. And I was driving everyone to the local 7-Eleven on the Drexel and Penn campus. And I said, 'There has to be a better way to get stuff delivered.' I was sick of running errands for all my friends. And we had the idea, you know, that one night when it was our friend's, you know, birthday and I was running all these errands and Raf and I, you know, were in the car together and said, 'How is there not a company that would deliver, you know, convenience products?' And this was before delivery at all was popular, you know. And we asked a few friends and they told us, 'It's a terrible idea. No one's going to use a delivery app.' And people are just going to go to the store. We asked like some smart friends, but, you know, we thought about it the next day and, you know, kept thinking about it and saw this as a big opportunity especially because of the trends in e-commerce. You know, two-day shipping was the fastest way to get something delivered at the time when we launched GoPuff, but we thought that over time consumers are going to want, you know, faster and faster delivery. And so I remember sitting with my dad and when I was still involved in the family business and I told him that this is what we want to do and he was a little upset because, you know, his view was I was going to take over the business and the online business was doing so well. But I printed out, you know, a piece of paper that showed him all the trends in e-commerce and where things are going and, you know, he believed in me and was very supportive. So Raf and I, you know, bootstrapped the company. You know, we slept in the warehouses. We were the first delivery drivers. You know, I've done myself over 5,000 deliveries in Philadelphia and then Boston where we launched our second market and really actually built a business off expanding off free cash flow for the first few years.
You were in that sort of situation. You're physically making the deliveries yourself, getting customer calls routed to your personal phones, sleeping in the warehouses. I mean, that must have been intense and all this was some distance from Silicon Valley and below the radar of the venture capital funds. So how did you attract that first outside investment?
Because of the way we grew up working with our families and Raf also worked with his family who are immigrants in the family business, we just had a discipline of you got to make money in business. You need to really make sure you have the right value to the customer. And ultimately, you know, our instinct was we needed to, you know, be vertically integrated. So, we needed to have our own warehouses so we can provide the lowest prices for consumers. You know, that didn't cross our mind to go any other way. And so, you know, for us, we built a business by making money in the early days. And, you know, we convinced some suppliers to give us credit terms so we didn't have the capital, you know, to support buying the inventory. And we got really creative. And ultimately, you know, we scaled the business and it was one day, I think year three into the company where we got a phone call from a venture capital firm in California and someone in the warehouse, you know, I was working there at the time, you know, came up to me and said, 'Hey, someone's calling from this investment firm. They want to speak to, you know, you or Raf.' So, I was like, 'Okay, you know, I'm happy to answer this call.' I also ended up speaking to them and they ended up flying to Philadelphia and being very persistent and, you know, giving us capital because they were like, 'You guys are profitable and you're growing really fast and all these college students are talking about you' because all their interns at their firm were using GoPuff at the time. So that was the first time we raised capital, but our view was we're going to stay focused on our customers and our business. We didn't even know truly what Series A or venture capital was at the time. And we were just building a business, you know, using kind of first principles when we originally launched and that's how we scaled. So, we raised that first round of capital and, you know, our view was we didn't announce any fundraises. We were really under the radar. We just said we're going to focus on our customers. That's our north star. That's what we care about. And but once we were able to raise the first round and we started to deploy a little bit of capital, the business just started, you know, doubling and tripling in a very short period of time and, you know, business started to really gain traction and started to really evolve.
So, let's skip forward to 2021 when Scottish Mortgage first invested in GoPuff. I think one of the compelling data points for us was that the number of 7-Eleven stores in Philadelphia where you first started had dropped by more than a third since you'd launched. Meantime, you broadened your range to include frozen goods like ice cream as well as beer and nappies, widening that appeal. And we already had a holding in another fast delivery service, DoorDash. But what made GoPuff distinct was your reliance on your own inventory and warehouses rather than dispatching shoppers to pick up items from third-party stores. So why did you pursue that route rather than the more asset-light approach of instant commerce that rivals such as Instacart or Uber Eats or indeed DoorDash?
Our original instinct was it's all about the customer and we wanted to provide the best value and the best prices for our customers. And so our instinct was if we went the third-party, you know, route, whether it's going to stores and charging markups and service fees, it would become really expensive for the customer and it wouldn't be enough value from a profitability perspective. And growing up in, you know, the family business, we realized how important it is to, you know, offer the best prices to customers and the best value. And what we learned over time is, you know, by being vertically integrated and having our own warehouses, it led to a lot of benefits such as having near 100% order accuracy versus when you order from third-party services that just are middlemen essentially. Not only is it on average 30% more expensive than GoPuff, but in fact there's roughly between 25 and 30% of the time there's issues with your order due to lack of inventory integration and, you know, full control of the customer experience. So at the time it was really the instincts and how we grew up working in the family business and our view around it's all about the customer.
One of my colleagues who visited one of those facilities shortly before we invested came back describing GoPuff as the king of the night. You received the bulk of your orders between 6:00 p.m. and 2:00 a.m. Is that still the case?
We have a really big late-night business. So, I would say it's very much the case that, you know, a lot of our volume is after, you know, afternoon and after 5:00 p.m. But I would say over time due to the expansion into things like grocery or Starbucks, a lot of the growth during the daytime and in the morning has grown, you know, pretty considerably. But I would say still pretty much the kings of the late night. [laughter] And it's, you know, a lot of times people use GoPuff the most when the stores are closed.
And you have an important, you know, day the next day and GoPuff is there, you know, to deliver 24/7.
Now today you operate in the US and the UK. Your customers can choose between a flat delivery fee per order or FAM membership, and that covers as many drop-offs as they want, access to special deals. As a long-term shareholder in Amazon, we've seen how Prime subscriptions help drive repeat business. How critical is your FAM subscription base to your business?
For us, the FAM membership is really important. We've really prioritized it over the last five years. You know, a little over 60% of our orders are now coming through our membership. So people pay $8 a month and they get, like you said, unlimited free delivery. We have, you know, something where we call 'cheapest on the planet,' so you can get things like $2 organic eggs if you're a member, or hundreds of other, you know, great deals. And what we see on average is our FAM members purchase 50% more than our non-FAM members on a monthly basis. So, once people try GoPuff, they like the experience, they then a lot of times sign up to the membership and it becomes part of their everyday life.
Another growing part of your business is Americans enrolled in the Supplemental Nutrition Assistance Program, what some in our audience may know better as food stamps. The scheme provides financial assistance to people on low or no income to buy healthy food. You started accepting SNAP payments just over a year ago and offer free delivery to qualifying customers who spend $35 or more without requiring that FAM membership. That sounds quite a different picture from your traditional customer. So, how does that group fit into the picture?
Over building the business, we started to get a lot of requests and demand from those that are on the food stamps program to be able to purchase and use GoPuff, you know, with their food stamps. And what we realized is because we're really focused on value and giving value to the customer, we saw that a lot of the other options for e-commerce that offer SNAP have become really expensive because of the markups on the prices and then the massive service fees on top. But if you're on food stamps today, you actually, you know, can't cover any of the delivery fees or, you know, the significant markups with your food stamps. And so we thought if we're able to get this license, we're able to offer everyday Americans that are in need of this SNAP assistance program, we're able to bring them, you know, the lowest prices with no additional fees. And so we worked with the government for over three years. We were able to get this approval and now it's growing kind of very rapidly and we're able to offer groceries to those in food deserts that don't have access actually to stores nearby. And we're able to offer, you know, instant delivery at the same prices as in-store using your food stamps today. So we worked with the government, we were able to get this approval and it's actually a fast-growing part of our business today.
It's a great example of businesses contributing to society more broadly. Just talk us through the program that GoPuff introduced when the food stamp program suffered a hiatus at the end of last year. The government was shut down at the time and
there was a lot of talk around there being a complete halt to the SNAP assistance program in the US and those that rely on food stamps every month. It was kind of a, you know, we're in a crisis mode because, you know, the government shut down and there was a mandate to stop all the SNAP, you know, funding. And so we sat as a leadership team and said, GoPuff is all about being there for communities in times of need and it's part of our culture, it's part of the DNA. And so what we put up is, and we were the first company to do this, is we offered $10 million to those that are on food stamps. Free and clear. There's no asterisk or, you know, you have to spend a certain amount of money. You know, we offered it to those that needed to qualify for the food assistance program. And we saw within a week over 100,000 people signed up to GoPuff and we offered it to them and, you know, people were very, very happy. We got tons of emails and messages of, you know, how we were there for them in time of need and I think, you know, people were very happy with that and we thought it was the right thing to do.
I mean, it's just a great example of that customer focus that you have, but it also being good for the business as you say, it brought lots of new people into GoPuff because you were prepared to be there and support that community at a time when there was real pressure on it. Yeah. You've talked about wanting GoPuff to be a place where people go to shop for their daily essentials. So, not just treats, impulse buys. How far along that journey are you today?
I'd say we're still in the early innings. I would say GoPuff for the first five years very much convenience-driven and over the last five, six years we've really evolved into becoming this everyday essentials platform. And, you know, our view is we're not trying to be everything to everyone, but we want to cover all major use cases for grocery. So, you know, think, let's use the example, if you want peanut butter or if you want avocados or bananas or milk and eggs, we're going to cover all those use cases. Now, we maybe won't have the same level of assortment that you might find in a very large supermarket, but we'll cover, you know, the organic options, the lowest cost options, and we'll have, you know, many different options for those that want, you know, these major use cases within grocery. So, you know, what I tell people is you can live off of GoPuff. You know, you have all your fresh produce, you have all of your dairy products, your meat essentials, and obviously convenience, which is the foundation of the company and how we build. We cover whether you want snacks, you want ice cream, you want, you know, medicine, you want household items. So the mandate, you know, for us has been how do we evolve into this everyday essentials platform? And actually we had an internal initiative of how do we evolve from late night to everyday essentials. And I would say we're still in the early innings, but, you know, customers love the new fresh grocery assortment and it's actually only available in 30% of our markets, but in those markets where we have our fresh grocery assortment, we're seeing nearly two times the growth rate in our markets that don't. So we believe in quality. So we only launch our fresh grocery assortment when we're ready for it in a market. And so far we're getting a lot of feedback from customers. We're improving the assortment. The quality is improving. And we're really excited about the growth there. And I would tell you we're still in the early innings of that transition. And the customers really love it so far.
Now, another notable development has been a focus on strategic partnerships. The one with Starbucks has been fascinating. The coffee chain has tried having its baristas use its equipment to make food and drink in your warehouses, from which you deliver them to customers at any time of day or night. How big do you think the potential is for developing these partnerships?
For us, we've started to get a lot of inbound interest from companies where they see, you know, the impact that GoPuff's having in consumers' lives and they understand that consumers are wanting things delivered faster and faster. And that's becoming part of, you know, their everyday life. Although, I'll tell you, online grocery today is still only at 13% penetration. You know, meaning 87% is still offline in the stores, but it's quickly transitioning to online.
That's in the US. I think probably a bit higher in the UK, but
in the US. Yeah. Yep. And so the partnership with Starbucks is a good example where we did a pilot with them where in one of our markets we offered Starbucks's full assortment, you know, whether it's the iced coffees or the sandwiches or all the bakery products, we offered it in the GoPuff warehouse to all GoPuff users and it was a massive success because it drove significant revenue. And those that bought Starbucks, you know, 80% of their baskets also included non-Starbucks items.
And so the incremental value of being able to get Starbucks at the same price as the store
Yep.
has become great value for consumers. And also it's available 24/7 whereas typical Starbucks is closed, you know, maybe 5 or 7 p.m. So the combination of the technology and the infrastructure that we've built has created these, you know, great opportunities to partner where it's a win-win situation where we're driving significant volume for Starbucks and it's become a massive success given the pilot with them where we actually now have this available across many, many metros across the US and it's scaling really nicely and we, you know, that's a good example of a strategic partnership that we're very excited about. You know, there's more that we're doing whether it's with Robinhood, you know, many other companies that we're going to be announcing soon as well.
