Rapid grocery delivery services as Gorillas, Zapp, and Getir tend to crowd city streets not only across the Netherlands but across the world. These services disrupt the traditional supermarket industry and even their online delivery services with their “faster than you” 10-minutes delivery promise. The speed of Gorilla’s deliveries matches the astonishing pace of the market disruption.
Covid-19
Why would you use as an inhabitant of Rotterdam where you have access supermarket within a range of 1 kilometer a fast grocery delivery service? Off course there is an excuse that we were in the middle of a lockdown which definitely increased the popularity of these delivery services. As a result of the lockdown millions of people started using online grocery services. I must admit, it is really convenient when you are waking up and noticing that you run out of bread the day before there is a possibility to just order with the Gorilla’s app some juice and eggs which will be delivered in 10 minutes so you don’t have to walk in your pyjama’s to the supermarket.
Business model
The question everyone asks to themselves is how is it possible to guarantee the 10 minutes delivery and offer qualitative products. The process is as simple as it sounds. As a customer you could shop in the app and place an order. After you have confirmed your order there is a sound going off in a dark store, probably within a range of 2 kilometers, to notify the order pickers to pick your orders. A picker selects a basket and collects all the items you have ordered and pack them in bags for the rider. The rider will bike with an e-bike to your place and delivers the items within the promised 10 minutes.
What makes it a lucrative business?
The part that amazes me is that there are lots of investors who invest billions in these businesses, but why would they think this business will be profitable? At first, technologies enable this business model, which is very innovative and really meets the rising demand as we saw as a result of covid-19. However, as coming along with digital business models you need a high volume to cover the fixed costs. For that reason the customer acquisitions costs are relatively high. When you would start making use of this service at different grocery providers you might have a month free groceries as a result of all the freebies these services offer. This is all to get attention and connect customers to their business and convert them to loyal customers. Nevertheless, Marco Heimensem (2021) states that these rapid grocery delivery services will only be profitable when a customer would order on average for €25,- which is not the case at the moment. So how will these businesses increase their sales volume to become profitable? Or are there any other reasons these investors take the high risks?
Sources:
*https://www.businessinsider.nl/gorillas-verdienmodel-online-boodschappen/
* https://www.ft.com/content/8f8b3d61-8fd4-4dd4-ae9e-d0c7b69e5234
* https://www.m3consultancy.nl/blog/are-rapid-grocery-delivery-companies-profitable
* https://www.nytimes.com/2021/07/27/business/groceries-in-10-minutes-delivery-start-ups-crowd-city-streets-across-globe.html
First, nice and relevant article. It’s fun to read about something that you see on the streets every day and that you also use yourself once in a while. I am also still amazed by the fact that these rapid delivery companies are really a thing now. I can’t quite wrap my mind around the fact that it is possible to make profit with this business model, but since investors are very confident in that fact that it is really possible, I am starting to more and more believe in Gorillas and the rest. The questions that you state at the end of your article are very interesting and describe exactly my questions that I wrote above. I am also amazed by the statement of Marco Heimensem. An average order of 25 euros, that’s a lot!! I probably won’t every do that myself. Besides all the other questions, another question comes in mind. Since Uber is being accused of the fact that the drivers they pay should be treated as normal employees, how will this be for Gorillas etc. in the future? The grocery deliverers are paid at the lowest possible rate and are not treated as official employees. How will Gorillas and the rest of the delivery businesses manage this? Time will tell, all very interesting questions to think about. For now, it’s just enjoying groceries at your doorstep 10 min after you ordered them 🙂
Firstly, I want to mention that this is a quite interesting blog as this relatively new business model might have disrupted the traditional supermarket and grocery industry. I enjoy the fact that you clearly elaborate on its business model and why people see this business model as a lucrative business, which I could not figure out before reading this blog. Thanks! Secondly, after reading you blog I would also express my thoughts on this business model. With a continuous grow of dark grocery stores entering the market, one could argue the low chances of survival on the long term. With the advent of new in-store technologies – driven on Artificial Intelligence – one should not expect that in-store supermarket shopping will completely disappear. Future Artificial Intelligence technologies will rely mainly. Future supermarket customers will have the possibility to scan in-store products (e.g. different types of spices) which afterwards will prompt on their smartphones to play related videos, such as the whole process of harvesting or the local farmers of spices. In my opinion, I truly believe that customer experience will play a more important role in increasing sales value in the future as consumers seek for more offline comfort and ultimate convenience. According to Begley et al. (2020), early movers that are active both offline and online (fast delivery services) will have the most advantages in the future. For this reason, I think that only ‘hybrid’ supermarkets – that seek for ultimate customer experience – will eventually be the true winners in the industry.