ECONOMY

Rapid grocery delivery: customers’ delight has less appeal for investors

We are all couch potatoes now. UK supermarket chain Asda is rolling out its rapid delivery to 100 stores, joining peers such as J Sainsbury and Wm Morrison. All compete with a bevy of start-ups, including Getir and Zapp. Restaurant couriers such as Deliveroo have also expanded into groceries. The UK may be a relative newcomer — China and the US have enjoyed doorstep deliveries for far longer — but now even Greggs, a British purveyor of 99p sausage rolls, is expanding its deliveries.

Appealing as it is to have a tub of ice cream delivered to your door at midnight, costs attach. One is environmental. Courier companies protest, but even those reliant on cyclists are guilty of packaging or powering vast warehouses. Another is margins. Customer acquisition costs — those proliferating discounts and promotions — burn cash, as Uber and the other ride-hailing apps discovered.

Yet venture capital continues to flow. About a dozen start-ups tapped investors for cash in the most recent quarter, led by Gopuff and Gorillas, valued at $15bn and $3bn respectively, according to CB Insights.

Different business models have emerged, with some building their own warehouses while others rely on existing shops. Misfits Market sells organic produce deemed by retailers to be slightly imperfect-looking. The Netherlands’ Picnic does not charge for delivery, which is by electric vehicles. Boxed is for shoppers who like to bulk-buy. Dubai-based Kitopi recently added grocery delivery to its cloud kitchens delivery model.

Yet common themes persist. The path to profitability is slow. DoorDash, which listed last year, spent a third of revenues on sales and marketing alone; total costs push it into the red. China’s Pinduoduo, the biggest grocery delivery company in the world, reported its first quarterly operating profit this year — although warning that did not point to sustainable future earnings and donating it to charity. ESG concerns also loom over a sector that leans on gig workers; Gorillas has been beset by employee gripes.

Consolidation, as China demonstrates, will ultimately bring about big-scale winners. Until then, consumers are the biggest beneficiaries.

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