The last three years have seen unprecedented growth of instant grocery companies that promise to deliver within 15 minutes. We explore why consumers are so attracted to these deliveries, and why the trend has come to a halt.
Instant Grocery Is Super Convenient
After placing my first instant grocery order at the beginning of 2021, I was blown away by the simplicity and speed of getting groceries delivered: The download of the app was easy and so was selecting a few items in the app, as the assortment size is very small. Picking began only a minute after the order was confirmed, and delivery took place less than 10 minutes after placing the order.
Aggressive promotions and first-time user discounts convinced me to order from several other instant delivery services too, testing Gorillas, Flink, Getir and Zapp in the Center of Amsterdam (a city where the next supermarket is never further away than a five minute walk).
Challenging Economics in Instant Grocery
Covid-19 has increased the number of consumers open to ordering groceries online. But until 2020, the model was more popular in Asia, with supermarket Hema picking in-store and delivering within 30 minutes.
A few years ago, established grocers launched pilot projects: Dutch grocer Albert Heijn, for example, trialled their instant grocery service Rappie (with in-store picks) in Rotterdam. However, the pilot was ended in 2018.
The reason for this reluctance are the cannibalisation of existing supermarkets, as well as the challenge of covering fixed warehouse and last mile costs with low basket sizes and low grocery margins. Whilst there is potential to expand into further product categories like dry cleaning or pharmacy, there are doubts whether current, not quite as ‘instant’, last mile offers are not sufficient for these categories.
Instant Grocers Have Received Large Venture Capital Investments
So far, venture capital thought otherwise, with a total of $18.5bn in VC investments poured into Gorillas, Getir, Go-Puff and other instant grocery companies in 2021. For the same amount one could have bought the companies ASOS, PVH and Hugo Boss combined. This has led to one of the most extreme growth stories of recent years and a lot of competition for last mile hubs in city centres. Instant Grocer Flink was founded in 2020 and operates in ~70 cities at the time of writing, often with more than two last mile hubs per city.
Local Communities Are Frustrated by Instant Grocery
As instant grocery has grown, so has the frustration of local residents living near instant grocery hubs. They complain about drivers hanging out on the streets in front of hubs as well as reckless riding through inner cities.
As a result, cities in the Netherlands have started to ban instant grocers, forcing some to close existing hubs and preventing future hubs in inner cities. Whilst this radical step may be unfair considering that local supermarkets and pizza services are still able to deliver, it does have the advantage that local last mile hub concepts focused on improving health and quality of life for inner-city residents will have it easier finding locations.
Looking Forward: Dire Straits Ahead?
The strong competition, customers returning to normal shopping after Covid-19, but also the changing sentiment in inner cities have created the ‘perfect storm’ for instant grocery. Venture capital funds have also been more reluctant to invest in funding rounds (Gorillas is estimated to burn €60m cash per month!). With strong growth rates having come to a stop, it is likely that consolidation will continue and/or players will be pushed out of business in the months to come.
However, consumers now accustomed to the convenience of instant grocery will still be served – if perhaps by fewer companies, at less competitive prices, and within up to 30 rather than 15 minutes. Instant grocers will also need to increase their assortment beyond grocery.
In the long-term, increased robotisation in both picking and delivery will be key to covering fixed costs. Keeping this in mind, once the initial wave of consolidation has passed this could be an interesting market for more tech-savvy companies like Amazon or Tencent.
About the Author:
Maximilian Gellert is passionate about transforming digital technologies into pragmatic every-day solutions for retailers. Combining consulting experience with industry functions in premium apparel, online grocery and last mile logistics he supports companies in their digital challenges and last mile innovation. Read more of his work here or connect with him via email.
One thought on “Instant Grocery Deliveries: A Business Model to Stay?”
Excellent post, Maximilian! Faster delivery is gaining traction in online grocery platforms since most consumers choose convenience when purchasing groceries online. As the delivery pace decreases in the former marketplace model, online grocery platforms are changing it to building dark storefronts or hubs near consumers’ homes. Distribution from dark shops allows startups to obtain better quality control and face fewer stock-out occurrences.