Faltering grocery delivery service Milkrun has told staff it will cut 20 per cent of its workforce and close delivery hubs in an attempt to make its cash reserves last longer.

The Sydney Morning Herald and The Age revealed last year that the company had been losing $13 on some orders and held talks with several major competitors, including Uber and Coles, about potential partnerships that went nowhere.

Rising interest rates have hurt cash-burning start-ups such as Milkrun as investors become more cautious about making speculative bets. Three of its rapid delivery rivals folded last year as the delivery giant Uber, which uses independent contractors and therefore does not have to pay an industry minimum wage, makes a major play for the market.

Food delivery riders at Milkrun ready for their busy afternoon rush.Credit:Louie Douvis

Milkrun chief executive Dany Milham announced the staff cuts internally on Wednesday in a message seen by this masthead. He blamed the move on poor economic conditions.

“This means making some structural changes and some tough decisions that will unfortunately impact some of our people,” Milham wrote. “From today we will be consolidating a number of our hubs but will be still continuing to service all our current markets.”

Milkrun’s hubs are the miniature warehouses where it stores goods before its riders, who are paid full industry standard wages, deliver them to customers in a model that has won praise from shoppers.

“We will also be making some structural changes at HQ,” Milham wrote. “This means we will be reducing the total number of roles across the business by around 20 per cent.”

He did not say how many people Milkrun employed before the cuts, or the number of warehouses that are closing. LinkedIn, which is not a wholly accurate measure because it relies on people self-recording their jobs, puts Milkrun at about 200 staff.

A spokeswoman said the changes meant Milkrun had enough cash to last for more than 12 months. Average orders had more than doubled in value since the last reported figures to more than $50, and all hubs would be profitable or breaking even after the redundancies and closures, she added.

Milkrun raised $86 million in less than a year from investors including the private offices of Atlassian founders Mike Cannon-Brookes and Scott Farquhar along with US firm Tiger Global on a series of lofty hopes. It told potential investors it planned to rapidly earn billions in revenue and expand into areas including payments, insurance and takeaway delivery.

Axed Milkrun staff will get their legal entitlements, counselling and a bonus payment, Milham wrote on Wednesday.

“This is obviously very difficult news to deliver and receive, and I’m sorry to those of you
whose roles are being impacted,” he wrote, paying tribute to those who were being made redundant.

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