Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Once, there was the grocer’s lad and his trusty bike. Now Deliveroo and its fellow app-led couriers are counting on bread and cabbages to deliver souped-up margins.
The market for delivering groceries could be up to $1tn, by some estimates. That is illusory, counting on everyone tossing aside their physical baskets and trolleys. Nonetheless, squeezing more out of existing networks makes sense, whether you own the courier infrastructure or pay riders piecemeal. Chinese players like Alibaba were quick to catch on, conveying passengers, meals, groceries and much else from the same network.
Adding groceries to the delivery offering plays to two of consumer tech’s favoured tropes. First, the flywheel: more drivers mean more and speedier deliveries, in turn wooing more customers and hence more drivers. Second, unit economics. Groceries’ inferior profits per order should trump those from restaurants in the near term, Bernstein reckons, as basket sizes increase, trips shorten and ads pull in revenues.
This is early-stage stuff. Deliveroo, now profitable although shares are still languishing well below its 2021 IPO price, reckons on an addressable market of £600bn in its 10 markets. It now has barely a nibble: just £516mn
This is a market that has swallowed up players and spat them out: Getir acquired Gorillas before essentially retreating to its home market of Turkey. Yet competition remains rife. On top of peers Uber Eats and Just Eat Takeaway, supermarkets have their own speedy offerings, such as Tesco Whoosh and Ocado’s Zoom. More modest rivals include corner shops, veterans of the British retail scene, where urbanites not averse to walking a few hundred metres can pick up their own late-night treats.
True, Deliveroo has the experience and a tech backbone in place to piggyback off. It uses a mix of supermarkets and its own dark stores, or hubs, complete with its own packers.
But this is still a different kettle of fish to picking up a couple of bowls of ramen from a city-centre eatery. Instead it may mean juggling, let’s say, a chicken, five 10-packs of beer, several kilos of potatoes and 20 tins of chopped tomatoes. Those will not easily fit on a bike.
It’s a different proposition for customers, too. They may be willing to pay up for one delivery service over another because of the specific restaurants it has signed up. But groceries are pretty commoditised. That leaves apps banking on customer apathy — stickiness, in tech speak — or the hope that customers will want their salad bag delivered by the same service that brings them their chicken skewers.
It is either that or competing on price. The apps don’t, today. Bernstein analysts found a 74 per cent discrepancy in the same basket ordered from each of the UK trio of delivery services. That is perhaps the biggest departure from the prelapsarian era of grocery delivery.
louise.lucas@ft.com
