Kurly calls off IPO plan due to IPO market slump

[Photo by Lee Chung-woo]

Kurly Inc., operator of South Korea’s fresh food delivery platform Market Kurly, on Wednesday scrapped its plan to go public, citing the rocky financial market condition hit by inflation and high interest rates that have stoked fears on recession and corporate earnings.

“There was a consensus that we should shelve our listing plan when it is difficult to value our company due to the current market conditions. Investors agreed on our decision,” Kurly said in a statement. “Investors also agreed to the call off.”

The company added that it will resume the IPO “at the optimal time when we can fully evaluate our valuation in the future.”

Former Goldman Sachs Group Inc. analyst Kim Seul-ah, also known as Sophie Kim, founded Kurly in 2015. [Source : Kurly]

Kurly - founded by former Goldman Sachs Group Inc. analyst Kim Seul-ah, also known as Sophie Kim in 2015 - pioneered the country’s next-day grocery delivery service market that allows consumers to receive orders placed by 11 p.m. arrive by 7 a.m. the next morning.

Kurly was able to raise 250 billion won ($196.7 million) in pre-initial public offering (IPO) funding in December 2021 at 4 trillion won valuation. Some said the valuation was too expensive but there were no doubts about Kurly joining the stock market thanks to an IPO boom at that time. Expectations grew that Kurly could be Korea’s first e-commerce startup to go public at home.

But the IPO market suddenly lost steam last year as central banks across the world turned hawkish, hiking rates to tame inflation. A slew of promising companies and startups called off their IPO plans last year.

Kurly posted 1.56 trillion won in sales and its gross merchandise value (GMV) reached 2 trillion won in 2021, up 65 percent from a year earlier to achieve growth that is triple the annual average of other e-commerce firms in Korea. The company had more than 10 million users.

Despite surging sales, Kurly has not been able to reduce loss. Kurly logged an operating loss of 217.7 billion won in 2021, up from 101.3 billion won in 2019 and 116.3 billion won in 2020.

The widening loss come from the business structure itself in that operations engage next-day delivery of fresh food with high refuse rate and low average order value versus non-food products.

Next-day morning delivery business also calls for higher inventory management costs and doubles the delivery labor cost. [Source : Kurly]

Kurly has also been under pressure from high cost to maintain freshness of the food, or full cold chain that involves packaging, distribution, and storage. Almost 90 percent of Kurly’s revenue is taken out as variable cost that include raw materials, transportation, and packaging costs.

The overall next-day fresh food delivery market also has turned lackluster amid rising distribution and delivery labor costs.

Next-day morning delivery business also calls for higher inventory management costs and doubles the delivery labor cost, which is why other rivals like Lotte On and BGF Group’s Hello Nature pulled out of service. SSG.com also suspended dawn delivery service in non-capital regions.

Kurly on the other hand invested more aggressively with hopes to gain success with sheer size. The enterprise will complete construction of a distribution center in Changwon, South Gyeongsang Province, and Pyeongtaek in Gyeonggi Province in the first half of this year in addition to the centers in Songpa and Gimpo in Seoul.

“We will be able to significantly reduce facility investment cost as major investment will come to an end once the distribution centers in Changwon and Pyeongtaek are built,” Kurly said. “Sales are on the upward trend and we will be able to improve profitability.”

Kurly has also diversified its product portfolio by adding a non-fresh food beauty platform modeled by Blackpink member Jennie in November last year. Beauty Kurly has about 1,000 beauty brands including luxury Hermes, Gucci, and Sulwhasoo. Kurly’s cosmetics category sales more than doubled after Beauty Kurly launch.

“Category expansion is not an option but a must as the order value of cosmetics is much higher than foods,” said an unnamed industry official. “Consumers now, however, value cost-effective budget products than premium ones in a weak economic environment led by high prices.”

Kurly, in the meantime, brushed off concerns about worsening financial conditions.

It has about 400 billion won in cash reserves as of the end of June last year, said an unnamed official from Kurly.