The rapid grocery delivery sector came to fruition during the pandemic, when traditional bricks-and-mortar grocers couldn’t keep up with the delivery demand which had climbed as Covid-19 swept through the world.
The concept of ordering and receiving goods in under an hour was around pre-pandemic, however the sheer lack of delivery spots offered by the sector giants helped usher in a new type of start-up.
Rapid grocery delivery firms such as Gorillas, Zapp, Getir and Jiffy all started offering delivery in under 20 minutes through networks of dark stores, dotted across the UK.
However, fast-forward to just two years later and the model has started to attract criticism for being notoriously unprofitable. Ex-Jiffy head of delivery operations and q-commerce expert Quaid Combstock revealed to Charged last month 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,” he said.
“I think people are well aware that you can’t just keep throwing money at something to try and make the proposition work.”
So with the headwinds the sector is now facing including rising inflation, a waning customer demand and increasing overheads, what is the best way for quick commerce companies to survive in the current climate?
Reduce retail footprint
Combstock believes that one of the main issues for quick commerce firms at the moment are the heavy overheads weighing down on profit.
“What I would try to do is merge with big shopping chains, which is what Gorillas have strategically done quite well in the last year with Tesco. They’ve also done it well over in Holland with Jumbo.
“I think it’s very wise decision, because these shops already have retail space, you’re not acquiring new retail units within the area, and you’re just taking rental of a subsection.”
Combstock used the Sainsbury’s and Argos merger as an example.
“A lot of standalone Argos shops are closing down and reopening inside Sainsbury’s branches. The space is already there, which means they’re not spending any more on rent.
“Each warehouse in London costs between on average anywhere between about £50,000 to £200,000 a year and most q-commerce players have about 20-25 stores each. So by reducing these costs businesses are looking at anywhere between about £1.5 – £2.5 million a year in rental savings alone.”
Identify loss-making postcodes
Most q-commerce firms operate within strategically selected postcodes where they will be able to promise delivery within a certain time period. Growth Kitchen’s Máté Kun believes that firms must also identify non-profitable locations in order to weather the storm.
“Currently we’re seeing restaurants managing costs through shutting down non-profitable locations, staying on top of operations, using all available resources to the best of their abilities and trying to lock in utility prices for the next year or two,” he tells Charged.
“They need to be savvy with resources, such as identifying which postcodes are still driving sales.”
Expanding into these locations through brick-and-mortar sites can be too expensive, which is why satellite kitchen hubs will prove a valuable choice for delivery businesses.
“We’ve noticed that the brands we work with have much better margins, making them more resilient,” he continues.
“They operate smarter than others – using technology and scale to optimise their operations throughout the value chain.”
Cut back on labour costs
Many quick-commerce players use gig economy riders to save on costs. However, even with the gig economy model and the nature of the work, it’s a sure-fire way of haemorrhaging capital.
“The largest cost factor in quick commerce is human labour,” says Combstock.
“How much does it cost the rider to actually deliver to the consumer, which probably represents about 70% of the overall cost?”
He says businesses need to look at ways of using drones or robots – perhaps moving away from a 10 or 20-minute window to half an hour or so. It is still more than doable, but sending autonomous vehicles or robots out removes the requirement for human labour, substantially reducing the cost.
Halt marketing vouchers strategy
A common strategy used by quick commerce players is to hand out vouchers and discounts to customers who have not visited the app for a while. Many offer reductions when customers reach a minimum send on the app.
However, the problem being with this is while it may work in retaining a small amount of business, there is an expectation of receiving vouchers which means that customers are reluctant to use the app when they do not have a promotional code to use.
This can lead to large losses. For example, a £40 order with a £20 sales promotion and a rider fee of £12 means that company is making a big loss on the order.
“One thing I don’t think is needed as much these days is for q-commerce firms to stop paying marketing on giving people vouchers. Everyone knows them now, there’s no advantage to it. If people don’t want to order anymore, don’t let them order,” Combstock added.
There’s no point giving them money to spend if they’re never going to convert into a customer. If they are not converted by now, they’re not going to.”
Increase delivery time
While increasing the amount of time between placing the order and getting it to the customer may seem contradictory to the ecommerce model as a whole, quick commerce is different. Combstock argues that customers do not need – nor particularly want – 10 to 20-minute deliveries.
“I don’t think most people care whether they get their deliveries in 20 minutes or 60,” he said.
“There will always be some use case where people do need items right here and now and there’ll always be people willing to pay for it. But if people want their order in 10 to 20 minutes, offer it to them by all means, but charge them an arm and a leg.”
Combstock says people need to be realistic and charge a premium rate which reflects the costs incurred on the very quick deliveries if they choose to offer that service.
Combstock believes that if customers are offered slightly longer delivery times of 40-60 minutes, then there are more options for grouping orders together.
“If you then start offering 40 to 60-minute deliveries, you can offer still a low delivery fee, but you’ve got more options of putting orders together, using drivers more efficiently and keeping costs down,” he explained.
“I would argue this whole 10 to 20-minute delivery promise was a lot more of a PR pitch than a cultural revolution. It was never meant to be the future of ecommerce, it was never going to be cost-effective enough.”
Whether the sector will still be facing the same problems in the next 12 months or so is unclear, however what is clear to see is that there will be fewer players on the scene dealing with them.
We can expect to see further consolidation in the sector as the firms which weather the storm swallow up the smaller, less-equipped rivals.
As Kun says: “Those that survive the crisis will thrive when we come out the other side of it.”