The Retailer Autumn Edition 2021

THE RE TA I L ER

1 0

ON-DEMAND GROCERY: IS THIS THE NEXT RETAIL REVOLUTION?

Elliott Goldstein Managing Partner The MBS Group

Aelf Hewitson Associate Consultant, Retail Practice The MBS Group

L ightning-speed grocery delivery has taken off around the world, and retailers must pay attention or risk being left behind, On-demand grocery delivery startups, which promise to deliver food and household essen- tials in 20 minutes or less, have exploded in the UK and around the world. In London, the ubiquitous Uber Eats and Deliveroo backpacks have been joined by those sporting logos from Getir, Gorillas, Jiffy, Weezy and Zapp – just a fewof the businesses racing towin their piece of the £2 trillion European grocery sector. While it is tempting to see the sudden demand for lighting-speed grocery delivery as a knee- jerk reaction to the pandemic, it is our belief that these startups represent permanent additions to the retail sector. Retailers must pay attention – to the new competition, new opportunities, and new customer expectations – or risk losing out to more forward-thinking competitors. It is easy to see the wide appeal of on-demand grocery: customers range from young pro- fessionals 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. Investors are betting on the longevity of the sector, and the cus- tomer demographic will broaden and deepen.” ‘‘

“The current customer demographic is aged 19 to 35,” said one C-suite executive from a leading on-demand grocery company. “It’s busy innovators who are time-poor.” Initially, he commented, 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 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 driv- ing) and have it arrive for when they get home. As the customer demographic broadens, inves- tors are betting on the longevity of the sector. Gopuff, which was set up in 2013, raised a further $1bn in July from Japan’s SoftBank and investment giant Blackstone at a $15bn valuation. After tripling its valuation to $7.5bn in June, Turkish startup Getir recently topped up its funds by another $150m, bringing total funding this year to more than $1.1bn. We’re also seeingM&Aactivity: Gopuff acquired rival Dija just eight months after it was founded, and in France, Carrefour has recently taken a stake in Cajoo. Understandably, some critics are warning that on-demand grocery delivery is a bubble about to burst. Likemost high-growth tech businesses of the last decade, on-demand grocery start- ups are adopting an ‘expand now, profit later’ approach. Renting ‘dark stores’, paying riders a fair wage and marketing to new customers is a costly business, and it remains to be seen whether users will be as keen to spend with these startups if delivery fees are increased. It is also an incredibly crowded market, with at least ten players scrambling for market share in the UK and taking part in a land-grab for fulfilment centres in major cities. As time goes on itwill be interesting to seewhich organisations emerge victorious andwhich fail to stand out from the crowd. Considered lead- ership teams will be crucial. Startups should aim to balance the digital expertise required

to build a slick platform with the retail expe - rience needed to disrupt the sector and truly know their customer. Moreover, as businesses grow they will need strong people leadership to manage their communities of drivers – a hugely difficult HR challenge in today’s com - petitive hiring environment (unlike Deliveroo or UberEats, most of these new grocery delivery startups have hired their drivers directly). There’s no doubt that this is the next retail revolution, and every company in the sector needs to pay attention. For supermarkets, these models provide yet more tough competition, and leaders must innovate to keep upwhile also giving customers reasons to shop in-store. Most grocers have already joined the fray: there’s TescoWhoosh, Sainsbury’s Chop Chop, Asda Express Delivery and Ocado Zoom. Morrisons has taken an alter- native route, opting to partner with Deliveroo rather than roll out its own on-demand delivery service. Amazon is also making a play: along - side 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. However, smaller-format stores and independ- ent local corner shops will also have to work hard to not be displaced by rapid grocery apps. In fact, independents may end up being hit hardest as they simply don’t have the resources or experience to competewith these newplay- ers – although partnering with apps such as SnappyShopper is working well for some. Existing delivery apps, from restaurant food delivery to those that offer specialist pro - duce, may also need to adapt their strategies. Deliveroo has already taken the plunge, launch- ing Deliveroo Hopwhich meets its competitors’ promise of 10-minute groceries. While the market will certainly not be this crowded forever, the customer appetite for ultimate convenience and lighting-speed deliv - ery isn’t going away – and all retailers must get involved or risk being left behind.