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Is there a future for delivery startups in Germany?

Startups which brought groceries to their customers’ doorsteps in minutes boomed in Germany during the pandemic. But as the Covid restrictions have fallen away and with the cost of living on the rise, the market is changing.

Is there a future for delivery startups in Germany?
An employee of the food delivery service Gorillas cycles through the streets of the Berlin. Photo: picture alliance/dpa | Wolfgang Kumm

At the height of the Covid crisis, startups like Gorillas, Flink and Getir appeared. They built up a dense network of warehouses in major cities across Germany, hired hundreds of drivers and promised to deliver supermarket products such as cold cuts, drinks or frozen food to the customer’s home in just a few minutes.

With customers able to conveniently order at supermarket prices via an app, quick commerce boomed during the lockdowns. According to the German Retail Association (HDE), the retail sector generated €204 billion in sales of food products last year, and the online share was 2.4 percent.

READ ALSO: EXPLAINED: The German regions attracting startups

But as the Covid restrictions have fallen away and the war in Ukraine has driven up inflation, demand for online groceries has dropped significantly and many delivery services that counted on rapid growth are now in trouble.

“Quick commerce was the topic in 2021 that went through the roof the most in retail,” says Kai Hudetz, managing director at the Institute for Retail Research in Cologne (IFH). “Even then, you had to critically question whether bringing a single yogurt pot to your desk in fifteen minutes could be a working business model.”

Berlin-based startup Gorillas, for example, announced just a few months ago that it was cutting hundreds of administrative jobs and recently gave up some locations in North Rhine-Westphalia.

Competitor Wolt, which does its core business with restaurant deliveries, has ended its latest experiment with supermarket products from its own warehouses.

Due to the intense competition in the market, competitive pressure is enormous, and the self-confidence of employees, who are increasingly successful in their fight for better pay, secure working conditions and works councils, is also adding to the strain on the startups.

Adapting prices also seems to be a risky strategy. “As soon as delivery fees are charged, for example, customers often go the 300 meters to the supermarket themselves and buy what they need or order from a cheaper competitor,” says Hudetz.

But the companies have little choice. According to its own information, Flink now only offers free deliveries for shopping carts of €50 or more.

All of the delivery startups have also said goodbye to their former ten-minute delivery promise: Gorillas and Flink now only advertise that they will be at the door “within minutes”.

However, there is still a lot of growth potential in the market, so it seems the supply will not disappear. But while some companies are struggling, big competitors are moving into position, says IFH retail expert Hudetz.

The delivery company Takeaway, which has dominated the restaurant delivery market in Germany for years with its Lieferando brand, recently opened its own warehouse for food in Berlin-Charlottenburg. From there, more than 1,000 products from local brands are now being delivered to customers on a trial basis.

READ ALSO: ‘Lack of diversity is a problem’: What it’s like to work at a Berlin tech startup

Wolt has not abandoned the grocery segment either, but has just adapted the concept. Instead of building an expensive warehouse infrastructure, the company now cooperates with local supermarkets, from whose stores the goods are picked up and delivered.

Large retail chains such as Rewe and Edeka have also been involved with their own services for some time. Rewe, for example, has invested in the start-up Flink in addition to its own delivery service.

With such business partners, the startup believes it is well equipped for the changing market and is even on the lookout for further acquisition opportunities. “We are looking at it very closely,” said a Flink spokesperson. “We have cash on hand.”

These changes will also soon affect the service that consumers can expect. Deliveries will take longer and also become more expensive, says retail expert Hudetz. “You’ll have to say goodbye to ten-minute delivery promises for everyone and for free. It’s going to come down to a premium service.”

By Matthias Arnold

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MONEY

Are the EC Card’s days numbered in Germany?

Maestro-function EC cards will no longer be issued as of July 2023. That may leave many people with German cards without the option to use the ubiquitous “EC Karte” abroad. Here's what you need to know.

Are the EC Card’s days numbered in Germany?

In a country that often lags behind much of the rest of the world digitally, cash is still king in many places. From restaurants to bars, cafes, and some smaller shops – options to pay by card are often limited. If a place does take card, it’s often the debit EC card, rather than a credit card or plastic from abroad.

That could soon see a shakeup.

Around 100 million EC cards are currently in use in Germany – more than the number of residents. These cards use two payment services: the Maestro service, which Mastercard provides, and the Girocard service which is independent. Maestro allows the holder to pay with an EC card when abroad, whether at a beach bar in Spain or a museum in Italy.

At home in Germany, Girocard processes EC card transactions.

But the EC card’s popularity here doesn’t translate elsewhere. German cards account for about half of all worldwide Maestro transactions, with the remaining half split absolutely everywhere else in tiny amounts. As such, it’s become difficult and expensive for Mastercard to maintain the old Maestro system that so many people in Germany love to use.

As of 2023, Mastercard will no longer issue Maestro cards, although people can still use ones issued before then until they expire. Without an alternative, that would leave some German debit card holders unable to pay using their new cards abroad.

Rumour has it that a similar Visa service – Vpay – is also on the way out soon.

That could see many cardholders ditch their old EC cards for Mastercard and Visa’s debit services — but around 250,000 businesses in Germany still only take payments made through the Girocard service — which isn’t a part of Visa or Mastercard. A big reason is that retailers pay lower fees to use Girocard.

What are the alternatives to EC Cards?

Where might that leave cardholders in Germany? It might put more pressure on retailers to accept services other than Girocard, which could incur fees that retailers will simply pass on to buyers.

It might leave some people carrying multiple cards, with a debit card they would only ever be able to use at home and not abroad. Or, it might mean carrying more cash just in case people come into an establishment that only takes cash and Girocard.

Some German banks have already moved ahead to offer customers integrated cards.

DKB, an popular online bank in Germany, sees Girocard as an outdated model that can’t be developed much further—and one that’s hard to use for online shopping. Since January, it has only issued customers with a Visa Debit card, but has left them the option to also have a Girocard. This will no longer be free though, costing customers an extra €1 a month.

A customer pays with EC card in a local shop

A customer pays with EC card in a local shop. Many businesses still only take EC card or cash payment in Germany. Photo: picture alliance/dpa | Rolf Vennenbernd

READ ALSO: Why Germans are finally choosing cards over cash

Other banks, like ING, use a ‘co-badge’ system that pays for both the licenses to Girocard and either Visa or Mastercard. However, that leaves cardholders paying a higher fee.

Professor Jürgen Moormann of the Frankfurt School of Finance and Management told Frankfurter Allgemeine Zeitung (FAZ) that MasterCard and Visa are probably discontinuing the Maestro and Visa services for EC cards abroad to put more pressure on Girocard within Germany.

This makes it more likely that retailers will start offering more card-based payment options, such as credit and debit card, to keep things simple for customers.

“They clearly want to increase their market share in Germany,” Moormann says of Visa and Mastercard.

While it’s still too early to tell whether the EC card will be squeezed out, regular cardholders may be left carrying more than one card — or paying higher fees for integrated cards — for a while yet.

In Germany at least, the EC card will be around for some time to come — but its days may well be numbered.

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