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The real reason GoPuff bought BevMo

When an East Coast startup called Gopuff paid $350 million for BevMo in November 2020, it wasn’t immediately clear what a tech company planned to do with California’s largest liquor chain.

Founded in Philadelphia by two college friends in 2013 and backed by more than $1 billion in venture capital, Gopuff delivered beer, snacks and other sundries from the corner store, competing with UberEats, DoorDash and Drizly, companies who rely on software and hired labor to avoid owning physical assets. What did Gopuff want with a collection of over 100 physical bottle stores?

Two years later, Gopuff built his California business around those physical locations — and their significant liquor licenses, says co-founder and co-CEO Rafael Ilishayev — using them as distribution centers for local deliveries. With a firm beachhead in California, Gopuff has expanded to 42 states, the UK and France, and employs more than 13,000 people, plus concert hosts.

But the road has become rocky in recent months. Drivers in Gopuff’s hometown of Philadelphia went on a one-day strike in late 2021, saying the company regularly paid them less for hours worked and had lowered pay rates over the years. Competitors DoorDash and Instacart have also started adopting the Gopuff model, building their own micro-warehouses to speed up deliveries rather than just delivering products from other retailers. Now that Gopuff plans to go public, New York City lawmakers are considering regulated instant delivery business, and the company is reportedly lay off staff to cut costs.

Gopuff is based in Philadelphia and operates in 42 states, France and the United Kingdom.

(Mike Kemp/In Pictures via Getty Images)

The Times caught up with Ilishayev in late January, when he was in Los Angeles for a benefit at the Watts Community Labor Action Committee, distributing thousands of rapid COVID-19 tests in conjunction with Baby2Baby, a nonprofit. He spoke to The Times about why Gopuff bought Bevmo, how the business works and how he reacted to the strike. He declined to comment on the planned initial public offering.

Why buy BevMo?

It is very, very difficult in the US to acquire liquor licenses. Every state is different. Some states, it takes six months. Other states, it takes three years. In some states like California, there are moratoriums and districts where you can’t even get any more liquor licenses, no matter how much money you put into the problem.

So we had seven years of experience acquiring liquor licenses at the time. [in 2020]. We knew the monumental task of entering a state as important as California. The regulatory framework provided to us when we bought BevMo was critical. It allowed us to go in and capture the market in a really significant way.

It received $750 million from investors in 2019, including the $100 billion giant SoftBank Vision Fund. Was the purchase of BevMo part of your offer to generate that money?

BevMo wasn’t even in the conversation when SoftBank [and other investors in the 2019 round] When we started looking in California a few months later, we began to realize that it would take five to eight years to recreate BevMo’s network of liquor licenses and their locations.

Correct, California real estate is not the easiest market to break into right now.

other [BevMo] It has been building since the ’90s. So we thought, either we can go through that process for five to eight years, or we can partner with one of the only pure liquor store chains in the US People don’t understand, there’s no other analog to BevMo in the entire country: the market is fragmented into moms and dads.

So what happened to the BevMo stores since you took over?

We have built an MFC [micro fulfillment center] inside almost every BevMo, unless the BevMo is too small. For the in-store experience: I hate to talk bad about the old operators, but they operated pretty badly, they didn’t invest in the brand.

We just did some really basic things on the assortment side: give more access to products that BevMo customers wanted, use data to understand what products are frequently purchased with alcohol, and put those products inside the BevMo store. So, for the first time in almost 15 years, the retail business grew.

What goes behind the scenes to build a small delivery warehouse inside a liquor store?

In practical terms, we had to reorganize each store in the middle of the night. While BevMo was closed, we cleared out the entire store, reordered the entire store, added the Gopuff assortment [of new products,] and built an MFC in seven to 14 days.

How did that change things for the existing store staff? Were they involved in all this work?

We got some of our best people to move to California and help the legacy staff really scale. We kept all of the existing BevMo employees who worked in the stores, and many of them went to [micro-warehouse] side too, to help pick up and pack up and become shift leaders [on the delivery side.] They also had some pretty archaic technology in stores, so we brought them into the 21st century.St. century.

Did you have any reservations about spending $350 million in the midst of the pandemic?

Many people told us not to do anything [mergers and acquisitions] in the middle of a global pandemic, but we were getting a lot of requests from California and a lot of people wanting to use the service. We were getting millions of app downloads in California and we had no way of serving those customers.

Our business at the time was 6 1/2 years old, and we had grown triple digits year over year since our inception. And then the pandemic was like a shot of adrenaline, it was like in a quarter we got a year’s worth of marketing. So we thought, we just have to take a leap of faith, fortune favors the bold.

Gopuff drivers in Philadelphia went on strike in November. You didn’t comment directly at the time. What was your reaction to the strike?

I have deep empathy for the people who work inside the buildings and the people who deliver orders every day. But I look for facts for this type of thing and data. The vast majority of our drivers are very, very happy.

Has salary increased given the tight labor market?

a little. When we launch a market, we need a critical mass of orders before that market starts producing profit per order. We like to produce positive economic units, so we need volume and it takes a few months to get there. So you need to create a floor for the drivers in those early days, but once the market really starts to rumble (month five, month six, month seven), you have enough order volume to support that $18 to $25 [hourly] range that is healthy for business and healthy for our drivers.

So is there a world where you respond to driver demands, like mileage reimbursement?

It is not so clear and simple. We’re constantly looking for ways to improve the driver model and give them access to different benefits, whether it’s cheaper gas prices or access to ways to better maintain their car and get a discount for it. So there are ways to achieve the driver’s goals and still keep the model where it is today. But we constantly assess what is important to our driving partners and react accordingly.

How do you prevent Amazon or Uber from jumping into the fast delivery game and outspending you to conquer the market?

This is a really fucking hard business to understand. That is the reason we kept quiet for so many years. We didn’t do PR or anything else because we were figuring out how to scale this business. We had to build everything from scratch.

So if this is part of someone’s time, you know, good luck. This is not a third party business where you just put delivery partners in town and open it.

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