Rapid delivery service Milkrun to close its doors on Friday

Rapid grocery delivery service Milkrun will close on Friday and make hundreds of staff across Sydney and Melbourne redundant after investors refused to put more cash into the loss-making start-up.

Its speedy deliveries, initially guaranteed to be completed within 10 minutes, delighted customers who enjoyed the company’s irreverent marketing and pledge to pay workers an hourly wage unlike competing services.

Milkrun had ambitions to become a “super app”.Credit: Louie Douvis

But Milkrun’s failure, along with those of four competing businesses, suggests its model does not work against Australia’s supermarket giants, which have extensive supply chains and partnerships with gig economy delivery firms that need not pay minimum wages.

The demise of the totemic company puts a full stop on an era when low-interest rates and pandemic lockdowns spurred investors to put huge amounts of money – $86 million in Milkrun’s case – into risky ventures.

Milkrun chief executive Dany Milham, who had once forecast his company would be one of the country’s biggest and get into markets including pharmacies and payments, announced the closure on Tuesday. He blamed the economy and capital markets for his decision to close the business, while asserting it has sufficient cash to pay staff redundancy entitlements and suppliers.

“We’ve always been committed to doing things the right way, and winding down the business while we still have a sufficient cash balance enables us to ensure our people and suppliers are paid in full.

“I understand this is difficult news to receive, and I’m sorry to have to deliver it,” Milham said in a note to staff. “I’m so proud of the amazing business we have built and of the growth we have achieved.”

The family offices of Atlassian founders Mike Cannon-Brookes and Scott Farquhar had invested in Milkrun, alongside the giant American fund Tiger Global Management and Australian technology investors AirTree Ventures.

Milkrun was already faltering in February. It cut 20 per cent of its staff, including the marketing team that had won it attention.

A spokeswoman for the company claimed at the time that all its delivery hubs were profitable or breaking even and said it had enough cash to last for 12 months. Competing firms Voly and Send failed last year, and this masthead revealed last week that international giant DoorDash was ending its similar “DashMart” service.

Milkrun had repeatedly failed to raise more money from investors. Documents obtained by The Age and The Sydney Morning Herald showed it was bleeding money to win customers and deliver orders, making it an unattractive prospect as interest rates rose and investors became more conservative.

A Milkrun spokesman refused an interview request on Milham’s behalf and declined to answer questions about its finances or how its wind-up would be handled. One of Milkrun’s largest investors, Australian venture capital firm AirTree Ventures, defended its decision to put money into Milkrun in a private email to its backers seen by this masthead.

AirTree said that Milham, who had previously co-founded mattress company Koala, had experienced past success. And the firm said it believed that if only Milkrun could get big enough, it would start making money and “reimagine the customer experience for consumer goods”.

AirTree had already cut the value of its stake in Milkrun, which represented a small percentage of one of its funds, to the cost of its investment before it collapsed. Its performance will now be further dented.

“With great upside potential comes risk, and if we don’t see some failures, we’re likely not adding enough risk into the portfolio for outliers to emerge and become fund returners,” AirTree wrote. “With that said, this wasn’t the outcome we hoped for.”

Jackie Vullinghs, the AirTree partner who led the investment, said she felt the downside had been justified by the potential upside while the Atlassian founders’ offices declined to comment.

The Transport Workers’ Union, which represents delivery riders, said the collapse showed gig economy companies were undercutting traditional employers in the sector and urged the federal government to speed up planned reforms.

“Milkrun was a company trying to do the right thing by its workers, but you can’t do the right thing and stay in business unless there are minimum standards,” said Michael Kaine, its national secretary.

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