Kurly: Dawn Delivery Trailblazer Eyes the Throne in E-commerce


The author is an analyst of Shinhan Investment Corp. He can be reached at sanghoonpure.cho@shinhan.com. – Ed.


Trailblazer in dawn delivery service

Kurly started off as an online grocery retailer in end-2014 and introduced the world’s first dawn delivery service in 2015. The company’s dawn delivery service, named Morning Star Delivery, guarantees doorstep delivery of fruits, vegetables, and other fresh foods by 7 a.m. next morning for orders made before 11 p.m. Backed by explosive response to the dawn delivery service from dual-income households and homemakers, Kurly enjoyed rapid growth as it met the needs for fast delivery of premium fresh food. The company’s valuation jumped from KRW2.5tr in the Series F funding round in July 2021 to roughly KRW4tr in pre-IPO funding in December 2021. The company submitted its application for preliminary IPO assessment on March 28, and is expected to go public within 3Q22.

Online grocery shopping before Kurly vs. after Kurly

Before Kurly emerged on the market, there were largely three problems in online grocery shopping: 1) low consumer confidence in fresh foods offered through online channels; 2) complicated distribution process; and 3) unpredictable delivery. Realizing that selling groceries online was fundamentally different from other e-commerce businesses, Kurly focused on tackling key problems and came up with four solutions: strict standards for goods selection; direct purchase of all goods to streamline the complicated distribution process; data-based supply chain management (SCM); and a full cold-chain delivery system from farm to table within 24 hours. Thanks to Kurly, fresh foods with short shelf life have now become more easily accessible to customers. Expansion of the company’s delivery service to a wider range of consumer goods has helped to increase online market penetration of the fresh food category even further.

Surviving fierce competition with unparalleled competitiveness

Kurly’s key strengths in the management of goods, services and data have led to a virtuous cycle of rising repurchase rates (71.3%) and growing gross merchandise value (GMV). Despite increasing market competition in dawn delivery of fresh foods, Kurly continues to enjoy an unrivalled brand image in the industry.

Operating loss has been growing alongside the surge in sales, but the company has been reporting contribution profit (sales minus variable costs) for three consecutive years. We believe operating earnings will also swing positive if the uptrend in sales continues in the absence of massive investments in the near term.

Going forward, Kurly is expected to maintain its growth momentum through the expansion of service area to non-metropolitan regions and sales category to non-food merchandise, as well as the launch of new businesses leveraging on its vast customer database such as payment and platform services.

Aiming to become the all-round leader

Kurly has been leading the online market for fresh foods with a strong focus on minimizing consumer inconvenience and dissatisfaction. Kurly did not start off as a company with strengths in pricing and logistics, but has built up its core competencies in steps through strict quality control, convenient services, and efficient data management. It is now on its way to becoming the first e-commerce company to go public on the KOSPI. Building on strengths reinforced over the years, we believe Kurly has laid the foundation for sustainable growth based on brand power and customer loyalty.

Kurly valued as high as KRW8.7tr with Ocado’s valuation multiple

We believe PSR valuation offers a better assessment of Kurly’s fair enterprise value, with earnings remaining in the red due to large-scale investments but sales continuing to grow backed by a highly loyal customer base. The company’s GMW is expected to continue upward from KRW1.2tr in 2020 and KRW2tr in 2021 to over-KRW3tr in 2022, with growth driven by expansion of regional coverage and product categories.

Our valuation reflects the valuation multiple currently applied to Ocado, which shares several similarities with Kurly as an online-only grocer that sets itself apart from competitors with the adoption of AI and other cutting-edge technologies. Kurly’s recent expansion into the software-as-a-service (SaaS) business with goals to expand its dawn delivery technology infrastructure into a B2B business at home and abroad also bears similarities to Ocado’s platform business, which helped the UK company address structural issues such as low margins of the online grocery business and difficulties in overseas expansion.

Ocado shares are currently trading at a 2022F PSR of 2.9x. With Ocado moving ahead of Kurly in terms of business expansion and data monetization, Kurly’s valuation multiple is unlikely to exceed that of its overseas peer. Going forward, narrowing the valuation gap with Ocado will hinge on the increase in online market penetration of fresh foods, growth in sales share of non-food items, and monetization of customer data, all of which are in line with Kurly’s growth strategies.

Applying Ocado’s 2022F PSR of 2.9x puts Kurly’s valuation as high as KRW8.7tr based on our GMV forecast of KRW3tr (+50.0% YoY) for 2022. Even on a conservative view with a 30% discount placed on Ocado’s valuation multiple to reflect the early stage of SaaS business expansion, Kurly’s valuation reaches KRW6.1tr.

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