All around the world, the pandemic has reshaped how we do our grocery shopping. Analysts say the industry hasn’t seen such widespread change for decades. With restrictions placed on outings, even more people have been stocking up on food and drink online, and carrying out supplementary shops closer to their homes. But with lockdown restrictions easing in many places, at least temporarily, it’s becoming clear that these new online behaviors will continue.
More than one in four people in the UK say they will shop online not less but more once the impacts of the pandemic start to significantly lessen, according to market research firm Mintel. Grand View Research, a business that tracks online shopping trends, predicts that the global online grocery market will reach $975 billion by 2027, growing at an annual rate of 22.7% during the forecast period.
So, where are the new opportunities? Who is driving all the innovation? What does it mean for local, independent grocery stores?
Innovation around the world
‘Pure-play’ online retailers – those that operate primarily online – are starting to grow in large numbers. Tapping flexible fulfillment through dark stores and warehouses, new businesses such as Mexico City-based Jüsto offer express, same-day and next-day delivery of Fairtrade essentials (like toilet paper) and luxury groceries (like artisanal pine-nut yogurt).
Samokat has adopted a similar strategy. Based in St Petersburg, Russia, it promises delivery in less than 45 minutes. Rapid delivery startups Gorillas, Cajoo, Weezy and Flink provide sub-20 minute drop-offs using electric vehicles and are jostling for attention across major European cities. Tie-ups and hybrid models are also flourishing – the online food delivery company DoorDash (famed for its restaurant takeout and delivery services) is getting drivers to collect convenience items from existing stores, like 7-Eleven, and from its own network of 25 DashMart dark stores. Similarly, German supermarket giant Aldi has partnered with Deliveroo in the UK to complete last-mile local deliveries to customers.
Automation is bringing a similar level of convenience to physical stores by cutting out pain points such as lengthy queues and clunky checkout processes. Amazon Go has around 30 stores across the UK and US, giving customers their first taste of queueless, grab-and-go shopping. Berlin-based startup Nomitri and Israeli company Trigo are offering similar services, and the trend is expected to continue spreading as huge amounts of money are pumped into grocery startups.
Independents fighting back
All this might sound like bad news for independents, but that’s not necessarily the case. Take what’s happening in the US: supermarket prices have been going up and restaurants have generally been reopening, yet Americans are buying more groceries than ever before (turning upside down a ton of predictions from economists and analysts last year). While the majority of this demand is helping supermarkets, the independents have been boosted, too.
In the UK, convenience stores made 600,000 deliveries in the first national lockdown, with many small businesses generating more than £1 million in revenue. These figures represent a ‘remarkable shift’ towards online grocery shopping, James Lowman, CEO of the Association of Convenience Stores, told UK trade publication The Grocer.
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On top of that, the past year has seen smaller operators and convenience stores embracing digital, even without big funding to back it. For example, family-owned neighborhood kirana stores in India – and there are more than 12 million of them – continued to operate and even attracted new clients at a time when many major global grocery companies let customers down due to supply-chain issues. These mom-and-pop businesses have been advancing digitally, with more than a million of them adopting tech for online payments, managing inventories and making deliveries, according to data from point-of-sale platform SnapBizz.
In the US, mom-and-pop stores make up about 15% of the retail market, but that number reaches 85% in India. ‘Kirana stores have always been a crucial part of the Indian economy, as well as an important hub for community exchanges,’ explains a spokesperson from PayNearby, a financial tech firm that’s harnessing the influence of shopkeepers in the country’s vaccination drive.
Embracing slicker digital services has been one grab-back strategy among independent stores, but hyperlocal delivery apps, such as the taxi-serviced Grab Now in Milton Keynes, UK, and My Bodega Online in New York, are also helping out in the turf war, by taking a fraction of the typical third-party commission and offering cash-only payment options.
As Justin King, former CEO of UK supermarket chain Sainsbury’s, points out, local stores already have the infrastructure (physical sites, supply chains; knowledge about their customers) that dark stores must build from the ground up and from a standing start. ‘Inside the area [that fast grocery delivery startups] are trying to cover, there may be 300 convenience stores selling 2,000 SKUs [different items for sale]. So dark stores ain’t gonna win… It’s simple maths,’ he said to The Grocer.
Up against a rapidly saturating fast grocery delivery boom, high levels of consumer trust and familiarity with local areas could serve as sticking power for indies, especially post pandemic. According to Making Loyalty Work For Small Businesses – a recent report in which more than 4,500 consumers across the US, UK, Australia and Brazil were polled – more than half believe it is more important to shop with local, independently owned businesses now than it was before the pandemic.
The challenge ahead
The battle playing out among the many new ultra-fast grocery delivery startups has only just begun. And yet already there’s a cloud hanging over them: sure, they’re successfully raising huge amounts of money, but will they ever be profitable?
Analysts at Jefferies Financial Group in London looked into how these business models work. The answer was pretty good – with dark stores owned by tech startups enjoying profit margins from 5% to 10% of total sales (sales that could easily hit $6 million a year, they predict). Small independents typically make profits of 2% to 4% of total sales (sales that amount to much less than the tech startups earn, of course).
Again, this could sound like bad news for independents. But Jefferies notes that its numbers are based on these tech startups continuing to grow at their current pace – unlikely considering the unsustainability of the current level of competition, with price wars expected soon. So don’t write off the independents just yet.
Founded in 2015 by a team that included Nazim Salur (who also founded the Turkish ride-hailing app BiTaksi), Getir delivers everyday items to people in Istanbul in less than 10 minutes; the ultra-fast grocery service was recently valued at more than $7.5 billion. Following launches in London, Amsterdam, Berlin and Paris in the first half of 2021, it recently acquired online grocery startup Blok to help its expansion into Italian, Spanish and Portuguese markets, with a US roll-out planned for later this year. UK general manager Turancan Salur outlines how ultra-fast grocery works.
‘We buy products from suppliers, manage dark stores and hire couriers to work at our dark stores and deliver the orders. We’ve been big believers in rapid delivery for six years and the world is starting to wake up and understand how great it is. Ten minutes is almost [immediate]. It removes all friction between wanting something and being able to access it. When we launched, the best you could hope for was next-day delivery. We often create consumption that otherwise wouldn’t have happened and, with the push of a few buttons, we have those things delivered to you, with zero carbon emissions. Fast grocery delivery is going to grow amazingly fast over the next few years. It’s still in its heyday and has lots of potential ahead. This is a service that will coexist alongside traditional supermarkets and grocery delivery.’
Tomáš Čupr, founder of Rohlik, a Czech startup that offers 90-minute delivery
Although online sales of goods boomed when lockdowns first hit in the Czech Republic, by June they had settled down to levels seen in 2019. And even in 2020, 40% of citizens had not yet shopped online, compared to 56% of Chinese shoppers and 80% of Indian shoppers, according to the E-Commerce Payments Trend Report from multinational investment bank JP Morgan.
Based in Prague, Rohlik is trying to change this with its streamlined supermarket model: it stocks more than 17,000 products in its warehouses (well above average European continental supermarket inventories) and can deliver within 90 minutes. Following its $1 billion valuation in July and a fresh round of funding, founder and CEO Tomáš Čupr is looking ahead to launching in three new cities and shaping a more hyperlocal approach with a local commercial team in each market.
What do grocery shoppers look for most when they order online?
A. ‘There’s been a failure in the online grocery business in the past few years, with players just repeating the offline model but online. Now customers want an increasing range of products – an independent pasta shop in Italy can now start selling its pappardelle to a buyer in Austria or Hungary for the first time. Shoppers also want to see a more intense focus on transparency of supply chains and knowledge about what they’re buying and from whom.’
How worried should legacy supermarkets be?
A. ‘Very! Of course, supermarkets and hypermarkets can become even bigger, but that size needs to be translated into multiple locations. We can service a city the size of Prague with a maximum of two warehouses, and ensure that local, fresh produce gets from farm to door in just six hours. No legacy supermarkets that I know of can manage that.’
This article was first published in Courier issue 43, October/November 2021. To purchase the issue or become a subscriber, head to our webshop.