'Popping to the shop' a thing of the past?

Have you noticed that overnight, seemingly every poster on London's streets and billboard in its tube stations advertise a service that will magic groceries to your front door in an impossibly short timeframe? These are signifiers of the battle being fought in the instant grocery delivery space.

Over the past few years, the instant grocery delivery market has exploded worldwide. Start-ups such as Gorrilas, Weezy, Getir and Zapp have boomed, fuelled by huge surges in funding spurred by the COVID-19 pandemic and associated lockdowns. 

Why has the boom occurred now? 

You might well wonder - supermarkets and third party companies have offered deliver-to-your-door services for years. The answer lies in the business that is being targeted. Supermarket deliveries revolve around the notion of a weekly shop. You must book a delivery slot far in advance, and it is only really worth your while if you order in bulk. These new, instant delivery services target a very different business - the corner shop.

It is a pre-requisite of my job that I have to carefully organise and manage my workload, calendar and deadlines. As a result, I take the liberty of being supremely disorganised in my personal life… I cannot count the number of times that I have got home from work to find nothing in the fridge, and ended up in the local shop to buy a pack of fishcakes and some broccoli. I am the perfect customer for instant grocery delivery services, along with scores of other young professionals, time-poor parents, late-night cravers or convenience-hungry shoppers. Instant grocery delivery services are now able to bring supplies to my doorstep quicker than I can get to the shop and back – many promising sub-ten-minute delivery times. 

If you combine access to this previously uncontested market space with a global pandemic that left people less able to make their daily dash to the corner shop, then the boom seems less surprising. 

Backing the growth spurt 

Investors quickly realised the growth potential of the sector. Realisation of the potential to snap up a portion of the wider grocery market, estimated to be worth $1tn in the US and more than €2tn in Europe, has triggered huge investment. In 2021, venture capitalists invested billions of dollars into instant grocery delivery services. Berlin-based Gorillas is already valued at c.$2.1bn, less than two years after it was founded. Reaching a $1bn valuation in its first year, it was the fastest company to do so in German history.

Investment in the sector was vastly accelerated by the demand for delivery services during the COVID-19 pandemic. Whilst restrictions have now been lifted in the UK, market analysts suggest that one-time use of online delivery services is simply the first step on the conveyor belt – once we are on, we do not tend to turn back. Indeed, instant delivery service usage rates now vastly exceed those pre-pandemic.

Despite this, many venture capitalists do not expect more than a handful of competitors to survive, and more importantly, thrive in each major city. Instead, such investors are banking on having backed the right horse (or in many cases, horses). 

Expand to survive 

The enormous cash injections available to these new instant grocery delivery services have funded strategies of rapid expansion. Understanding that growth is essential to get a foothold in a rapidly developing market, companies have been acquiring so-called 'dark stores' (effectively warehouses) across the widest areas they can manage. Expenditure is high, and product margins low. Overheads include premises, warehouse workers, delivery riders and stock. Many services even offer enticing but loss-leading first-time purchase deals to try and capture market share.  

Post-pandemic predictions for prompt produce portage

Like it or not, it seems that delivery services of all kinds will continue to play a major role in a post-pandemic world. Many people who were previously loathe to rely on the internet to provide necessities have, over the course of the 'stay home' regulations, come to appreciate the ready availability of anything the heart desires at the touch of a button. 

Instant grocery delivery services are no exception. Whilst the rapid expansion was undoubtedly fuelled by pandemic-minded investment, these companies have already taken notable market share from major supermarkets.  Those most threatened by the expansion - supermarkets and takeaway apps - have even started teaming up to provide speedy grocery services in the hope of reversing the trend.

Inevitably, competition as it stands cannot survive. Around ten instant grocery companies compete for the same business in London alone, yet they require significant turnover to generate profits due to high overheads and low margins. The current phase of intense spending may well exhaust the resources of competitors until only a handful, who have managed to effectively consolidate their market position, remain. I would not be surprised if, once these companies have a strong foothold, they adopt the strategy adopted by other service app companies following similar periods of rapid expansion by gradually increasing prices and decreasing spending to a level that is more sustainable in the long-term. For now, competitors continue to vie for business with gusto.