Perhaps Home Delivery Is Not The Future Of Internet Shopping
Rafal Brzoska, Poland's parcel king, has gone from near-bankrupt to billionaire by refusing to deliver packages to individual homes.
It was the summer of 2016, and Rafa Brzoska's walls were closing in. The then-38-year-old Polish entrepreneur had spent nearly two decades building InPost from a college dorm-room operation squeezing supermarket coupons through letterboxes into a $120 million–a-year commercial mail business. However, competing with the government's postal service took a toll. He owed $65 million and was scrambling to find new investors while avoiding the repo man.
“One of my key points with new investors was, ‘I want to repay all the bonds, all the banks, and all the people who have lent us money,'” Brzoska, now 43, recalls. "When the investors inquired as to why, I explained, 'I want to live in this country, but you only have one name and one face.'"
These investors were not interested in Brzoska's dying postal business, but rather in the automated e-commerce lockers spinoff he founded in 2010. Amazon and other online retailers deliver packages to these refrigerator-sized street lockers, which cost approximately $20,000 to install. They are popular in Europe because mailmen rarely leave an unattended parcel on a stoop. This effectively eliminates porch piracy (54% of Americans report having a package stolen), but if you miss the doorbell, you're in for a long trek to the post office.
Brzoska, who was on the verge of bankruptcy, decided to close the mail business in summer 2016 in advance of talks with his rescuer, Advent International. The following April, the Boston-based private equity firm acquired InPost. The $110 million transaction eliminated the company's debt and provided Brzoska with an additional $125 million to nearly double the size of his parcel locker network to 4,400 in a year.
It was both a shrewd and a sweetheart deal. Poles were late adopters of online shopping, but by 2017, e-commerce sales were growing at an annual rate of 20.4 percent. Then came the pandemic, which resulted in a 36 percent increase in online shopping in just 12 months. InPost's revenues increased by 104 percent to $677 million in 2020. Brzoska's lockers process 36% of all parcels delivered in Poland.
“There were numerous reasons to say no to this one, and many people did,” says Paul Atefi, managing director at KKR, which lent InPost $145 million in 2018 to build new lockers. Brzoska now operates 11,734 lockers in Poland, over 1,100 lockers in the United Kingdom, and several hundred lockers in Italy. “However, when we examined it on a machine-by-machine basis, it became extremely compelling. Occasionally, the payback period was as little as 1.5 years per machine... We adore this business.”
Additionally, the margins are enviable. Brzoska charges approximately $2 per package and his expenses are limited to locker setup, labor, and locker space leases. InPost profited $97 million in 2020. “Year over year, our automated parcel machines double our revenue,” he says.
“In Poland, they're aiming to boost Ebitda margins to more than 50%,” says Jefferies International analyst David Kerstens. “And this is in comparison to postal operators' Ebitda, which is in the low single digits, such as Royal Mail.”
Placing lockers within "slipper distance" of shoppers' homes and offices reshaped the business, according to Marek Róycki, a consultant who advised Advent on the InPost acquisition. “It's not appealing to trek a mile to your nearest locker in the pouring rain. However, my nearest locker in Poland is 350 meters away. It's almost as convenient as home delivery.”
InPost learned the hard way about the "slipper rule." Advent reined in Brzoska's wild expansion across four continents, leaving the company spread too thinly and overextended. “This was a textbook case of a charismatic, extremely entrepreneurial individual managing a rapidly growing business,” Róycki explains. “However, he took on an excessive number of projects with insufficient resources.”
InPost relisted on the Amsterdam stock exchange in January, with a valuation of $9.7 billion; Brzoska's stake is currently worth $1.1 billion. He has convinced investors that his lockers are a more cost-effective and environmentally friendly alternative to the fleets of delivery trucks that crisscross Europe's cities. According to Brzoska, one storage unit can perform the work of 24 trucks: "That is why lockers are the future."
While Brzoska was dominating the locker business, his main competitors—postal Europe's services, as well as UPS and Amazon, both of which have experimented with lockers—took a different approach, increasing home delivery and partnering with thousands of corner stores to handle package pickups and returns. It was a quick, low-cost alternative to lockers, but the pandemic-driven e-commerce boom has clogged the aisles of bodegas from Berlin to Bilbao, resulting in long lines for returns. “Convenience stores are inconvenient for parcel pickup, even more so during a pandemic,” Kerstens says.
Brzoska's strategy is to eliminate those lines—and leap ahead in Europe—through a $675 million deal announced in March to acquire delivery giant Mondial Relay and place his lockers in the company's busiest stores throughout France.
Brzoska's remarkable achievements have not gone unnoticed. Alibaba and Allegro—e-commerce Poland's behemoth that accounts for a quarter of InPost's sales—have now opened lockers in the country, while Europe's postal giants, such as Germany's Deutsche Post, are also betting on parcel machines.
This time, Brzoska is not the underdog, and he will not back down from a fight. He attributes his survival of earlier rounds with postal heavyweights to his star sign and lucky bead bracelets—which look out of place against his tailored suits. “I informed my teammates that I am a Scorpio. I will survive, and you will survive alongside me, because Scorpios are notorious for fighting to the death.'