Startups Enable The Grocery Boom: Faster, Faster and Faster
All kinds of services around the world have been striving for immediacy and things are never fast enough. One of these is grocery delivery which the world already has in Amazon prime that allows customers to receive their orders fastest in as little as 1–2 hours. And yet, as I’ve mentioned, it’s not fast enough. Recently a grocery boom in the startup world has hit Europe and extended to the States, customers receive the delivery within 10 to 15 mins. Based on Bloomberg, a Fast-delivery grocery delivery startup JOKR raised $170 million in financing to fuel its expansion across the Americas and Europe after rolling out its services just three months ago, emerging as one of the better funded companies in the burgeoning sector. In the meantime, in Germany, Flink, which has operated for more than a year, has raised $240 million in its A round, and a few months ago another grocery delivery company Gorillas raised $290 in its B round with over $1 billion valuation. With all the attention from the VCs, the grocery boom is real but why? And how do they make it happen?
What is a dark store?
Most of the fast delivery startups are operating under the model of the dark store or which some also call “micro hubs”. The concept is similar to ghost kitchens, which is only for online ordering and distribution across the service area while the size of dark stores are relatively small. Therefore, the platform is able to reach each customer in a short period of time. However, due to the limit to the size of a dark store it isn’t able to store more than 3,000 stock items, therefore, the startup needs to predict the needs and preferences of the customers and select products accordingly. Data is the key to the solution enabling startups to figure out what is needed and when it is needed. Hence, the dark store requires a dynamic inventory and catalog management system that is able to rotate merchandise, provide pre-forecast suggestions for customers, those types of consumer products, and the corresponding times. Another important element is that the startups procure the goods sold directly from brands, manufacturers, and wholesalers instead of retailers and hire and train their own couriers. Gorillas, a fast delivery startup in Germany, has hired more than a thousand couriers and the HR cost including education training and management is taking more than half of the overall budget. Even though the cost is quite heavy, however, they are able to manage the quality and avoid potential regulation trouble which is burning Uber.
Why do VCs want to be part of this trend?
Aside from the startups, the world already has big players like Ubereats, Doordash, Foodpanda, and Amazon, so why does the fast delivery still catch so much attention from the investors? The market size could be the key. Based on Insider, US food and beverage retail e-commerce sales were expected to total almost $24 billion in 2020 and surpass $38 billion in 2023. But this would only account for a 2.3% share of total US food and beverage sales in 2020 and 3.5% in 2023. The potential is huge and the growth is extremely exciting for the investors. And the number above is only representing the food and beverage market. Next, it’ll be interesting to see how the retail industry will respond, the potential of these startups are not merely about providing delivery services, they might replace the majority of retail businesses and this is what those VCs are really expecting. If I can get whatever I want in 10 mins without leaving my house, what’s the point of getting dressed and going to the store around the corner? Unlike the ghost kitchen towards restaurants where people are willing to be there for the “experience”, the grocery store doesn’t offer the same feeling. Last but not least, someone might see these startups as part of a city’s infrastructure instead of a service provider. If you consider the dark store and how that’s going to impact the city, it won’t be too hard to understand why the capital is flourishing towards the business.
Next step?
As the same dilemma has occurred in every industry, we’re going to see how each platform is going to differentiate itself and how they expand quickly throughout the global market, and how customers’ behavior will change in the next few years. Even further, I’m looking forward to seeing the incorporation of the robotics business with the delivery industry.
