Since the start of the pandemic, the number of rapid delivery grocery startups has exploded. Who will win the race to corner this emerging market?

  • OcadoSainsbury’s and Tesco have launched services offering delivery in an hour. 
  • The keys are growing demand for fast delivery and dark store locations
  • it’s clear that the key battleground in this emerging market is London
  • Will it be be possible for all these businesses to survive in the mid- to long-term?

The pandemic has not only hugely accelerated the demand for online grocery delivery, it has increased demand for immediacy of delivery too. 

Established grocery names such as Ocado and Sainsbury’s had been tinkering around at the edges pre-pandemic with more immediate delivery services. As revealed by Retail Week, Tesco has also thrown its hat into the ring, launching Whoosh in Wolverhampton in May. All three services respectively offer delivery within an hour. 

Since the pandemic started that once more-than-respectable window has been rendered practically glacial. 

First came the rise of what Edge by Ascential calls ‘delivery intermediaries’ - the likes of takeaway delivery apps such as Deliveroo, Just Eat and Uber Eats, who partnered with major grocers promising delivery to customers within half an hour - with demand for this service kicking into high gear as lockdown as stay at home orders came into place last year.

Deliveroo in particular has been a leader in this market, having partnered with grocers including Sainsbury’s, Morrisons, Aldi, the Co-op, Iceland and Waitrose, as well as with other retailers in this space such as Greggs, Majestic Wines and Pret a Manger and also received a £450m investment from Amazon, which was greenlit last year.

Its successful pivot during the pandemic saw Deliveroo float on the London stock exchange in April, although its early trading struggled due to blowback from investors over its treatment of riders. 

The rapid growth of such businesses in this space led Edge to predict that the delivery intermediary market alone could be worth $226.7bn (£160bn) globally by 2025. 

Yet even these seemingly instantaneous delivery turnarounds have since been superseded again by the rise of a coterie of rapid delivery businesses, each promising delivery in 15 minutes or under. 

Keys are growing demand and dark store locations

Spurred on by a glut of private equity investment - Pitchbook data shows that £7.4bn of private investment money has been plunged into this emerging sector since the start of the pandemic - growing customer demand for ever more immediate delivery and a retail property market awash with suitable urban dark store locations at low prices, these startups have mushroomed.

“This market has become pretty crowded, almost overnight,” says Kantar head of retail and consumer insight Fraser McKevitt. “The problem they’ve all got to overcome is that it’s relatively expensive to pick and deliver low margin groceries”.

So who are the players vying for share in this market, and is there enough room for all of them to get a slice of the rapid delivery pie?

Same but different 

There are currently seven such businesses operating in the UK: Getir, Gorillas, Fancy, Weezy, Dija, Zapp and Jiffy.

All these businesses promise to deliver groceries in under 30 minutes, quicker than their intermediary competitors. Also, unlike Deliveroo, Just Eat and Uber, riders for these businesses also pick and pack the groceries themselves rather than simply delivering the products for a third party grocer. 

Plotting the points in the UK where these businesses are operating at the moment, it’s clear that the key battleground in this emerging market is London, with all the operators bar Fancy ploughing money into acquiring new dark stores and customers in the capital.

While the need to acquire new customers has confined the majority of launches to the capital, four of the companies are already looking beyond London’s bright lights. Weezy, for example, has grand plans to open 90 distribution centres in 20 UK cities by the end of the year.

Fancy, co-founded by Arnie Englander and Jack Wilson in January 2020, is unique in that it launched outside of London, having targeted more regional cities such as Newcastle, Liverpool and Birmingham since its inception. 

The likes of Gorillas and Dija, meanwhile, have cast their eyes even further afield. Already live in Germany, the UK, France, the Netherlands and Italy, Gorillas wants to be available in 15 cities across Europe with 60 distirbution centres by the end of the year. Dija meawhile has unveiled plans to launch in Spain this year.

They are all smartphone apps and deliver from urban dark stores using riders - either on scooters or bicycles. Unlike their intermediary competitors, these on-demand businesses in the main also employ their staff on contracts, not as gig workers.  

While all follow the same basic model, they differ in fulfilment methods, product ranges and seek to fulfil different customer missions. 

Weezy delivery rider outside a row of houses

Weezy founders Alec Dent and Kristof Van Beveren source product ranges from local suppliers. Zapp meanwhile delivers 24/7, and focuses on what vice president of strategy Steve O’Hear calls “impulse purchases and urgent need use-cases”. 

Despite these differentiations, Edge by Ascential research director Rob Gregory believes the market is already overcrowded with entrants, even taking into account the surge in only grocery delivery during the pandemic. 

“It’s quite clear that there will be consolidation in this section of the market,” he says. 

Retail Week research director Lisa Byfield-Green agrees: “It won’t be possible for all these businesses to survive in the mid- to long-term, and we will see acquisitions and consolidation in the market over time.”

One source at an on-demand grocer agrees, adding: “It’s a pretty familiar venture capital-backed scenario. You start out with many, and it will reduce down through M&A. It’s definitely oversaturated at the minute”. 

Some M&A activity has already taken place in the market, with US firm goPuff snapping up Fancy in May of this year. 

Jiffy founding member Dominique Locher however believes there’s more than enough room in the market for multiple rapid delivery grocers. 

The entrepreneur and investor, who founded Switzerland’s first online grocery retailer LeShop in 2000, says the home delivery market both in the UK and the rest of Europe is only at the beginning of its growth journey. 

Online shopping

“We launched Jiffy in the UK because it’s the most mature grocery home delivery market in Europe,” he says. “It was pre-Covid and Covid has only accelerated it.

“The European grocery market, including the UK, is forecast to be worth something like €2trn by 2025. If ecommerce grocery sales are 20% of that, it’s a €600bn market. If on-demand grocers can pick up 40% or 50% of that market again, you’re looking at €300bn. That’s a lot of money to go around”. 

Oversupply and demand

The potentially multi-billion pound question is whether or not customers continue to shop for food online the way they did during lockdown as restrictions continue to unwind heading into summer. 

online shopping

While stakeholders such as Locher and private equity investors more generally are betting big on the behaviour continuing, the data suggests otherwise. 

The most recent IMRG Capgemini Retail Index showed online sales recorded their biggest drop in volume ever last month, 9.1% year-on-year in May 2021, a stark decrease from 61% growth reported for the same period last year.

In grocery, the last three months worth of Kantar sales data has also shown online sales dipping and noted growing numbers of fully-vaccinated customers, particularly those in older age brackets, returning to supermarkets. 

“Online grocery sales are still up year-on-year, but we’re starting to see behaviour normalise,” says Kantar’s McKevitt. “On-demand grocery remains a relatively small part of the overall online grocery market. “At the moment, we see less than 5% of online grocery shoppers doing rapid delivery shopping at the moment.”

Some customers getting ‘addicted’ to rapid grocery deliveries

Jiffy’s Locher, who also has advisory roles with grocery ecommerce businesses in Russia and Turkey, says rapid delivery customers shop more frequently than other online grocery shoppers. 

“I’ve found that the service is extremely addictive [for customers]. We’ve seen in other countries 60% of customers ordering four or more times a month. One out of four customers orders eight times or more a month. This is a behavioural change.”

The startups are protective of their financials, focused instead on “selling investors the growth story”, as one put it. Gopuff claims to be profitable in every US city it has operated in for more than 18 months, while Getir said in January to have grown its revenue five-fold in 2020.

Ocado chief executive Tim Steiner says the only way these companies can hope to turn a profit is to increase delivery prices, which will drive off customers. 

“These services are the ecommerce equivalent of a corner shop in terms of range and pricing. They need significantly higher prices, and significantly smaller ranges [than supermarkets] to have any long term sustainability,” he says.

“Whilst there is an interesting market for a 10 or 15 minute service, there’s not often a consumer need where it’s really worthwhile spending an extra £10 on delivery rather than £2.50 because it takes 15 minutes less to get your products”. 

On your bikes 

While Steiner is dubious about the sustainability of the rapid delivery market, he and other established grocery players have taken notice. 

Ocado’s goal of opening 12 Zoom sites, predominantly in London, took a hit recently when the High Court upheld Islington Council’s ban on its Tufnell Park site

Sainsbury’s has expanded its bicycle-powered Chop Chop service to 15 cities around the UK. Chief executive Simon Roberts says the on-demand service, combined with the grocer’s partnership with Deliveroo and Uber Eats, is worth around £50m a year in sales to Sainsbury’s. 

Sainsburys Chop Chop delivery riders

The most recent established grocer to make a move in this space is Tesco. The UK’s largest retailer launched its Whoosh on-demand service in Wolverhampton in March. 

While the grocery giant is keeping its cards close to its chest, Tesco online managing director Chris Poad says “customers are telling us that they would welcome the addition of a 60-minute delivery to their door option as part of our online grocery service”.

By contrast, Waitrose discontinued its two-hour Rapid service earlier in the year, in favour of focusing on its partnership with Deliveroo. “The two services were operating in the same market with lots of overlap,” says a spokesman. 

“Through Deliveroo our customers can order our food for delivery in as little as 20 minutes, and we are also able to grow the service much faster than Rapid, to reach more customers in more areas.”

Edge’s Gregory says many established grocers are still “a bit cautious” about the razor-thin margins associated with on-demand grocery fulfilment. “Down the line I could see some of the grocers looking to acquire an existing brand within this channel.”

“You don’t build something because you want to make money. That’s the wrong way to go about it.”

Is that the end goal then for many of the entrepreneurs behind these new businesses? “As an entrepreneur, you build something because there’s a gap in the market and you’re passionate about it,” says Locher. ”You don’t build something because you want to make money one day. That’s really the wrong way to go about it.” High-minded, entrepreneurial thinking aside, all companies are racing to acquire customers in a bid to make their models profitable and analysts warn that the market could already be becoming oversaturated. 

For Byfield-Green, the ultimate winners in this market will be “those businesses with the largest investment and first-mover advantage” which would point to the on-demand unicorns Getir and Gorillas with the deep pockets to acquire the number of new customers required to operate profitably.

While not all will survive, the emergence of these on-demand businesses represents another profound shift for food retail in a year full of change. With the starting pistol on the rapid-delivery grocery race having been fired, supermarkets are already deciding whether they want to lace up their shoes or back a runner from the sidelines.