Why Woolworths’ acquisition might bring the best out of Milkrun

Earlier this year, rapid delivery grocery start-up Milkrun went from competing with Australia’s grocery chains to being absorbed by Australia’s biggest supermarket giant.The start-up raised more than $85 million from a string of prominent investors, and experienced a surge in popularity during the Covid-19 pandemic, with consumers avoiding shopping in-store, where possible.However, a challenging economic environment and an unprofitable business model led to the business’s collapse in April this year, resulting in the termination of hundreds of jobs.At the time, founder Dany Milham cited deteriorating economic and capital market conditions as the key reason behind the collapse. Said to have been losing at least $10 per delivery, Milkrun’s demise followed the collapse of other instant delivery startups, including Voly, Send and Colab, in recent months.While business decisions – such as hiring drivers as salaried employees, and operating its own warehouse – were likely to be additional expenses, experts suggest that a change to funding conditions, with investors unwilling to take risks due to the higher cost of borrowing, ultimately spelled the start up’s demise.However, less than two months later, Milkrun was snapped up by Woolworths, in a reported $10 million deal. Subsequent to this, Woolworths’ renamed its Metro60 delivery service to Milkrun, expanded its operations to serve customers across Australia and New Zealand, and implemented a flat $5 delivery fee and zero service fee.So, what to make of Milkrun’s re-entry via Woolworths, and what does this acquisition mean for the future of rapid grocery delivery in Australia?Good value acquisitionMatt Newell, partner and CEO of The General Store – a creative and strategic agency for retailers – told Inside Retail that Woolworths were a strong suitor for Milkrun.He believes that Milkrun has better brand recognition compared to Metro60, and has more potential as a front-end facing brand. Meanwhile, Woolworths’ strong cash flow, and robust back-end systems and processes – including its IT, fulfillment, and customer management – are complementary.Despite the closure of various quick delivery brands, he believes there is still a strong appetite for these services, with the potential for quick delivery to become more trusted – and more entrenched – in the Australian marketplace.“From Woolworths’ end, there are strong opportunities in the grocery delivery sector, but it will take time and marketing dollars for it to really grow,” Newell said.Under different circumstances, he noted that Milkrun might have had more time, and access to greater resources, to scale the business. But, with the economy slowing down, it became more difficult to keep the company afloat.“If this had happened five years ago, Milkrun might not have run out of cash, and they could have done this on their own,” Newell said.“However, there’s now a great opportunity for large retailers to look for good value acquisitions.”   Start-up culture View this post on Instagram A post shared by MILKRUN | Groceries & more delivered in minutes (@milkrun)Milkrun has been renowned for its marketing and social media, which often went viral due to its whimsical tone of voice and creative campaigns.This, according to Newell, would have been a factor behind the acquisition, with Milkrun more able to connect with audiences compared to the Metro60 brand.A key challenge moving forward will be whether the brand can maintain its creative autonomy and public standing, without being corporatised. Although it’s still in the early stages, Newell suggested that the early signs are positive.He said that Milkrun had hired back its creative director – who was made redundant as part of the mass layoffs – as a consultant, which indicates thatWoolworths wants to maintain Milkrun’s creative brand management.  “I think that [retail giants] like Woolworths are increasingly aware of their positive and negative influence,” he said.“Very often, these large companies will carve out these types of businesses. They’ll put staff in different offices and foster different cultures so they get the best of [the brand], rather than the corporatised culture which might work against the way this brand gets managed.“I don’t know if they’ve done that, but I imagine that they’re very conscious of maintaining that start-up vibe, which seems to be performing pretty well for them.” View this post on Instagram A post shared by MILKRUN | Groceries & more delivered in minutes (@milkrun)Lean in and own itNewell also commended Milkrun for the high level of transparency in the way that it has re-entered the domestic market.He said that consumers were well informed as to what’s happening in the business landscape, and would be acutely aware of Milkrun’s collapse earlier this year.As such, he believes that Milkrun’s current marketing campaign – which owns its demise, and highlights its return – has been successful thus far.  He also praised a viral piece of marketing, oriented around a chat thread of a Woolworths marketing person trying to tone down an edgy, Milkrun marketing campaign.“It’s a lovely way of [discussing the dynamic] between Woolworths and Milkrun, as emerging and established brands working together,” he said. “It’s also about being super transparent.”“It’s not worth trying to hide the fact that you went out of business. Lean in and own it, and people are more able to relate to that.”