On-demand grocery delivery: is this the next retail revolution?



If you live in a city in the UK, you’ll have grown used to seeing Uber Eats and Deliveroo riders weaving through traffic delivering hot meals to customers at home. Online delivery, in all its forms, has boomed over the last year or so as Covid-19 encouraged people to stay home and wait for their meals, supermarket shopping, and new clothes purchases to come to them.

Perhaps a natural extension of this trend, on-demand grocery delivery startups, which promise to deliver food and household essentials in 20 minutes or less, have exploded in the UK and around the world. In central London, the ubiquitous Uber Eats and Deliveroo backpacks have been joined by those sporting logos from Getir, Gorillas, Jiffy, Weezy and Zapp – just a few of the businesses racing to win their piece of the £2 trillion European grocery sector.

But how do these startups operate, who is using them, and what does their success mean for the future of the retail sector?

Just as Uber did for taxis and Netflix did for films, these apps are providing groceries on demand. For a £1.99 delivery fee, Getir can deliver more than 1,500 different products (“from detergent to dog food, crisps to condoms, phone chargers to formula milk”, according to its website) in just ten minutes.

Differentiating Getir and Gorillas from supermarkets’ own online delivery capabilities is a network of ‘dark stores’ or fulfilment centres. These warehouses stock no more than a few thousand items, and are often targeted to the local area and supplemented with products from local producers, bakers and retailers. As a result, and unlike your average supermarket delivery, orders arrive quickly and rarely include substitutions.

Getir was founded in 2015 and was recently valued at $7.5bn. Image credit: Getir.

It is easy to see the appeal. Customers range from young professionals who don’t plan their weekly meals to busy parents who can’t fit in a trip to the supermarket. The model also encourages a ‘buy just what you need’ mentality, favoured by those looking to eat more sustainably and avoid food waste. For disabled customers, as well as anyone who finds shopping to be an arduous experience, these startups provide a welcome alternative.

“The current customer demographic is aged 19 to 35,” said one C-suite executive from a leading on-demand grocery company when I sat down with him last week. “It’s busy innovators who are time-poor.” Initially, he tells me, orders consisted of snacks and beers booked in by young people looking to avoid a trip to the shop. “But as time’s gone on, we’re seeing young, busy families ordering food for entire meals.” Indeed, most of the apps operating in London have a ‘recipe of the week’ highlight on their landing page, encouraging the purchase of ingredients for whole meals, rather than one-off snacks. Looking ahead, he says, there’s scope to innovate away from scrolling through an app, giving customers the opportunity to voice-record their order (for instance, while driving) and have it arrive for when they get home.

On-demand grocery startups operate using a network of dark stores. Image credit: Gorillas.

While it is tempting to see the sudden demand for lighting-speed grocery delivery as a knee-jerk reaction to the pandemic (many of the startups have been established in the last eighteen months), investors are betting on the longevity of the sector. Getir, a Turkish startup founded in 2015, recently achieved a significant $7.5bn valuation, and Germany-based Gorillas has raised $44m in Series A funding to continue its international expansion. According to PitchBook data, investors have ploughed nearly $14bn into on-demand grocery delivery services globally since the beginning of the pandemic. And it’s not slowing down; by April of this year, venture capital investment in the sector had already surpassed 2020 levels.

“According to PitchBook data, investors have ploughed nearly $14bn into on-demand grocery delivery services globally since the beginning of the pandemic. And it’s not slowing down; by April of this year, venture capital investment in the sector had already surpassed 2020 levels.”

Alongside these new startups, established players are joining the fray. During the pandemic, Uber Eats and Deliveroo expanded their grocery offering, and just last week Uber Eats announced plans to more than double its grocery delivery presence in US cities. Unsurprisingly, Amazon is making a play: alongside its move into physical retail, its grocery delivery service Amazon Fresh is scaling up, and the tech giant is exploring options to build more warehouses with different temperature zones to facilitate fresh, frozen and ambient food delivery. Traditional supermarkets are also paying attention: there’s Tesco Whoosh, Sainsbury’s Chop Chop, Asda Express Delivery and Ocado Zoom. Morrisons, by contrast, has taken an alternative route, opting to partner with Deliveroo rather than roll out its own on-demand delivery service.

Uber Eats is doubling its grocery delivery capacity in US cities.

Indeed, for convenience retailers and independent corner shops, collaborating with rapid grocery companies may be a necessary step to avoid losing market share. Ken Towle, CEO at Nisa, expanded on this point, telling me that “until recently, convenience had largely left delivery to the Big Four and Ocado. Now, they’ve realised that they can get back in again through partnerships with the likes of Snappy Shopper and Deliveroo. The partnership approach presents fewer risks.”

“It’s an incredibly crowded market in the UK, with at least seven players scrambling for market share and taking part in a land-grab for fulfilment centres in major cities.”

Like most high-growth tech businesses of the last decade, on-demand grocery startups are adopting an ‘expand now, profit later’ approach. It’s an incredibly crowded market in the UK, with at least seven players scrambling for market share and taking part in a land-grab for fulfilment centres in major cities. Ted Bell, former MD at Abel & Cole and current Chief Executive at Freddie’s Flowers, suggests that one of the key differentiators will be who can effectively evolve the economic model: “the biggest question mark for me is the financial structure,” he told me. “Who is bearing the true cost of ten-minute delivery at the moment? If it’s not the customer, then when will it be? And will the customer still want it when delivery fees are increased?”

“There is no doubt that this is the next retail revolution, and every company operating in the sector needs to pay attention.”

There is no doubt that this is the next retail revolution, and every company operating in the sector needs to pay attention. For supermarkets, these models provide yet more tough competition, and leaders must innovate to keep up while also giving customers reasons to shop in-store. Smaller-format stores and local corner shops will also have to work hard to not be displaced by rapid grocery apps. Existing delivery apps, from restaurant food delivery to those that offer specialist produce, may need to adapt their strategies.

When it comes to the startups themselves, Ken Towle concluded that “the customers will be judge and jury on this. They will determine the demand, but the question remains: who will come in with the supply?” I agree with Ken. There clearly is not enough room for all the current contenders, and it will be intriguing to see how both the model and market evolves, and which players ultimately come out on top. If you’re in the retail space, or a regular user of these apps – what are your views? I’d love to hear from you.

aelf.hewitson@thembsgroup.co.uk | @TheMBSGroup