Even before the pandemic, grocery shopping was ripe for disruption and q-commerce is here to stay, argues Edge by Ascential’s Xian Wang

The pressure on retail supply chains during the socially distant pandemic years proved fertile ground for exponential innovation. 

As is common in times of crisis, entrepreneurs and new business thinking shine – and in 2020, with the world stuck at home and desperately trying to order toilet paper and pasta from the website of their local supermarket, on-demand retail came to life.

A whole new sector emerged from the chaos and disruption of 2020 and 2021. Businesses like Uber Eats, DoorDash, Deliveroo, and Just Eat and Takeaway.com – which merged in 2020 – had been founded a few years before as app-based hot food service intermediaries. They spotted the growth opportunity in grocery and pivoted immediately.  

Uber eats delivery

Uber Eats was one of the companies that emerged from the chaos and disruption of 2020 and 2021 stronger

Their sophisticated networks of couriers meant they already had the infrastructure to support store-to-door “within the hour”.  

Then emerged a new crop of startups out of almost nowhere. With catchy names like Weezy, Dija, Gorillas and Getir, they promised to deliver household essentials between 10 and 15 minutes in certain urban areas – a groundbreaking concept. With interest rates at historic lows and the public equity markets unappealing, venture capital funds piled into these bets on post-pandemic shopping behaviour and the appeal of a new shopping experience outside the “weekly basket”.    

Analysis by Edge by Ascential shows this sector grew gross merchandise value (GMV) by more than 70% in 2020. Foodservice dominated, but retail quick commerce accounted for 20% of the total – more than double the previous year.  

 

 

Fast funding 

Getir

Ecommerce companies including Getir raked in more than $50bn in 2021

In 2021, retail tech funding surpassed $100bn (£79.56bn) for the first time ever, more than doubling 2020’s year-end totals, according to technology market intelligence company CB Insights. Ecommerce companies raked in more than $50bn, with grocery and food delivery specialists among some of the biggest equity deals – Xingsheng Selected secured $3bn, while Flink, Getir, Gorillas and Gopuff all brought in more than $1bn apiece. 

Many of these businesses didn’t exist prior to 2020. Germany’s Flink, which has just snapped up France’s answer to instant grocery delivery Cajoo for $93m, only came to market at the start of 2021.

Some of the original operators in this new and fast-moving sector have already exited the market, disappearing in acquisitions by bigger operators. Gopuff bought Dija and Fancy; Getir snapped up Weezy and Blok; Flink purchased Cajoo; and Uber snapped up US alcohol delivery service Drizly.      

But recently, some of the news out of this sector has prompted media reports that clouds may be gathering. In April, Europe’s Just Eat Takeaway said it would be exploring a sale of GrubHub, the US on-demand food platform it bought for $7bn (£5.57bn) less than a year ago. A few weeks later the firm announced the departure of its chairman Adriaan Nühn literally hours before its annual shareholder meeting, which was expected to be fiery.

Trading updates from listed companies Deliveroo and Uber earlier this year showed delivery orders are slowing and guidance for the coming year was not overly positive. Once again, the consumer environment has shifted almost as dramatically as it did when countries around the world were forced into lockdown. Economies are open again, but now households and businesses face prohibitive inflation pressures, the economic fallout of the war in Ukraine and the switching off of government Covid-19 support. 

Markets vs reality 

Deliveroo

Trading updates from Deliveroo earlier this year showed delivery orders are slowing

Certainly, investors have lost their appetite for quick commerce for now. The high-growth tech sector has taken a hammering on the equity markets this year and VC money is not as forthcoming. Not one of the heavily valued ultra-rapid grocery delivery startups is anywhere near turning a profit. Even most of the delivery intermediaries, which have been in operation for several years, are still loss-making.         

One operator, London-based Jiffy, said earlier this month that it will stop all consumer-facing operations and make a “major strategic pivot” to become a dedicated rapid delivery software company.

So was quick commerce in retail a fad? An opportunistic play for a specific and exceptional operating environment that will gradually fade out?

We think not. The pandemic changed the basic routines of our lives and smart entrepreneurs took advantage of new demands to create new expectations and ways of doing things. But even pre-pandemic, the grocery shop was ripe for disruption and innovation for a new era where millennials and Gen-Z demographics are quickly becoming the biggest demographics for supermarkets and retail chains, and the likes of Amazon have raised standards on last-mile solutions through Prime.          

Edge by Ascential forecasts show the global quick commerce market – including third-party intermediaries in foodservice and retail, and the ultra-rapid delivery operators that tend to fulfil orders from their own dark stores – will reach $1trn (£795bn) by 2026. 

That is almost double the value of 2022.

“Broad trends won’t change dramatically even with inflation headwinds and household price rises – remember that some quick purchases may be relatively price-inelastic”

Between 2021 and 2026, we expect a quick commerce compound annual growth rate (CAGR) of 19%, versus 11.2% for chain retail ecommerce and 4% for store-based retail. 

These broad trends won’t change dramatically even with inflation headwinds and household price rises. Remember that some quick commerce purchases — last-minute grocery purchases and over-the-counter medicine – may be relatively price-inelastic. 

Third-party intermediaries currently account for most quick commerce retail sales (87%), but the next five years will see the fastest growth come from the first-party “dark store” models – the likes of Getir, Gorillas, Gopuff and Flink. Major retail chains like Tesco and Morrisons are already recognising the benefits of these models – product ownership, automated fulfilment centres reducing cost and profit margins. 

Tesco entered into a “commercial and real estate partnership” with Gorillas last year, while Morrisons launched its first Deliveroo Hop dark store. It has also joined forces with US app-based grocery startup Gopuff in a ”multi-year” agreement that will see Gopuff own the end-to-end supply chain and Morrisons act as the wholesaler. 

Expect more consolidation, partnerships, and the rise and rise of automated micro-fulfilment centres. Not all the companies currently trying to take advantage of this market will survive 2022, but the sector as a whole is not going anywhere.