In October 2018 I wrote a blog entitled ‘Survival of the fastest’, which focused on grocery home delivery and how the actual delivery windows were becoming shorter and shorter. What started as ‘next-day’ delivery, soon became ‘same-day’, followed by delivery ‘within the hour’. Around that time, I also visited a HEMA supermarket in China that could deliver to those customers within a three-kilometre radius, in just half an hour.
Three years down the line and we’ve seen unprecedented developments in the field of ‘quick commerce’, especially companies that bring groceries directly to your home within ten minutes. There are many start-ups aiming for a slice of this ‘instant’ or ‘flash delivery’ concept, and you may already be familiar with companies such as Getir, Cajoo, Gorillas, Flink, Jokr, Gopuff and Weezy. Typically, they hold limited assortments of around 2,000 SKUs and they operate out of small warehouses – often called ‘dark stores’ – of 100-150m2 inside the cities.
Since the start of the global pandemic, venture capitalists have invested billions in these quick commerce operations and there has been spectacular growth. However, many are struggling to make a profit, not just because of the wafer-thin margins, but largely because their business models are so capital intensive. This is supported by a recent analysis by Bain & Company concluding that, in order to become profitable, European quick commerce start-ups need to double basket size and quadruple order volumes per dark store.
For example, multiple local dark stores are needed in the cities where rent is expensive, and they must be replenished frequently. Investments in delivery vehicles, such as bicycles or e-scooters, are required as well as staff for order fulfilment and delivery. There are also significant IT costs attached to the development and use of apps for ordering, picking, route planning, payment and so on, and the ongoing marketing spend necessary to attract and retain customers.
Further challenges for quick commerce start-ups to overcome are the extra traffic and noise generated by their city centre operations – and the effect this can have on a local neighbourhood – as well as the pressure their service model puts on their employees to deliver to customers within the specified timeframes.
Add to that the effect of having a blacked-out warehouse in an otherwise prime residential or retail area, including all the activity taking place around it, and it becomes questionable whether this is a sustainable, long-term business model. These are issues that people just don’t think about when they don’t feel like going to the supermarket – even if it’s only across the road – and reach for their mobile device instead.
Consolidation follows saturation
The fact is that in the rush for companies to secure as large a slice of the pie as possible, many markets are reaching saturation point. In London, for example, there are already around ten-plus start-ups operating in the city using the same underlying technology and largely offering the same products. We expect that consolidation will take place in most markets and we’ll then be left with two or three main players, who can make their business model work – as we’ve experienced with Deliveroo and Uber Eats in the food delivery sector.
The companies that remain will then need to expand their product offering to include other, preferably higher margin products, such as pharmaceutical or parcel deliveries. We also expect them to collaborate, for example, with traditional retailers. and we’re already seeing partnerships and investments in quick commerce companies by the likes of Rewe, Carrefour, Tesco and Casino (which recently acquired a stake in German speedy delivery company Gorillas). Anyway, the growth of quick commerce also influences the service expectations of customers of traditional food retailers active in online groceries
Berlin start-up Gorillas only began operations last year out of its owner’s living room, but is now active in nine countries, with over 11,000 employees, and has just been valued at around three billion dollars. It was recently announced that German meal delivery company Delivery Hero is also investing in Gorillas, so it will be interesting to see how this kind of new partnership plays out.
Streamlining supply chains
From the perspective of a warehouse automation supplier, we expect the companies that gain traction and thrive will be the ones who have invested in larger central distribution centres to streamline supply to their smaller local hubs. An efficient warehouse management system is essential inside the dark stores, while the central warehouses can benefit from Vanderlande solutions as STOREPICK to increase service levels to their dark stores.
The pace of development in this sector is so rapid that by the time this blog is published, the market will have undoubtedly changed again. The importance of speed in e-commerce is paramount these days – and free delivery no longer ranks higher than fast delivery. Whether you’re missing a vital ingredient for your casserole, need some wine for your dinner party, or running low on beer and crisps while watching the football, all of the above – and much more – can now be summoned and delivered at the touch of a button, in minutes. Whether this kind of service can ever truly function sustainably and profitably remains to be seen of course, but it’s certainly going to be interesting to follow the story.