Opinion: Why the current Q-commerce model isn’t sustainable

Quick commerce – or q-commerce for short – has been heralded as the next generation of ecommerce; a pioneering evolution of delivery services that results in the superfast delivery of grocery products to your front door within 30 minutes or less.

The market has boomed during the pandemic, with names like Gorillas, Getir and Zapp transforming consumer habits to the extent that they now expect this type of hyper convenience at their fingertips.

However, with the last remaining Covid restrictions now lifted and many of us returning to our normal habits, the question is how can these firms sustain this unprecedented lockdown growth? And can the current model reach the scale it requires to pull the revenue and cost levers?

READ MORE: Tesco to expand Whoosh delivery service to 600 stores

The Q-commerce challenge

There are several structural challenges facing these platforms. Firstly, the current ‘direct-to-consumer’ business model involves high levels of variable costs, such as driver wages and the wholesale cost of the food itself. This makes achieving efficiency via economies of scale and so lowering costs no easy feat.

Secondly, the UK market already has several established grocers. Such incumbents have decades of experience and scale built-in to make their operations as efficient as possible and enjoy significant trust and brand loyalty with consumers. Many of the UK’s supermarkets have already tested the waters in q-commerce, such as Sainsbury’s ‘Chop Chop’ or Tesco’s ‘Whoosh’ superfast services.

Q-commerce businesses will have to evolve to overcome these hurdles. While this will be challenging, it won’t be impossible and there are several avenues the firms could choose to explore.

READ MORE: Aldi ditches Deliveroo: have shoppers had enough of rapid grocery delivery?

The evolution of Q-commerce

One area of focus should be increasing revenue. Firms could stagger an increase in the rider fee, as we have seen with Uber and Deliveroo. However, this would require a higher degree of market consolidation, as customers would choose to jump ship to another app offering cheaper rides.

We are already seeing evidence of M&A activity in the market, with GoPuff acquiring Dija and Fancy last summer, and Getir acquiring Weezy late last year. Firms must continue to look to consolidate their position within the market in order to unlock this opportunity.

In a similar vein, q-commerce firms need to work towards increasing the average amount that a consumer spends on its app in a single transaction. Currently, customers spend on average £20 per order on a q-commerce app; though driving this up this may mean that quick-commerce is not so quick.

Bigger baskets don’t just take the customer longer to order, but for couriers to collect the items. Thinking about pricing could drive significant improvement in unit economics while minimising the impact on operations.

The challenge here is understanding exactly how much of a premium customers are willing to pay for ultra-convenience in the long term.

To cut costs further, q-commerce platforms could look at increasing efficiency, either through in-store picking or – more likely – driver efficiency.

READ MORE: Gorillas celebrates 16 million orders worldwide

A new Q-commerce model

Alternatively, while time-consuming, companies could consider overhauling the courier model or redesigning their apps. This could pay off long-term, but many of the gains are hard to achieve without fundamentally changing the proposition.

Another option would be to improve their wholesale margin via partnerships with grocery businesses, direct relationships with key suppliers and more private label products. Some partnerships have started to appear in the wider food delivery space, with a number of supermarkets partnering with apps like Just Eat, Uber Eats and Deliveroo.

Delivery company Gorillas and Tesco teamed up for a pilot scheme last year to test out 10-minute deliveries, but compared to the well-established household operators, younger firms currently do not have the scale to offer partners yet.

However, if firms can remain patient and consolidate their position in the market, this would become a real opportunity.

One tactic deployed by these businesses so far has been regular discounts and promotions, which is likely to have been a huge factor in driving their initial growth. These discounts are great at getting customers through the virtual door, but firms would need to reign in such discounts in the long-term. Though beneficial to their bottom line, apps risk losing out to their competitors on sign-ups.

Nevertheless, focusing their efforts on delivery time, stock availability, and maintaining the freshness of products will be the key to longer term brand loyalty.

READ MORE: Gophr partners with Metapack to enhance same day delivery for online retailers

The future of Q-commmerce

The long-term prospects of q-commerce businesses remain to be seen. For it to continue, customers would have to prioritise the immediacy of their delivery over all other considerations.

At the same time, companies would have to become exceptional micro-fulfilment logistics businesses, which deliver on time to preserve customer loyalty. Rapid grocery delivery company Jiffy announced its plans to stop all consumer-facing operations just this week, as it makes a “major strategic pivot” to become a dedicated rapid delivery software company.

While this all sounds challenging, it is certainly possible for q-commerce firms to continue. The news that Zapp has secured $200 million funding to beef up its presence in the UK suggests that the appetite for q-commerce within the market is still there.

However, if q-commerce firms want to thrive long-term, they’ll require savvy business decisions and patience. And it won’t be easy.

Matt Jeffers is a managing director in Accenture’s UK retail strategy and consulting practice.

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