Rapid delivery could change the way we shop for groceries

03. February 2022

7 Minutes

Could rapid delivery change the way we shop for groceries?

A surprising detail from the pandemic is that while certain industries have seen significant losses from dramatic lifestyle changes (automakers and the service industry, for example) and the resulting changes in consumer behaviours – other industries are thriving.

Home entertainment is a prominent example of this forced adoption.

Companies that invested a great deal on on-demand screening (Paramount+, Disney+…) are reaping the rewards. So too has the video gaming industry, as consumers seek an escape.

Yet another has been the food delivery industry.

The key points of the blog

The right to laziness

Indeed, takeaway has been the star child of startups for the past decade. Many of Europe’s largest startups are food delivery companies (Deliveroo, JustEat). The global online food delivery industry is now said to be worth £91.35bn, with Europe contributing about one sixth of that.

There are now a few notable newcomers who are carving out their own niche within this expanding market: on-demand grocery deliveries. The last five years have seen an explosion in the number of companies offering rapid, on-demand delivery: Gorillas, Beelivery, Weezy, Getir, Dija: an assortment of young companies who are offering customers, in the colourful phrasing of Getir’s UK general manager, ‘the right to laziness’.

These companies differ from takeaway apps and delivery services offered by the larger supermarkets

These companies differ from takeaway apps and delivery services offered by the larger supermarkets, like Tesco, in a few ways.

Offering “Quality groceries delivered in minutes” versus usual grocery deliveries, in which you book typically one or two weeks in advance. With mark-up on items usually around 10%, these on-demand, rapid delivery companies are offering classic and curated goods with no substitutions or missing items. Many even promote sustainability with electric vehicles and partnering with charities to donate excess food, something larger supermarkets have been criticised for in recent years.

As for delivery, there are three possible operating models: additional deliveries using incumbent couriers (i.e. already working for other delivery companies, like UberEats), brokerage platforms with access to couriers with capacity for more deliveries. The final option is that companies have their own fleets.

It’s an enticing offer. Many will perhaps remember the stories of homebound elderly people who couldn’t get a delivery for two weeks – even a month – during early lockdowns. And even though the pandemic cuased fewer logistics problems, companies still ran on reduced delivery slots due to operational issues.

On-demand, rapid delivery - with higher costs and fewer product options

On-demand, rapid delivery – with higher costs and fewer product options – might not be a replacement for the weekly shop.

But its selling point instead may be getting that single ingredient needed for tonight’s dinner when there’s no time to dash to the shops. Data collected by McKinsey & Company found that a third of surveyed respondents in France said they ‘probably’ or ‘certainly’ would order groceries online. Nearly half of respondents in Spain said the same. It has been suggested that a lack of supply has created the illusion of a lack of demand. During the pandemic, online supermarket Ocado reported a 100-fold increase in web traffic.

Investors have been inspired to fund the next round of growth, focussing on smaller, nimbler alternatives, encouraged by the pandemic to invest in businesses that are better positioned to adapt to changing circumstances. During the course of the pandemic, investors have put £10bn ($14bn) globally into on-demand delivery to encourage growth.

On-demand

Is it likely to pay off for them? There are some concerns around the opportunity for growth that has some advisors applying the brakes.

For instance, can these businesses develop and scale? Moreover, will this current demand persist once the pandemic is well and truly over?

There may not be any cause for concern. Behavioural studies show that once a habit is formed, it is slow to change. This could mean a stable demand for this service or, at the least, give companies time to innovate around shifting demand.

There is also the possibility that shoppers will get used to quicker deliveries, and not want to return to booking one or two weeks in advance. Next day delivery – a standard option for deliveries across retail – is increasingly common, and is fast on its way to becoming the predominant way that customers order.

But expectations for same-day delivery are also growing, and larger supermarkets – Asda, Tesco, Sainsbury’s – have started to invest in rapid deliveries as their newer, more agile competitors gain traction. Shoppers around the world have begun to see same-day, rapid delivery as a ‘new normal’, according to research in this area. Providing this service also seems to inspire further transactions: the less time a delivery takes, the more orders a business gets.

Of course, somewhat awkwardly, consumers also assure pollsters that they don’t want to pay for this extra service. So, uptake might be slow.

There is also caution around the hype surrounding the business model, which requires significant overheads, and people to stock and manage warehouses, and to act as couriers, which may not be profitable at scale. Tim Steiner, boss of digital grocery pioneer Ocado, said he thought the sector would only ever stay a small portion of overall grocery delivery. He cited expense, lack of service and narrower range of produce as limiting factors in ultra-fast delivery, like 15 minutes.

Concerns about product quality may also frustrate growth: the inability to see or touch products before buying.

Watching their figures

Furthermore, there may be some concerns to do with consumer health and the possible environmental impacts that may concern those interested in the growth of this niche.

Food delivery apps have been shown to have had a net negative affect on customer’s health when ordering takeaways. If instant delivery convinces users to get the few ingredients necessary to make it themselves (often cheaper, typically healthier), that suggests a possible small health benefit.

Will this also have a negative effect on the environment?

Looking at figures of the larger food delivery industry suggest more emissions and greater waste. For example, a study commissioned during the pandemic found various food takeaway apps lead to as much as a 450% larger carbon footprint per household. Plastic usage has also increased dramatically during the pandemic, attributed to increasing demand for instant food delivery – as many as 280 tonnes more per day, according to one study.

Although many of these businesses have recently tried to take this into account – Deliveroo has said they are working towards being carbon neutral – this suggests that on-demand delivery of this sort could have a negative effect on attempts to keep emissions down.

This may in turn affect the bottom line

This may in turn affect the bottom line: consumers are increasingly prioritising social responsibility in their purchases.

Success in this market will mean keeping wastefulness at a minimum, as well as concern over zero-hour contracts, which working for many of these companies mandates.

These are exciting challenges to confront while, in the near term, provide perhaps a necessary risk to this industry. A massive, unexpected change in consumer habits gave it wings. The next step is seeing how flies as things steadily return to some semblance of normalcy.

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KPS