In the early days of the pandemic, I returned home to the US and was struck by how bustling grocery stores were with uniformed, on-the-clock workers.
But the most visible and busy workers were not employees of the store –– they were the green-glad army of Instacart shoppers, deftly wheeling carts from aisle to aisle while glued to their app.
2020 was beyond a blockbuster year for grocery delivery apps. Instacart achieved 3 years of projected growth –– in 3 months, with 500% year over year growth. The segment rapidly moved from a luxury service, akin to pick-up dry cleaning or household cleaning services, to a bedrock food distribution channel.
At its heart, grocery delivery is still an inefficient, luxury business, built on the idea that a customer would rather pay somebody else to do their shopping for them. The professional shopper does the exact same thing the customer would do (only faster): walks through the whole store, puts the items in their cart, checks out, delivers them to the customer.
Grocery stores, however, aren’t designed for the professional shopper. Promotional displays shout out to the consumer, with many staple ingredients far away from the entry to encourage the shopper to meander past thousands of products. A customer who orders in advance is not subject to the spur-of-the-moment pressures to grab a candy bar or pack of gum –– and the presence of such items is waste for the professional shopper.
In a low-margin industry, all of this is waste for the professional shopper. We are in the first inning of the game of grocery delivery, and will soon see the space reinvent itself after a surge of pandemic growth –– especially targeting this waste and optimizing the delivery chain.
So what will this optimization look like, and who will be doing it? Here, I offer a very brief survey of three leading approaches.
‘Dark’ Stores: Startups vs Amazon
There is currently a flurry of funding for so-called ‘dark’ grocery startups, where goods are held at a ‘fulfillment center’ with no storefront or visibility to workers.
Such dark startups are toiling in the shadow of Amazon. 500+ Whole Foods outlets, fulfilment centers, and now dedicated dark distribution hubs are powering same-day delivery through Amazon Fresh on Amazon’s behemoth logistics infrastructure. We should be concerned that the same company hosting 40% of the world’s web is also the best-poised to monopolize the grocery industry!
But where Amazon moves with muscle, a new generation of startups are building hyperlocal delivery fleets and micro fulfilment centers.
A few examples: In Europe, the UK’s Dija raised $20M in November 2020, shortly followed by Germany’s Gorillas with a $44M Series A. In the US, Philadelphia-based goPuff raised a whopping $380M in October. Further South, Mexico City’s Jüsto closed a smaller $12M bridge round after quickly blasting through their previous $10M raise.
Like restaurant delivery platforms in the past, such startups are launching in a handful of cities, hoping to validate a concept, raise funds, and expand further. We’ll soon start to see a rollup of acquisitions in this space, just as multi-billion-revenue firms like Delivery Hero, Just Eat Takeaway, GrubHub, and Uber Eats gobbled up competition to consolidate into massive global firms.
Legacy Restaurant Delivery Platforms
Restaurant delivery platforms are staring to use their existing courier networks and brand presence to offer groceries and other goods. This is a step beyond the ‘dark kitchen’ concept which has been a hot topic for some years, where a restaurant with no front-of-house presence lists exclusively on delivery apps.
Berlin-based Delivery Hero is both acquiring grocery delivery players ($360M for the Middle East’s InstaShop) and building their own grocery catalogues to list on the existing restaurant platforms.
Mjam, Delivery Hero’s Austria brand, recently rolled out “mjam market” in Vienna, initially offering 1000 grocery and pharmacy products (with plans to extend to 2000-3000 soon).
Still other platforms (like DoorDash) are simply extending the Instacart personal shopping model, sending a delivery courier through the store on the customer’s behalf.
Grocery Chains (In-House Delivery and Platform Partners)
The slowest-moving channel for grocery delivery has so far been the grocery brands themselves. Already barely squeaking a profit on sales (supermarkets average a 2.2% margin), supermarket chains usually charge significant fees for delivery compared to other services.
While a venture-backed startup can afford to operate at a major loss for years while building market share, large public companies are geared to trim costs and pass value to shareholders. This makes innovation difficult, and has led primarily to partnerships with platforms like Doordash or Instacart.
Some of these chain-platform partnerships are successful and well-reviewed, like Target’s partnership with Shipt, which they own, for same-day delivery with a $99 annual Shipt subscription. Target (a major general merchandiser) also has flipped their largest liability –– nearly 2,000 stores often connected to struggling shopping malls –– into a major asset, using these stores as fulfilment centers for their delivery. With 75% of Americans within 10 miles of a Target, this is a cheap and highly effective way to nearly guarantee quick delivery on a range of household items.
In Germany, the large grocery operators surprisingly all offer delivery services (if only in larger markets). REWE Lieferservice (min €50 and Edeka’s Bringmeister (min €40) both each offer grocery delivery at or near supermarket prices, usually at a scheduled delivery date at a minimum several hours later.
Yet in Berlin, even these reasonable delivery windows and thresholds are being rolled over by the faster deliveries and trendier products of the cash-rich Gorillas.
Conclusion:
How we’ll shop in a few months is a multi-billion-dollar mystery, but we’ll surely see growth in these modes and hybrids between them: ‘dark store’ brands with a delivery workforce, restaurant delivery apps pivoting into grocery, and grocery stores piloting in-house services and partnerships with other platforms.
Of course, all of these have drawbacks, both as a consumer never seeing or feeling my produce until it’s at my door, and for society –– what might our cities look like if 30% of groceries are stored and delivered from anonymous distribution hubs? What will work conditions be like for the fleets of couriers under pressure to deliver faster and faster?
Consumers should wrestle with these questions when weighing their choices. In a supply chain already so long and so murky, adding this complexity in the last mile raises risk of exploited workers, ravaged planet, and concentrated wealth. And so like all the big questions in food, the answer comes back to us to pay close attention, and as much as possible buy locally from producers we trust.
