10-minute delivery: will quick commerce catch on?
Quick commerce players are becoming more numerous in France, with the same promise: delivering to consumers within 10 or 15 minutes from “dark stores” in city center locations. Despite appearances, the greatest challenge is not ever faster delivery…
Cajoo, Flink, Gorillas, Dija, Getir, YangoDeli… These new names have emerged on the French scene within just a few months and are competing head on to establish themselves in the burgeoning “quick commerce” market. This term encompasses retail activities backed by the promise of very quick delivery, within 10 to 15 minutes – a French market valued by Kantar at around 500 million euros (2021). Given the small size of this market, the spectacular fund-raising achieved by players involved is testimony to investor enthusiasm:
- 950 million dollars in September 2021 for the German start-up Gorillas, whose third fund-raising it was;
- 52 million dollars in March 2021, followed by 240 million in June by Flink, also German;
- 40 million euros for the French Cajoo in July 2021, only 7 months after it was created and a first fund-raising round of 6 million;
- 550 million dollars in June 2021 for the Turkish start-up Getir, with a valuation of more than 7.5 billion dollars…
Why such a wave of money?
Firstly, because there is an enormous amount of money available on the world capital market. On the lookout for opportunities, investors are banking both on changing consumer behaviors and the ability of quick commerce start-ups ultimately to capture a significant share of day-to-day shopping – a market worth around 150 billion euros in France. Then because, although they know that profitability will be long in coming, investors also know that in this wider e-commerce world, the winner takes all. But to win you need lots of “cash”, cash “burned” in record time because you need both to “evangelize the market” and gain a foothold in as many towns and cities as possible, as fast as possible, to outpace your competitors and put them out of the running.
All observers agree in saying that, of the 8 main actors present on the French quick commerce market at the end of 2021, probably only 3 or 4 of them will remain over the next 12 or 18 months. As with food delivery services and, before that, private driver hire services, you can therefore expect some of them simply to disappear, as well as seeing consolidations and, more specifically in France given their power, acquisitions or equity stakes by the large retail brands. For the latter, there is a twofold opportunity:
- become the majority, if not exclusive, quick commerce provider, thereby minimizing the potential turnover hit that the development of quick commerce might entail for their brand’s local stores;
- incorporate express delivery in their service offering by capitalizing on quick commerce’s know-how and customer base, and by potentially using the brand’s local stores as a substitute for, or addition, to the dark stores, these urban mini depots where the orders are prepared.
This is clearly the motivation behind Casino’s equity share in Gorillas France, and Carrefour’s in Cajoo.
A very demanding micro-local model
The quick commerce players all provide consumers with an application enabling them to order day to day products and have their shopping basket delivered within 10 to 15 minutes by a cycle courier over much of the day (from 07:00 or 07:30 a.m. to midnight or 02:00 a.m.) They are also characterized by ranges limited to a small number of products with an optimum of what seems to be around 2500 SKUs encompassing food, hygiene, household products and small value items (batteries, light bulbs, telephone chargers…).
It will be appreciated that the challenge for the model is less the development of a user-friendly and efficient mobile application than the siting of the dark stores, their size, and the development of an appropriate range. Indeed:
- where the dark stores are located dictates the quick commerce player’s ability to keep the 10- or 15-minute delivery promise, given that a courier has his work cut out to achieve more than 4 deliveries per hour, even within a small area with a high customer density. The average is more like between 2.5 and 3. Siting decisions are therefore very much strategic and are a nice exercise in geo-marketing, involving territorial segmentation and optimization techniques based, for each site, on the analysis of the potential of each area of influence/catchment area. Henri Capoul, Cajoo’s co-founder, considers that “the model works when you have a concentration of 100,000 inhabitants within a 2-kilometre radius of the dark store”. This also means that the model is only viable within a dense urban environment and that the siting strategies are devised at neighborhood and not town level. Otherwise expressed, you need a network of several dark stores to efficiently cover a capital such as Paris or Berlin, with the high costs that these multiple sites imply in cities where the real estate market is tight.
- The dark stores’ size determines inventory size, the number of SKUs on offer, and the number of orders capable of being prepared there. You cannot accommodate 2000 SKUs and the number of pickers and packers you need to serve a potential market of 25,000 or 30,000 homes on premises of 80 m². The optimal size would be between 300 and 500 m². A depot of this size would be profitable after a year once it is handling 500 orders a day – a target that is far from being universally achieved today.
- The range composition is, as in any store, a delicate exercise in striking a balance between must-have products, loss leaders, and stock rotation speed in the various categories, all this very much depending on the sociological composition and consumer habits of the neighborhood’s population. Logically speaking, the range offered in each neighborhood should be different, which does not currently seem to be the case. Ultimately, the players make no secret of the fact that prices could also vary – from one town to the next, if not by neighborhood. The use of yield management techniques might make it possible to adjust product prices, but especially the service price, depending on demand and the number of pickers and packers and delivery staff available at different times of the day.
Getting beyond the “emergency demand” opportunity
Subject to managing the three dimensions we have just described, quick commerce’s viability depends on creating and developing demand. This supposes being able to get beyond the emergency purchases opportunity, which is de facto the common entry point for all market participants. Yes, there is without question a demand in the major cities for emergency delivery of a bottle of champagne, a carton of beer (the product most in demand), a telephone charger, or spices to provide the finishing touch for a recipe.
The positive point for quick commerce providers is that, in this type of situation, the consumer is far more sensitive to the time factor than to price. When short of champagne or something else during an evening spent with friends, he doesn’t jib at paying a few euros more for delivery within a quarter of an hour. Apart from the exceptional nature of this type of order, the major drawback of this emergency market is the low value of the average shopping basket, namely between 20 and 22 euros. With delivery billed at around 2 euros, delivery staff whose hourly charged wage is 17 euros and who can make 4 deliveries an hour at the most, the merchant’s margin is not enough to turn a profit.
The players’ priority is therefore to increase the average shopping basket, of around 30 euros, either by promoting more “premium” products, or by increasing the number of items per order. Increasing the frequency with which their services are used is also a priority; an increase in the repeat purchase of the order volume securing the jobs of the pickers and packers and delivery staff. The current growth strategy – heavily backed by advertising, discounts and introductory offers – aims to establish the “quick commerce reflex” in all those who think that they have many better things to do in life than to do their shopping, even at the top of the road. The sociology of major cities is favorable to this model. Certain individuals will certainly see it as liberating no longer to have to think about day-to-day shopping, and then progressing to consider having all their needs delivered as and when as self-evident. An interesting point emphasized by Henri Capoul (Cajoo): once this reflex has become well established, the 10 or 15-minute constraint would appear to ease off because what is then important to the consumer is less the shortness of the timescale but to be informed of the exact moment when his delivery will arrive (but providing it does not slip too much!)
We aren’t there yet, at any event not on a scale sufficient to make the service profitable: no player is currently profitable and none of them is likely to be so before 2 or 3 years. Those who object that quick commerce does not speak to deep-seated consumer expectations will be reminded of the skepticism surrounding the growth in food delivery services a few years ago: today, this is a global market worth more than 150 billion dollars which is growing by more than 6% per annum. So why not quick commerce?
It will be added, and it is greatly to their credit, that the quick commerce players have learnt the lessons of the food delivery and private driver hire services adventure at least on one point, their delivery staff are not “self-employed”, but employees. They therefore enjoy social provision worthy of the name, and the company provides them with the electric bike and other equipment they need, which seems to be the least one could expect. It is to be hoped that the aim of these employment and remuneration conditions is not just to attract candidates during the launch phase when all quick commerce retailers are competing on recruitment. Without prejudging the future and who will survive the current battle, or not, we can at least welcome the fact that the jobs created by these express shopping delivery start-ups are real jobs.