Watch CADA’s Lunch & Learn where we explore the topic of Rapid Delivery and its effect on the grocery industry!
We’ve packed a lot of thoughts into this quick read and the video above. To learn more, get in touch to book in a chat with Sarah and Dan:
What is Rapid Delivery?
Anything under one hour fits into this rapid delivery/ quick commerce category. Playfully-named start-ups such as Gopuff, Gorillas and Getir who offer sub-20 minute fulfilment are the most visible as they are investing heavily in marketing and advertising.
Aggregators – third party websites such as Deliveroo and UberEats, now offer on-demand groceries. This is alongside the restaurant meals that are the mainstay of their business. Legacy grocers have launched their own perky ‘within the hour’ services; Tesco Whoosh, Ocado Zoom and Sainsbury’s Chop Chop.
Is this the future, or a fad?
Investment in this new sector is robust. Six of the pure plays – Gopuff, Getir, Gorillas, Flink, Glovo and JOKR – are unicorns, with a valuation of over $1bn. Gopuff is preparing for an IPO. In the UK, Just Eat is now adding grocery to its offer; it has recognised that it is losing customers to its competitors.
The sector might be new, but it is affecting planning strategies at some of our most established firms. Leading property company British Land is shifting its focus from office and retail and has acquired £189m of space that caters specifically to last minute fulfilment.
“If I had asked people what they wanted, they would have said faster horses”
Do customers want it?
Henry Ford’s customers didn’t know that they wanted an affordable, mass market Model T car; they could not conceive of such a thing. Customers did not articulate a desire for groceries delivered within 15 minutes through their smart phone but now that it is here. It is a facility with the potential to transform lifestyles.
The Institute of Grocery Distribution (IGD) research from May 2021 estimates that the size of the quick commerce opportunity in the UK is £3.3bn, based on existing and future users. It is particularly relevant to demographic groups who are accustomed to administering every aspect of the lives using their phone and who are less familiar with established grocers.
What about affordability?
Quick commerce costs the end user more as all the labour of shopping is being handled by a third party. However, in the UK we are seeing Gopuff – strapline: “super-fast groceries at supermarket prices” – price-matching 100 products with city centre Tesco stores, a first for a rapid grocer.
Similarly, Jiffy has now upped the ante, announcing price-matching 150 products with Tesco.com and discounting a further 460 lines. Wavemaker research published recently in The Grocer shows that customers are using quick commerce for ‘planned buying’ rather than spontaneity and for essentials, not luxury items. This suggests that the perception of higher prices is being effectively eroded by a focus on value messaging.
Can operators make it pay?
The long-term economics of rapid delivery are going to depend on consolidation. This is already underway: Gopuff has bought Dija and Fancy and Getir now owns Weezy and Blok.
Operators are all currently focusing on growth rather than profit: the Uberisation of grocery. Customer acquisition relies on hugely attractive promotions and discounts that feel unsustainable. It remains to be seen how customers would square the ultimate in convenience with prices and delivery charges that more accurately reflect the cost of doing business in this way. That said, with enough market share, it’s arguable that dark stores and delivery drivers are not more costly than traditional store formats that require attractive spaces in prime locations.
Will it change the entire landscape of grocery retail?
Not outside of city centres and inner cities, as far as we understand the workings of the business model. A certain density of population is required to make it work. If we look at Latin America which is some years ahead of Europe in terms of rapid delivery for a host of demographic reasons, we can get a sense of a potential direction of travel:
Aggregators
Companies such as Deliveroo now have their own dark stores so they are effectively end to end grocers
Pure Plays
Some pure plays in Latin America are creating ‘Super apps’ that allow them to diversify beyond grocery. Moving into verticals including pharmacy – working out how they can become more useful to their customers
Small Convenience Stores
Many retailers are digitising to eliminate queuing and reduce friction.
Large Big Box Stores
Some are giving customers reasons to visit and driving profitability by repurposing space for foodservice and co-working. In addition they are letting underused space to third parties that provide complementary services.
This does not sound like too dramatic a shift. The message that is coming through loud and clear is that in a competitive market, the consumer should benefit as grocers have to work harder to compete for our custom.