The rapid growth of quick commerce may significantly impact the business model of traditional supermarkets. Analysts anticipate a wave of consolidation and more joint ventures.
Groceries delivered within ten minutes: it is a very appealing promise to pampered consumers. The delivery services of start-ups such as Gorillas, Getir, Flink, GoPuff and Zapp are competing across the western world, city after city, for a place on the cycle lane and in the hearts of shoppers. There is a market, of that there can hardly be any doubt. Opinions differ, however, as to how big the market is.
According to research agency Kantar, express delivery services in the Netherlands already account for half a billion euros in turnover, and the billion euros mark will be reached before the end of this year. 700,000 customers are already using (at least one of) the services, spending an average amount of 20 euros per order. In the United Kingdom, quick commerce would even reach 1.4 billion pounds (1.7 billion euros) in turnover, according to research agency IGD, although the British food retail market is a lot bigger – worth more than 200 billion pounds (240 billion euros). It is still far too early for any numbers on Belgium – where, for the time being, Gorillas is the only company delivering in Brussels and Antwerp.
2 to 4 % of the market?
Inevitably, the growth of express grocery delivery also impacts the turnover of large food retailers. “Supermärkte hassen diesen Trick” (“Supermarkets hate this”) was the advertising slogan of Gorillas in its home town Berlin, and they had their reasons. Every order consumers get delivered to their homes by bicycle, they no longer buy at supermarkets or the nearby (corner) shop. Retailers with a strong position in the urban convenience and neighbourhood store segment seem particularly vulnerable. How serious can the damage get?
According to analysts at Berenberg, British supermarket chains such as Tesco, Sainsbury’s or Marks & Spencer risk losing between 2 and 4 % of their sales, or “hundreds of millions of pounds“, to the speedy bicycle couriers if they do not react appropriately. Barclays analysts also expect express deliverers to account for between 2.2 and 4.4 % of the total food market by 2026. The figures from Cardlytics Perhaps even bigger. They analyse spending through British bank accounts, and have found out that users of express delivery services spend, on average, 22 % less at supermarkets. That will be distressing in a market where every percentage point counts.
Food retailers are responding, and are doing so with remarkable new partnerships. Gorillas has reached an agreement with Tesco in the UK, Casino in France and, recently, also with Jumbo for the Benelux market. A smart move by the express delivery company, securing its business continuity and building up credibility.
Other retailers join forces with the more traditional meal couriers, who, after all, also believe in the value of delivering groceries but usually do not deliver within 15 minutes. For example, Aldi (in the UK) and Carrefour (in France and Belgium) collaborate with Deliveroo. This way, the food retailers involved hand over a lot of valuable data, which might have its risks… Perhaps that is why Carrefour took a stake in French express delivery company Cajoo and set up its own fast delivery service called Sprint. Rewe took a stake in Flink. Tesco and Sainsbury’s also set up their own delivery services.
A wave of consolidations
Investors seem to like this trend: the newcomers are attracting a lot of venture capital. Last autumn, Gorillas raised no less than one billion dollars (850 million euros). The bike delivery company would already be worth more than 2.5 billion euros. For its part, Flink raised 700 million euros, while Getir collected 400 million. However, there are too many players on the market today, most experts agree. Eventually, just one or two players will survive in every city, they expect.
Therefore, a consolidation battle is imminent. A battle in which the more traditional meal delivery companies will also have a say. This trend has already started: Delivery Hero invested in Gorillas, while American delivery services are interested in Europe. Doordash, for example, first tried to reach an agreement with Gorillas, but eventually, the company took a shareholding in Flink. GoPuff took over British start-ups Fancy and Dija and, after a rebranding, wants to conquer the rest of Europe from London. However, the opposite trend is also happening: Getir and Gorillas have set up operations in the US.
Express delivery companies promise their customers ‘supermarket prices’, but a small price comparison at Gorillas in Antwerp last year showed that this promise does not always hold true. A Barclays analysis in the UK even exposed a price gap of more than 20 % compared to the large supermarket chains. The delivery costs are limited compared to traditional delivery and collection services (where the customer does have a wider choice). Will the delivery companies continue to get away with charging higher prices in times of food inflation? Time is money, but not for all consumers.
The express delivery companies mainly appeal to an urban customer base of busy and rather well-off consumers. They only survive in densely populated neighbourhoods. They are not primarily aiming for big weekly grocery orders, but rather for last-minute and impulse purchases. However, Gorillas would like to position itself as a regular supplier of fresh products. A niche market that one cannot or should not ignore.
The key question is whether the express delivery model can ever become profitable. Currently, all the start-ups are focusing on growth, not profit. Still, an average spend of 20 euros per order is not bad at all: many convenience stores would be very satisfied with that. Scaling up, partnerships and operational fine-tuning should eventually lead to figures in the black.
Sadik Cevik, managing director at Gorillas Benelux, is certain: in a recent interview with RetailDetail, he explained that “We have the same margins as a supermarket, but we do the operations differently. That is why investors believe in us: they look at the retention and the frequency. We retain our customers for a long time, they order more and more often and buy increasingly larger quantities. It is up to us to set up the operations in a way that makes it profitable.”