Are the brakes on for Quick Commerce?
With consumers continuing to prioritise speed and convenience in the wake of the Covid-19 pandemic, there has been significant consumer uptake in the use of ultra-fast grocery delivery apps such as Zapp, Gorillas and Getir since early 2020.Traditional online routes to market for consumer brands either required consumers to buy products directly from stores (e.g. supermarkets) or indirectly through delivery aggregator platforms, such as Deliveroo. However, grocery delivery apps now sell products directly to consumers by operating "dark-stores", which are urban warehouses in city centres solely dedicated to fulfilling orders placed via the app. This streamlined model enables those delivery apps to offer extremely fast delivery times, often 10 minutes or less.
Many consumer brands are therefore drawn-in by the direct access to customers and the increased exposure offered by delivery apps. However, despite the great appeal to both consumers and brands, we are beginning to see some evidence that the rapid growth of these apps may be an increasing challenge. The overwhelming majority of apps are not yet profitable, with their business operations being heavily supported by VC investment. However, some investors are becoming more reticent to continue investing in loss-making companies. Such losses are largely caused by the difficulties in achieving economies of scale by virtue of significant variable costs, including wholesale food costs, drivers' wages and high fuel prices.
Unsurprisingly, the prospects of Q-commerce are in sharp focus. The Financial Times published an article last week entitled 'Farewell to the servant economy'. Against a backdrop of increased inflation, consumer spending constraints and global supply chain disruption, a number of apps are apparently in financial difficulties, with several having announced significant staff layoffs in the past few weeks. One app (Jiffy) has even pivoted its business away from consumers entirely, instead selling its Q-commerce software to retailers and grocers. Further, there has been a lot of recent M&A activity, facilitated by significant VC investment and driven by larger delivery apps looking to consolidate their positions in an increasingly competitive market by acquiring smaller competitors.
For brands or retailers considering entering the instant delivery market, conducting enhanced diligence on prospective partners, understanding their projected business plans (for example to be aware of any intended downsizing of operations) and, where possible, assessing their liquidity, may be beneficial given the increased pressures on the industry.
For brands which have already embraced this trend, now might be a good time to review their existing agreements with delivery apps to ensure that they are adequately protected/understand any potential commercial/legal exposure in this shifting climate.