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WHY EUROPE’S GROCERY DELIVERY SPACE IS IN A STATE OF FLUX
Can startups lure investors back by tightening their focus?
August 9, 2023 - 7:00 am
ADVERTISEMENT
As July drew to a close, Getir announced plans to withdraw from three more
markets. The Turkish rapid grocery delivery startup pulled out of Spain,
Portugal, and Italy, in a move that reduced its European footprint to just four
countries.
It’s the latest chapter in a string of difficult encounters for the company and
for the q-commerce or rapid grocery delivery market more generally in Europe.
The space is undergoing a tough transition as VC money dries up and
cost-of-living challenges abound for consumers.
As for why Getir decided to slim down its operations, a spokesperson said that
the “withdrawal from these three markets will allow it to focus its financial
resources on existing markets where the opportunities for operational
profitability and sustainable growth are stronger.”
Re-focus has been a common theme in the industry.
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Just a few months ago, Getir was something of a saviour for rapid grocery
delivery in Europe, by acquiring Berlin’s Gorillas at a reduced valuation of
$1.2 billion (€1.1bn) before it went bust. Similarly, Getir acquired UK
competitor Weezy in 2021.
Just a few months ago, rumours swirled that the Turkish company was in talks to
purchase Flink, another German rival. But now Getir is facing its own hurdles.
Alex Frederick, an analyst at PitchBook, said he does not think the rapid
grocery delivery segment is coming to an end but it is contending with a growing
list of challenges.
“It definitely is more challenging to execute profitably than standard
delivery,” Frederick said.
THE PANDEMIC’S RAPID DELIVERY BOOM
Several startups stormed onto the scene in 2020 during the pandemic, offering
grocery and convenience goods delivered in 15, 20, or 30 minutes via networks of
fulfilment centres in cities. While critics griped over the economics of it all,
VCs pumped eye-watering sums into the startups.
But as the pandemic eased and lockdowns drifted into the past, the market and
customer profile changed as food price inflation and higher cost-of-living
expenses dented consumer spending power.
“It’s generally a low-margin business and requires high order volume. These
companies look to raise massive amounts of capital to basically move into new
markets and become the leading provider in those markets to operate profitably
there but that was reliant on a significant amount of VC funding,” Frederick
said.
Market volatility over the last 12 to 18 months has pushed many VCs to urge
their portfolio companies to cut costs, focus on top-performing markets and
verticals, and create a clear path to profitability rather than the scattergun,
grow-at-all-costs approach that defined 2020 and 2021.
VIABLE MARKETS
Getir is reportedly close to clinching a deal with Abu Dhabi’s sovereign wealth
fund Mubadala to shore up its business and to finance its renewed focus on its
best-performing markets, including the UK, Germany, the Netherlands, Turkey, and
the US, which the company said generate 96% of its revenues.
It can be difficult to pin down just what markets in Europe are the most viable
or lucrative for q-commerce companies.
However, examining the markets that companies have exited in recent months
indicates where the challenges may be. For example, Getir, Flink and GoPuff left
France due to regulatory hurdles in the country.
The one major market that remains standing for many is London. This is very much
the case for British player Zapp, which has realigned all its resources solely
to the UK capital after exiting markets such as the Netherlands and other
British cities like Manchester.
“Zapp has always been centred on winning London as the leading premium
convenience store delivering 24/7, and this strategy has proven to be highly
successful,” SVP of strategy Steve O’Hear said.
He added that Zapp’s London business has tripled in the past 12 months and that
the market still has much to offer as online penetration in convenience retail
is “still significantly behind most retail categories”.
“Therefore there is plenty of opportunity for further growth in the capital city
alone,” he said.
Sammie Ellard-King, a financial advisor who hosts the Up The Gains podcast, said
that while European grocery delivery is in a “tumultuous” state right now, there
is still potential for the sector once customer retention is the priority rather
than hasty expansion.
“They need to concentrate on perfecting their operations in the locations where
they have a strong presence, much like Zapp is doing in London. They need to
streamline their offerings and ensure a good match with local demand,” he said.
Food delivery giant Delivery Hero, unlike its smaller peers, is staying the
course with its q-commerce investments through its Dmarts division.
A spokesperson for Delivery Hero said the German company had Dmarts in “almost
every market” where it has a presence. Across its various brands, Delivery Hero
is in dozens of locations in Europe and Asia.
“Quick commerce is a strong addition to our core platform business, allowing us
to build upon our existing tech and logistics capabilities to provide greater
value for our customers,” she said.
LURING INVESTORS BACK TO RAPID DELIVERY
For the companies that raised big rounds in the pandemic, a tighter focus will
be key to raising capital again, especially in a world where AI is dominating
investor attention.
Mark Osborne, director of retail and execution at RSA America, a grocery
industry analysis firm, has been keeping tabs on what’s happening in Europe.
“Regarding investor interest, the success of grocery delivery startups will
depend on their ability to demonstrate sustainable growth and profitability.
Although the pace of recovery might be slower than desired by investors, it is
still a promising market with an expected annual growth of 1 to 3%,” he said.
“Moreover, as the millennial and Gen-Z populations continue to settle down, the
demand for grocery delivery will increase and become more rewarding,” he said.
Looking through a long-term lens, a generational change in customers could
potentially be a boon to these companies.
PitchBook’s Frederick said that the success of q-commerce and rapid grocery
delivery will be driven by consumer changes and the way that people shop for
groceries — and this will not happen overnight.
“These companies are relying on consumers doing this long-term shift from doing
weekly grocery orders to more spontaneous ordering,” he said. “That takes a
whole behaviour shift and education that takes time and there are even questions
whether it’s feasible to shift consumer buying habits.”
He added that there are other “levers” that companies could pull to streamline
operations and reduce costs, mainly in the field of automation. He pointed to
companies like Israel’s 1MRobotics, which is building automated “nano fulfilment
centres” and raised $25 million (€22.7mn) last year.
“There is movement to making this model sustainable but it’s unclear whether
it’s too little too late,” he said.
The fate of the once high-flying grocery delivery startups isn’t fully clear but
as consolidation and market exits continue, it appears the number of players
will be much smaller than before.
STORY BY JONATHAN KEANE
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