US Online grocery 2021

The future of US Online Grocery 2021

• Alongside the trends to much greater digitalisation, reduced contactthrough more self check outs, automation and a more cashlesssociety, the ultra fast start ups could be one of the enduring legaciesof the Covid-19 era impacting retail in a future post-pandemic.

• This report does not deal with the online grocery battle between Amazonand Walmart in the US, as we have written elsewhere extensively on this.This analysis is also not about Kroger and Ocado’s out of town shedsversus Ahold and in store mini fulfilment centres, or where click & collectversus home delivery is going in the US. The sector will developstrongly on the back of the Covid push and all these players willbenefit from a rising tide lifting all boats.

• Rather this report deals with the ultra fast delivery start ups,attracting record levels of investment, shoppers and interest. Thepandemic has boosted a new dynamic in online grocery, reflected in therise of GoPuff and its various clones. These players are first and foremostabout serving the immediate shopper need and trip mission, that used tobe the distressed convenience shop in the analogue world. Of course thetrailblazers for rushed deliveries were the restaurant and take away mealdelivery companies (GrubHub, Just Eat etc). Instacart and the variousInstacart clones (basically a third party pick and delivery service) had anoutstanding year, as had the grocery divisions of deliveroo, Uber Eats,everli and glovo. But theses players are now being disrupted by a newbreed of online grocery players which are all about speed andconvenience, the rapid convenience store delivery apps such as GoPuff,Getir, Gorillas, Fridge No More and many others. The ultra rapid playershave their own mini dark stores/depots in urban catchments and cut outthe retailers for sourcing products. The hyperlocal nature of their businessmodel enables them to pick for and reach customers’ households within10-15 minutes, in many cases being quicker than the shopper going tothe store themselves. In the right circumstances such as a distressedshop late at night for OTC products, essential ingredients or the like thiscan be a very attractive offer.

• While there are many unanswered questions, mainly aroundprofitability, for many shopping missions especially in the biggercities this is probably the future of delivery, after all, no one wantsslower deliveries and once the infrastructure is in place on the front andback end (the logistics set up and the riders) a lot of other services canride on this too. Other big unanswered questions apart from costs/profitability are whether there are scale benefits, as 10 minutes impliesthat this is a point to point play in logistics. One simply cannot group tripsinto the catchment, if the rider has to be on the individual shopper’s frontdoor with a 10 minute window. (Perhaps it should be noted that GoPuffworks with a longer delivery window, which seems to make a lot moresense economically, though reaching profitability is still challenging)

• In certain aspects the rise of these new app players is a big threat toclick and collect - but definitely for the convenience store sector,which so far had been shielded from online grocery channel shift.We’d advise convenience store operators to have a long hard lookat this and perhaps to launch their own service or partner up with anexternal service provider - but this would have to happen on a hyperlocal level and is very cost prohibitive.

• A clear advantage the ultra rapid players have is that the ranges areoften very tight (around 2,000 SKUs) and not very deep, so storagespace is minimised, which also means shorter picking distances.Moreover, the lower average basket value (though a clear drawback)also means more deliveries per hour are potentially possible. We stillcan’t see more than 3 deliveries per hour achieved though, if drivingtimes to and from depot have to calculated in, as well as the pickingtimes. Most players are calculating an average basket size ofbetween $30-50. The convenience of the delivery is great forconversion though and will probably generate more repeat buysthan standard online grocery deliveries too.

• Now is the time to look ahead, it seems clear that the trend hasswung back to more local and faster fulfilment (i.e., smaller localdepots and pick from store or store adjacent spaces rather than thebig out of town shed), and we believe it will now all be about speedgoing forward. This requires a reimagining of the role of the storeand network, pragmatically deploying digital technology tostreamline operations and serve customers better, while reallocatingexcess space and using data to identify whether some storesshould close or become online nodes.

• We expect online grocery to split into various sub channels. Akin tothe situation in physical offline grocery, where several channels coexist,such as hypermarkets, supermarkets, discounters,convenience stores, organic specialists, this will probably bemirrored by online grocery concepts. And maybe even pricesegmentation will set in (perhaps reflected in different delivery feesand pass options).

• In any case, what will help online grocery in future is this newinfrastructure being built by the likes of Amazon, Deliveroo, Uber,Instacart, Glovo, Gopuff and so, even if various players exit themarket again, the logistics will have been put in place so thewinners can offer other services on them, not just grocery.
Key questions answered
• Can ultra fast deliveries ever become profitable?
• Is the sector moving towards a sharing infrastructure used by different operators? Or is this impossible?
• Will the start ups be consolidated in super apps combined with ride sharing, meal delivery and more?
• What are the drawbacks of the rushed deliveries model?
• Are convenience store basket sizes a help or a hinderance for the business model?
• As the model requires shallow range depth, can the companies manage their OOS and still satisfy shoppers?
• How good are the ultra fast delivery companies at generating loyalty?
• Could the start ups stretch their delivery promise from 10 min to 30 min, as GoPuff does? Would this open up possibilities around different charges and a clear fee structure according to time frame and urgency?
• How much are zoning laws a real obstacle for these hyper urban operators? How will licensing law affect their business model?
• Born in the crisis, do ultra fast/rapid/convenience online grocery players have a long term future?
• Just how much demand is there for ultra-rapid delivery?