Months old with billions in investment – will the bubble burst on rapid grocery delivery?
The pandemic spurred the growth of many categories and brands, but perhaps none more so that the rapid grocery delivery market. As part of The Drum’s Retail Deep Dive, we take a look at the buoyant sector and ask, as life returns to normal, could the bubble be about to burst?
Is rapid grocery delivery reaching its peak?
Over the past 18 months a not-so-quiet war has been waging in major cities across Europe and the US among a cohort of brands that didn’t exist a few short years ago. Getir, Weezy, Dija and Gorillas would have meant little to the average UK consumer until, of course, Covid-19 hit.
In the face of lockdown after lockdown, in-person shopping anxiety and the impossible task of booking a delivery slot with national chains, people turned to rapid grocery services.
Getir was the first out the blocks in 2015. Founded in Istanbul, it had grown steadily in its home turf but over the past 18 months has entered into the UK, Netherlands, Germany and France to take advantage of booming demand. Customers can order from a range of 1500 products via the app – seven days a week, day and night, including everything from fresh fruits and vegetables to personal and home care products.
In June, it raised $500m from investors, bringing its valuation to a whopping $7.5bn. That makes it worth more Deliveroo, Marks & Spencer and Morrisons. And the advertising dollars are flowing as it tried to cement its market share. You might recognize the branding from the pitch-side billboards at Tottenham Hotspur’s ground, having this month inked a three-year partnership with the world-renowned football club.
Then there’s Dija. It was founded just eight months ago by former Deliveroo executives Alberto Menolascina and Yusuf Saban, and promises rapid delivery to a number of London locations within 10 minutes of the order being placed. In time, it raised over $20m in seed money before US competitor Gopuff – itself valued at $15bn – bought it for an undisclosed sum earlier this month.
But experts warn that the hype may soon fade.
“[Is there] a bubble? Yes,” says Sucharita Kodali, principal analyst at Forrester specializing in e-commerce and consumer retail. “This is like the flash sale and daily deal bubble from several years ago. Or the subscription box bubble. Or the Uber-for-X bubble. There is a shakeout and some of the top players remaining will merge. Like what happened in restaurant delivery."
Kodali says the growth of rapid grocery delivery was fueled by generous shipping policies and shopper desperation. “The latter is already lower and these companies may not be able to sustain the former. These models make the most sense outside of the US, often in dense urban cities where the cost of labor is low and you can get delivery density. It’s just really hard to get the economics to favorability in the US or Europe.”
There is now a race to dominate the market while in its infancy, across a number of countries and continents. In the midst of this scrum is Weezy, a London-based service trying to carve its own niche in providing a stable of locally-produced goods within 15 minutes of ordering. It is ramping up its delivery network and investment in marketing as it tries to win market share in key UK cities.
“We are growing 10% week-on-week,” says Jim Burke, head of expansion at Weezy. “We will continue expanding at four to 10 sites per month for the remainder of the year, across the UK.” It declines to offer any data on user numbers.
Its demographic is “quite varying,” adds Burke. “What we see is that a lot of customers see themselves as foodies or want to live a healthy lifestyle, so gravitate toward our platform. We think of ourselves as being the go-to for service and products you want to eat on a daily basis instead of just crisps and alcohol.”
To build its customer base it has hired ad agency Hyperactive and opted to focus on local – pumping money into a series of experiential marketing events such as picnics and hosting parades, as well running football-themed activations during the Euros.
Elsewhere there is 18-month-old Berlin grocery delivery app Gorillas. It was valued at $1bn within nine months of launch and now finds itself being courted by US’s largest food delivery company DoorDash, which is reportedly looking to make a sizeable investment, if not a full takeover, as it tries to forge a presence in Europe.
Speaking to The Drum, Danny Barry, its UK brand manager, says consolidation “tends to be the natural evolution of categories like this”.
“Look at any category where there’s hypergrowth and new players – only a few will remain at the end of it,” he says.
But Gorillas wants to be one of the last standing. As with almost all tech companies, the strategy until now has been to scale as quickly as possible with little regard for profitability. Gorillas currently operates out of eight countries and in 46 different cities. However, its attention is now on the “business fundamentals,” says Barry.
“One of our focuses was about how to reach a big audience quickly, but equally now we’re making sure that we’re consolidating to operate in the right way and building strong fundamentals as a business. It’s easy to forget that we’re a year old, so [we’re] making sure we have the fundamentals that will keep us growing.”
A key fundamental will be understanding its user base. Barry says right now it is struggling to understand the core demographic. Purchase information suggests it is young professionals and students largely using the service, but increasingly time-poor families in search of convenience are turning to its app.
“We see traditional retailers as our competition. Ultimately our business can offer something drastically different to their existing way of shopping, so we’re changing people’s habit from being a big weekly shop to more mindful, smaller trips where they’re not wasting food and it’s more convenient. Our competitor set is the convenient versions of Tesco or Sainsbury’s.”
But the big four grocers don’t necessarily see Gorillas et al as their competition. Tim Steiner, chief executive of Ocado, was dismissive of their threat.
“You don’t think to yourself, I’m not going to do an order for 45 or 50 items this week – every time I need something, I’m going to go on an app, call it and let it arrive 10 minutes later and pay a 20- or 30-point premium for it,” he said earlier this year.
“That’s just not how people think. People do plan and people are quite happy planning most of their lives.”
Forrester’s Kodali agrees, saying that if rapid delivery brands are going to survive in the long run then they will need to mimic the full-service models of super apps including Grab, Go-Jek and even Amazon.
“To get to scale, they will need to offer what the current GoPuff or Getir offering is, plus restaurant delivery, plus full-line grocery or other store delivery (this being offered with slower service). That, by the way, is what Amazon already does – it has its Now service, Next Day, 2-Day and slow boat marketplace times – with different products offered for each, and different prices for each.”
As the race for market share slows and people’s lives – and shopping habits – return to normal, what does the future hold for these companies?
“Eventually we will see the few who come out on top doing extremely well, even as shopping habits return to somewhat ‘normal’ again,” explains Mark Allen, senior strategist at Landor & Fitch.
“Any innovations that streamline mundane tasks and free up space for meaningful leisure time will always be a strong proposition. If anything, we value our time now more than ever as the benefits of WFH and other flexible ways of working prompt us to revaluate how we live our lives. If we can get an hour a week back from grocery shopping, why wouldn’t we?
“With the shift to flexible working, people are moving out of dense city locations, causing the demand for convenience to become stronger and more complex. That said, rapid delivery grocery services can help support the gap – the future certainly looks promising.”
For more on the reinvention of retail, check out The Drum’s Retail hub, where we explore everything from livestreaming e-commerce to AR shopping and conscious consumerism.