'Every new customer was costing them.' The surprising failure of MilkRun.

Grocery delivery service MilkRun announced on Tuesday that it would be closing its doors by the end of the week, with founder Dany Milham citing difficult "economic and capital market conditions".

The failure of a company that once promised to challenge Australia’s grocery duopoly reveals a harsh truth; it’s simply too expensive being instantaneous.

MilkRun promised groceries and alcohol delivered in 10-20 minutes, a feat made possible by a series of inner-city hubs that stored their produce. 

Their delivery riders were paid hourly, as opposed to per-delivery model used by most courier systems used, with the majority earning well above minimum wage.

The start-up looked poised for success just 12 months ago, when it announced a $75 million fundraising round, with a slew of impressive backers including investment funds backed by Atlassian co-founders Mike Cannon-Brookes and Scott Farquhar.

MilkRun quickly expanded from Sydney to Melbourne off the back of COVID-19 lockdowns, when house-bound customers sought instant delivery, and were willing to pay the high prices that entailed.

However, over the past year the inner-city youth market that MilkRun was targeting has been hit hard by a worsening economic environment, with inflationary pressures pushing up prices across the board. 

"It was very convenient, but expensive," says Charlie, a former MilkRun customer who was placing orders every few weeks in early 2023. He says that the fees associated with MilkRun, which could be as high as $10, were a big deterrent from continuing to use the service. 

"The prices of basic foods like salad leaves were much higher than at the supermarket," Charlie said, and combined with a minimum spend and delivery costs he couldn’t justify spending that amount of money.

Charlie, like many other young people, didn’t need the instant delivery and wasn’t willing to pay the high prices, so he switched back to doing weekly shops at the big grocery stores.

The service was also expensive for MilkRun to operate, with documents obtained by the Sydney Morning Herald revealing that they were losing over $10 an order at most locations, and that new customer signups were costing them $57.

The post-lockdown reopening of shops, combined with competition from supermarket giants that launched their own delivery programs, such as Woolworth’s Metro60 service, caused problems for the company.

In February 2023, MilkRun announced it was cutting 20 per cent of its workforce and consolidating locations in an attempt to salvage the company after failing to attract further investors. 

The increased investor hesitancy is largely attributed to the post-COVID interest rate rises, as people became less willing to invest in risky start-ups that didn’t have a clear-cut path to profitability. 

"They were an appealing company to work for," says former employee Luca Mellor, who was drawn to the good-quality salaries, which included superannuation and workers compensation comparable to pay in hospitality or retail. 

"With other delivery companies you are only paid for how much you deliver, whereas MilkRun you got paid for how many hours you worked," Mellor says, highlighting why many people sought part-time work with the company to supplement their income. 

But as hubs started to close it became clear to riders that the business was in trouble, with many now looking at other courier jobs.

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MilkRun’s 400 staff will be made redundant on Friday, and their customers have expressed disappointment at the company’s closure. 

"It was quick and convenient with my busy schedule," says Louisa Fitzgerald, who was recommended MilkRun by friends and used it up until the closure announcement. 

Fitzgerald was paying between $8-10 for delivery with MilkRun, and while she acknowledged that this was a significant expense she was willing to pay for the convenience of the service. 

She explained that with the high prices associated with any food delivery, she would rather have groceries delivered that could be used over a number of days, instead of a one-off meal.  

"It was handy to be able to order something on my way home from work," Fitzgerald says, noting that she primarily used the service when she wasn’t able to make it to the grocery store, not to replace in-person shopping entirely.

She is planning to continue using delivery services occasionally, but there aren’t many options as other competing grocery delivery companies Voly, Send, and Dashmart have all recently closed. 

In his email to staff announcing the company’s closure, Milham said he was "proud of the amazing business we have built and of the growth we have achieved". 

MilkRun’s instant delivery ultimately proved too expensive for both customers and the business, with Australia’s options for grocery delivery now down to services provided by the major supermarkets. 

Georgia York is a freelance journalist and writer.

Feature image: MilkRun/Mamamia.