A Blog by Jonathan Low


Nov 13, 2021

How 10 Minute Delivery Has Become the New Online Grocery Model

These services use dedicated mini-warehouses in select neighborhoods stocked only with high demand items. 

They are more efficient because they employ full time employees rather than gig workers and only provide a curated selection of products, which limits the time required to pick, pack and deliver. Demand for the model is global. JL 

Trefor Moss reports in the Wall Street Journal:

Investors have poured at least $7 billion into quick grocery startups in recent years drawn to the sector by the surge in demand for home delivery amid Covid-19 lockdowns and the potential for consolidation. The new fast-delivery startups use small warehouses known as “dark stores” staffed by fully employed personnel. Employing a dedicated staff to deliver their companies’ own inventory of products allows them to offer faster delivery times and more consistent service.  The facilities are similar to dark kitchens of food-delivery companies for different restaurants and serve as mini delivery hubs for customers in a two-mile radius. Ice cream and toilet paper are the two bestsellers.

A new generation of delivery startups is competing around the world for investor cash and the loyalty of impulse buyers—promising groceries in as little as 10 minutes.

The pandemic helped push online grocery shopping into the mainstream, revolutionizing a swath of the $2 trillion-a-year global grocery market. Now, new players are banking on a business model derived from the one that propelled online food delivery world-wide.

The new fast-delivery startups use small warehouses known as “dark stores” staffed by fully employed personnel. Executives say that employing a dedicated staff to deliver their companies’ own inventory of products allows them to offer faster delivery times and a more consistent quality of service compared with existing delivery companies, which typically employ gig workers to ferry products sold by third parties.

The startups have positioned themselves to take advantage of what they say is an underserved market somewhere between a larger supermarket chain and the convenience store around the corner.

“Convenience retail is one of the last segments of retail to move fully online, but it’s really having its moment post-lockdown,” said Rytis Vitkauskas, U.K. partner at California-based Lightspeed Venture Partners, which has invested in Zapp, a British fast-delivery startup.

Last week, Uber Technologies Inc.’s Eats division and Carrefour SA announced a 15-minute grocery-delivery service in Paris. The partnership involves delivering goods stocked in warehouses run by Carrefour partner Cajoo.

Uber Eats is piloting company-owned warehouses in Taiwan for faster grocery deliveries. It has also joined with GoPuff—which is backed by SoftBank Group Corp. —in the U.S. to quickly deliver convenience and other items from its more than 400 warehouses. Rival DoorDash Inc., which leads the U.S. market for convenience deliveries, recently said it is also exploring its own warehouses for grocery deliveries.

London has become a particularly fierce testing ground, with at least eight startups offering superfast delivery times. Players, including Getir Perakende Lojistik AS, based in Turkey, and Germany-based Gorillas Technologies Ltd., have covered London’s double-decker buses with advertisements. Deliveroo Holdings PLC, a more traditional food-delivery company backed by Amazon.com Inc., said in September that it would launch its own 10-minute grocery delivery service in the city.

The U.K.’s ultracompetitive grocery market—where a handful of chains compete for market share—has long driven innovation, helping to pioneer online grocery delivery and “click-and-collect,” known as “curbside pickup” in the U.S.

While most of Britain’s big chains offer same-day delivery, none is offering it as fast as these startups. The fastest delivery time promised by Amazon, which owns Whole Foods stores in London and offers Amazon Fresh grocery delivery, is “same-day.” That has left an opening for companies catering to customers who can’t wait.

Investors have poured at least $7 billion into quick grocery startups in recent years, with the majority of those investments happening in 2021, according to fundraising announcements. In October, Gorillas said that it had raised roughly $1 billion in a funding round led by established German delivery player Delivery Hero SE. Earlier this year GoPuff raised $1 billion from investors including SoftBank. Spanish startup Glovo has raised 450 million euros, equivalent to $522.1 million.

Investors have been drawn to the sector by the surge in demand for home delivery amid Covid-19 lockdowns and the potential for consolidation. “There is clearly demand for this service, and the pandemic has accelerated that demand,” said Paul Martin, the U.K. head of consulting firm KPMG’s retail practice. “But probably only one or two players will win through and dominate.”

Apart from possible mergers among players, large supermarket chains may elect to acquire or partner with some of the more promising startups, Mr. Martin said, providing the potential for shorter-term paydays for investors. On Thursday, Tesco PLC, the U.K.’s biggest supermarket group, said it was launching a pilot with Gorillas to start offering a 10-minute delivery from some of its stores.

But most startups will fail to achieve profitability, Mr. Martin said, as their model for operating their own stores and owning product inventory, as well as employing store workers and delivery riders, makes them costly to run.

London-based Zapp promises deliveries in under 20 minutes, a bit longer than some others. It is easier to deliver consistently inside that window, said Steve O’Hear, the company’s vice president of strategy, and customers care more about promises being kept than about getting their sodas and potato chips a few minutes faster.

Zapp has raised about $105 million in capital from investors, including Lightspeed, according to PitchBook. It opened its first “dark store”—which resembles a convenience store that is closed to the public—late last year. It now operates 24 of them in London, with more in other U.K. cities, as well as Amsterdam.

The facilities are similar to the dark kitchens set up across town by food-delivery companies to prepare meals from several different restaurants. Zapp’s operates 24 hours a day, serving as mini delivery hubs for customers in a roughly two-mile radius.

Customers buy online through a smartphone app. The business caters to sudden cravings and minor emergencies: Ice cream and toilet paper are the two bestsellers, according to Ana Alves, the manager of Zapp’s store in London’s Shoreditch neighborhood.

At the front of the store, an operator monitors a bank of computer screens, tracking inventories, orders and deliveries. Shelves are stacked chiefly with snack foods, drinks and household essentials.

A bleep alerts the team to an incoming order, and a store “picker” jumps up and grabs a basket. On one day recently, an order came in for soap, hummus, eggs and bananas. The picker, reading from a device strapped to her wrist, bagged up the items and handed them over to a delivery rider, who zipped away on an electric bike parked outside.

A significant part of the strategy—and a key differentiator from more traditional online food delivery—is the permanent staff of drivers and store hands that Zapp and others have hired. Customers expect consistency and reliability, “And we just don’t believe you can do that sending gig-economy workers into other people’s stores,” said Mr. O’Hear. Ms. Alves and other employees at the Shoreditch store said the conditions at Zapp were far preferable to those offered by London’s gig-economy employers.

Zapp charges a delivery fee of 1.99 pounds, equivalent to $2.73, on orders under £30; deliveries are free over that amount. Even with the 20-minute delivery time, which is longer than some of its rivals, Zapp’s track record is mixed. Three orders from a Wall Street Journal reporter to different locations in the city arrived in 56 minutes, 42 minutes and 11 minutes, respectively.

In response, Mr. O’Hear said around 90% of Zapp’s deliveries arrive on time. The company returns the full value of an order as credit if it is significantly late. The average Zapp order’s value is around $35. Zapp says it makes a profit on two-thirds of its transactions.

Weezy Group Ltd., another London-based startup, wants customers who use its service regularly to supplement their main grocery-store run. Alec Dent, Weezy’s co-founder, said the company targets households that want to buy high-quality local produce in a “weekly top-up shop,” in between regular weekend visits to a real supermarket.

“We’re not replacing anything, we’re providing a new type of shopping channel,” Mr. Dent said.


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