Has 15-Minute Delivery Q-Commerce had Its 15 Minutes of Fame?
The pandemic saw a lot of what could be described as “scurrying.” Scurrying to get online. Scurrying to scale up fulfillment to meet consumer demand. And scurrying to compete with new entrants offering ever-faster fulfillment.
These last disruptors — on-demand or rapid delivery, Q-Commerce providers — first offered same-day delivery, then delivery in under an hour. Now they’ve reset the bar to 30 minutes, with some deliveries advertised as quick as 15 minutes.
Providing the impossible
At first glance, these capabilities seem impossible. Jokr, for example, bills its offering as “instant delivery,” while the mission statement of India’s Blinkit is “instant commerce indistinguishable from magic.”
Behind the apparent “magic” of rapid delivery, Quick Commerce, or Q-Commerce, companies have developed a highly efficient — and specific — formula: offer a few items to a specific group of young customers who want everything on demand and live in a small area where everything is close at hand.
Q-Commerce providers tend to operate in densely populated metropolitan areas. Fulfillment often happens out of micro-warehouses, each of which serves a defined area. The product catalog typically covers a very narrow range, often about one-tenth of the items of a typical retail online grocer. Alternatively, they may do the picking from a dedicated neighborhood retail store.
Baking a cake and realizing you don’t have eggs? Grab your phone and in moments eggs are on your doorstep. Brilliant. Magic, even.
What do consumers really want?
In the pandemic, the ability to have groceries delivered to your doorstep was a godsend. Getting them within the hour — even more welcome.
But now that pandemic shelter-at-home protocols have given way to a “learn to live with it” attitude, people are heading back to stores for in-person shopping or grocery pickup.
The Q-Commerce model was useful during the pandemic as an alternative to conventional grocers and pure-play online retailers who struggled to meet demand. Q-Commerce now is great for those last-minute impulse needs like eggs when you’re baking or pain reliever when your back goes out. But that’s not how most households shop most of the time.
Many shoppers still like to use brick-and-mortar stores, either for in-store purchases or for grocery pickup. A Bain & Company survey found that 93% of online grocery shoppers in France also shop for groceries in-store.
The Grocery Retail 2021 Digital Maturity Benchmark by Incisiv found that, as US shoppers get back to normal, they plan to return to their brick-and-mortar stores, either for in-store pickup (42%) or curbside pickup (33%). Only 22% will stick with home delivery.
And less than 10% said they found value in paying for delivery in two hours or less.
Trouble in Q-Commerce Paradise
A study at MIT Sloane on shoppers’ willingness to pay for faster grocery delivery supports this. Researchers concluded that speed was only one factor in a complex web of consumer decision-making that includes precision and timing, as well as basket value, perishability, SKUs, and discounts.
This is good news for omnichannel grocers since margins can drop into negative territory when home delivery is provided, and well into the negative double digits when it is given away for free.
But what about rapid delivery providers, who are built on this premise? The cost of setting up the fulfillment channel and ongoing operation of on-demand service is high. This is especially true in North America, where labor is much more expensive than in regions like Latin America or Asia.
Increasing competition in the Q-Commerce space means operators frequently offer discounts and free delivery in an attempt to attract and retain customers. This lowers margins even further. For some, losses could be as much as $20 per order.
Is the Q-Commerce model sustainable over the long term?
Buyk, launched just last year in New York City, recently filed for bankruptcy due to fallout from sanctions against Russia, while the Russian-backed Fridge No More abruptly ceased operations in March. Meanwhile, Jokr is in talks to sell its New York operations following heavy losses in that city.
As TechCrunch reported recently, “it’s crunch time in the world of instant grocery delivery in Europe.” Berlin-based Gorillas, which raised nearly $1 billion dollars at around a $3 billion post-money valuation — just this week announced it would be laying off some 300 employees and exiting four markets — Italy, Spain, Denmark, and Belgium — “as it seeks a clear path to profitability.”
The notion that ultra-speed is what most consumers want is questionable. Most of these services have been artificially driven by heavy couponing, discounting and a lot of expensive media buys. Online services, as most market observers agree, are primarily driven by convenience.
The Omnichannel Advantage
Omnichannel grocers have many advantages over Q-Commerce providers: a significantly larger inventory, the ability to capture larger basket sizes and regular (e.g., weekly) orders, a stronger connection with customers that leads to long-term loyalty and long-term customer data for personalization campaigns to further enhance loyalty and increase purchases.
As Bain & Company summarized it, compared to single-channel shoppers, “grocers sell more to omnichannel customers… attract a bigger share of their overall grocery spending… and convert more of them into fans.”
On the operations side, omnichannel grocers have stronger CPG relationships, which means better margins and supply, and the ability to tailor their operational models to each location. Grocers also have the potential to be more efficient at fulfillment. Some leading UK supermarkets have pick rates 2.5 times higher than third-party rapid providers in the US.
Déjà Vu, Again?
Nevertheless, traditional grocers need to stay vigilant. As we saw in the early days of grocery e-Commerce, a small snowball of innovation can easily turn into an avalanche. Once consumers get a taste of something, expectations begin to shift.
Q-Commerce is especially appealing to young urbanites — the next generation of shoppers — who value superfast, on-demand everything. Forward-thinking retail grocers should start thinking about financially viable ways to preserve market share (especially in high-density urban locations). That means expanding customer options.
Is there room to offer quick service for a small selection of goods? Could higher fees be charged for quick delivery? Is there potential to acquire a quick delivery service provider?
By capitalizing on their competitive advantages and extending capabilities as needed, retail grocers could be in the strongest position to capture the hearts and minds of the widest range of shoppers.