Gone in a Jiffy: Why the quick commerce grocery sector is destined to collapse

Most people have heard of at least one rapid grocery delivery firm. By the end of 2020, these companies had taken the grocery sector by storm, pulling in over $1.1 billion in revenue.

These fledgling players, which include Getir, Gorillas, Zapp and Jiffy, saw the gaping hole that had been left by pandemic restrictions on bricks-and-mortar retail.

They set up shop in a series of ‘dark stores’, small warehouse spaces which serve as delivery hubs for app orders and are closed off to the public.

The model was hugely successful to begin with, providing consumers with fast alternatives to masking up and heading to their closest grocery store or battling with others to claim a delivery slot at one of the country’s largest supermarkets.

Many of these including Tesco and Sainsbury’s struggled to fulfil the vast number of orders that were being submitted in time, prompting consumers to look towards the small number of quick-commerce startups that were starting to take a foothold in the sector.

By the end of 2021, rapid delivery annual revenue had reached $4.7 billion and the main players had been established. However, the traditional grocery sector expanded their logistics networks to claim back gains it had lost to the q-commerce sector. After the industry stabilised and shoppers returned to their usual grocers, the q-commerce players started to fight each other for smaller shares of the market.

This has turned out to be a disaster for some of the less-well funded startups, including Weezy, which was bought out by market leader Getir in November 2021. A number of others have collapsed in on themselves after struggling to turn a profit in a hotly contested market.

Ex-Jiffy head of delivery operations and q-commerce expert Quaid Combstock revealed to Charged why he believes the quick-commerce sector will not and shouldn’t exist within the next 12 months in its current iteration.

“I think that the market’s very well aware that it’s not financially stable anymore. I think people are well aware that you can’t just keep throwing money at something to try and make the proposition work,” he said.

“The biggest concept of last year was that [q-commerce startups] were trying to create a cultural shift and cultural revolution in making consumers more aware that on-demand delivery was a thing.

“If you can get your groceries in 10-15 minutes, imagine what you could buy from Amazon and other ecommerce providers in that time. I think the long term goal of q-commerce wasn’t to be limited to grocery providers, but rather to the wider ecommerce proposition.”

Combstock pointed out that the industry has taken the concept of ultra-fast delivery and made it possible, however the longevity of the sector just does not exist.

“We all know that the concept works. It’s been proven, everyone’s aware of it. The downside, I think, is that it’s not financially stable.”

He compared the concept of q-commerce to the Concorde and said that “you could get to New York substantially quicker on the Concorde than you can do today. So we’ve proven you can get to New York a lot quicker, but the reality is, it’s just not cost efficient to do. So eventually, it burns out and stops. And I think that’s what’s happening here in q-commerce.”

“You can move things very, very quickly. And if you’re willing to pay for that it’s doable. However, the reality is the average consumer is not willing to pay the money to get the items in 10 to 20 minutes. And even if they are willing and have got the money to spend, I think a lot of them don’t recognise the need to get in 10 to 20 minutes versus the traditional 40 to 60 minute you would get with Deliveroo.”

On the financials, Combstock said: “If you think about what the average rider cost in London is, £12 to £16, and then you think, okay, it’s going to take you 15 minutes to get to a customer’s location and 15 minutes to get back, that’s half an hour.”

“So a rider gets paid £12 an hour, the rider labour alone is £6. And that’s before you add on the cost of purchase the items, the warehousing, stock, lack of utilisation, marketing, tech, any of those other stuff, which overheads probably account for additional 30%.”

He explained why the model works for takeaway delivery firms like Just Eat and Deliveroo, but not for q-commerce startups such as Jiffy or Gorillas.

“Theoretically, this works for takeaway companies like Deliveroo, largely because they charge the restaurants and 30% margin. And that’s where they make their money.”

“But you have to think that grocery goods have got such small margins, like milk is a loss leader as well lots of things like cereal, bread, etc.

“You’re talking about being a loss leader, you’re talking about making up to between one to 5% in profit, but you’re talking marginal amounts of money. So you’re not getting that 30% back like you would in the takeaway industry.

“So if you’re not charging the customer enough to cover the ride the delivery costs, ultimately, there’s no way that you can ever claim that money back.”

Combstock explained how funding in the industry has been drastically pulled back when compared to the early stages of the pandemic.

“You’ll probably find that q-commerce players today are receiving 30% less orders than they did this time last year. The reality is a lot of this was induced through marketing campaigns funded by VCs, which they’re not doing anymore. So people aren’t spending the money anymore.”

“In short I think that q-commerce can still be a thing, but it’ll just require so much change that what we know of providers today, they won’t be able to reflect that.”

In May, Jiffy announced it will stop all consumer-facing operations this week, as it made a “major strategic pivot” to become a dedicated rapid delivery software company, providing solutions for brands to offer sub-15 minute delivery of their products or services via their own direct-to-consumer website, however using Jiffy’s ordering system and fulfilment network.

The company said at the time of the announcement that click & collect operations from its network of dark stores would continue “for the coming week or so,” with deliveries ceasing even sooner.

Combstock told Charged he was less than impressed with the company’s “strategic pivot”.

“You got to ask yourself, what market gap are they filling? The reality is Jiffy has not been around a long enough to spend enough time on the tech development to make it an efficient product that people want to buy,” he pointed out.

“Jiffy is only just over a year old, you’ve got other companies out there who are two, three, four, five years old with the same tech.

“I’m not aware of any one in the industry looking for a product like this”.

As the grocery delivery industry slims down, the remaining startups are finding inventive ways of staying relevant. For example, Gorillas has launched both a record label and opened up one of its dark stores in Hampstead to serve coffee.

Combstock laughed at the announcements, referring to them as nothing more than marketing ploys.

“I’ve had this question quite a few times, ‘what do you think of companies who are opening up dark stores to up customers?’ and I think the simple answer is it is quite laughable. It’s even borderline idiotic, because it’s not new,” he explained.

“You can get up and you can go to a shop and you can walk in right now. It was  there last year. It was 100 years ago. It was like 500 years ago, shops you can walk in. It’s nothing more than someone who’s rebranded something that has been around for centuries.”

“The moment a customer walks in a dark store is no longer a dark store. It’s as simple as that. You can rephrase it all you like but it’s laughable because it’s not then a dark store, which negates the entire thing.”

On the q-commerce industry as a whole, Combstock believes it does not have the longevity nor stability to last on its own.

“I think the biggest thing here is I don’t think grocery key commerce deserves to be an industry in its own right, which they’re trying to become or they were trying to be in the last year. So in my mind, there’s no logical opening up a Gorilla’s app and buying groceries, it makes a lot more sense to go to your Uber Eats, Deliveroo or Just Eat where you can get food takeaway and groceries and it’s all under one proposition.”

When asked about which companies he expected to still be operating in a year’s time, Combstock didn’t place much faith in the current market leaders.

“I think none of the key commerce players that you and I know today. I think the service that is going to overtake them will be Deliveroo Hop. And I think that’s because they can share infrastructure with other clients.”

“So they’re already worked from the likes of JD Sports, so they can then outsourced that warehouse space to those other companies and make money on those are charging £15 a delivery. That is a cost efficient delivery cost or an on demand service, not two, three quid. £15 that’s effective.”

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1 Comment. Leave new

  • It seems that the only person to whom this was obvious, was me. A seriously flawed business model from the outset.

    Reply

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