Bodegas look to zoning to defend against instant delivery rivals

Grocery delivery start-up Gopuff last fall moved into the ground-floor retail space of a new luxury apartment building on the Lower East Side of Manhattan, across the street from a bodega.

“I didn’t really think it was a big deal because, for us, we have our loyal customers in the neighborhood,” said Jose Tavaras, who has worked at Stop 1 Deli for 10 years.

Later, Tavaras looked up the company. Gopuff was valued at $15 billion as of July, and could reportedly be valued at as much as $40 billion after its latest funding round.

“It’s going to change something,” Tavaras told CNBC. “These companies have an advantage because they have the money behind them.”

Quick commerce services exploded in New York City last year. Roughly a half dozen start-ups in the city promise to deliver online grocery purchases to customers’ doors in as little as 10 to 20 minutes after ordering. 

Some elected officials and small business leaders worry the delivery start-ups could eventually push out bodegas and corner stores. Critics are using zoning rules to try to curb the venture capital-fueled growth of these companies.

How New York regulators respond to the rapid delivery grocers could have implications for other cities as the quick commerce sector expands across the U.S.

Gopuff, Gorillas, Getir, Buyk, Fridge No More and Jokr are among the players vying for customers in New York. Gorillas has said it competes with supermarkets, not corner stores, while Jokr has named retail giant Amazon as its target.

Rather than provide third-party delivery services for stores or restaurants, the quick commerce companies carry their own products in hyperlocalized facilities. (Gorillas calls them “microwarehouses.”) Workers assemble orders from these sites and delivery personnel drop off the items to the customers almost immediately.

From a zoning perspective, the facilities operate in a gray area between commercial and industrial land use.

“Are they a warehouse or are they a grocery store? That’s what has to be determined,” said Gale Brewer, a Democratic City Council member and Manhattan borough president from 2014 to 2021.

The Gopuff storefront on the Lower East Side, for example, is located in a residential zoning district in a mixed residential and commercial use building. Traditional fulfillment centers are typically categorized as warehouses, which are zoned for manufacturing and some commercial districts.

“It’s something that is not 100% clear because this type of use did not exist in 1961 when the use categories were created in the Zoning Resolution,” said New York-based land use lawyer Elise Wagner, a partner at Kramer Levin. “There was an idea back in 1961 that a warehouse was incompatible with…