By Kate Holton, James Davey and Douglas Busvine
LONDON, May 20 (Reuters) - In a railway arch in south
London, pickers and packers are in a race against time: to get
fresh food to the door of Alastair Dean within 15 minutes of his
order hitting an app.
Their company Weezy is part of a new army of European rapid
delivery firms that, backed by billions of dollars of venture
capital from Europe, the United States, China and Japan, are
using electric bikes and scooters to deliver groceries.
They have placed a bet that demand for convenience will
drive the next transformation in food retail and help crack the
vice-like grip of the big supermarket stores which, in Britain,
supply 95% of the country's groceries.
The boss of one of Europe's biggest supermarkets, speaking
on condition of anonymity, told Reuters that far from dismissing
the new services as hype, they could pose "death by a thousand
nibbles" to the dominant chains such as Tesco and Sainsbury's,
Aldi and Lidl.
Weezy enables shopper Dean, a 32-year-old finance worker, to
select locally produced goods for delivery to his door for a fee
of 2.95 pounds ($4.18). When ordering shaving foam he will throw
in salad leaves for dinner.
"Time is precious in the 21st century," he said on his
doorstep in the affluent London district of Pimlico. "The world
of going and doing your weekly shop, like I remember growing up
– it's all completely changed. We're always last minute."
The combination of cash, tech and the surge in online
delivery in a pandemic has shaken the kaleidoscope for the
grocery industry, creating new players, challenging others and
providing a new frontier for traditional supermarkets.
The trend has taken root across European cities, where
e-commerce giant Amazon has yet to properly gatecrash the
grocery market.
In central London, residents have been bombarded with offers
from at least four new rapid services.
The likes of Weezy, Getir, Dija and Gorillas store goods
from major suppliers and local producers in urban
mini-fulfilment centres to supply customers at prices similar to
supermarket convenience shops.
Holding up to 2,000 items instead of the more than 20,000 in
supermarkets, mini centres built for delivery rather than
customers can be picked quickly and located in cheaper areas.
Weezy co-founder Alec Dent said orders had jumped since
Britain started to unlock from COVID restrictions and people's
lives became more complicated. Once they know they can rely on
15-minute delivery, he said, anything longer seems too slow.
Many start by ordering snacks and alcohol before adding
sourdough bread, vegetables, meats, herbs, fresh pasta, condoms,
games and COVID tests, to be delivered in brown paper bags.
"The industry is huge. It's a 200 billion pound market, and
it's rapidly moving online and rapidly moving in the direction
of convenience," Dent said of the British grocery sector.
AGGRESSIVE MOVES
Turkey's Getir has launched aggressively in London, with its
purple and yellow scooters seen on roads and billboards, after
it raised $300 million in March, valuing it at $2.6 billion.
Berlin-based Gorillas has a valuation of more than $1
billion after it raised $290 million, including from China's
Tencent. "I strongly believe our business model is
going to be the new normal," Chief Executive Kagan Sumer told
Reuters.
U.S. operator Gopuff, valued at nearly $9 billion, has
bought Fancy to expand in Britain and Europe, while Dija has
been backed by Creandum, which invested in payments firm Klarna
and Spotify.
Food-delivery riders from Deliveroo and Uber Eats
will also bring groceries from established
supermarkets.
The different services are testing minimum order fees and
delivery charges, or no restrictions at all, to see what works.
While the model has high costs and low margins, its riders
are classed as workers, giving them basic rights and making the
groups less vulnerable to future regulation. In full control of
the supply chain, they can also deliver at speed.
The challenge remains stark however, as seen in the finances
of German-based, 26-billion-euro Delivery Hero.
Present in over 50 countries, the group has a long-term
core-earnings margin target of 5 to 8%. However its rapid
commerce division traded at a margin of minus 33% in 2020, its
first year of operation.
Chief Executive Niklas Ostberg said all the emerging
services were trying to find new ways to make the already
razor-thin margin business of food retail work.
"It's no secret that this is very tough economically, but we
have found a way to make it work," Ostberg told Reuters ahead of
the launch of its fast commerce service in Germany.
Quick delivery operators say that low rents, ordering direct
from suppliers and the option for brands to pay to promote goods
on an app all help.
FACING THE FUTURE
With so much activity, the supermarkets are watching and
know they must respond in time.
Online delivery has always posed a challenge, as
supermarkets make more profit when customers browse instore. But
the pandemic turbocharged the trend, and improved the economics
of delivery. A record 16% of UK grocery sales were made online
in January.
Now they risk losing out to ultra fast delivery, or
confronting the cost of reconfiguring operations - most online
orders are still picked by staff instore alongside traditional
shoppers, an option that does not work when time is key.
"Shareholders would say 'if I want to invest in immediate
delivery, I'll just invest direct'," said one senior executive
at a major British supermarket of the challenge ahead.
Tesco, Britain's biggest supermarket, is hedging its bets.
While it is trialling its own one-hour delivery with a 5 pound
delivery fee, it is also building a handful of automated urban
fulfilment centres at the back of stores just for online orders.
Ocado, an online pioneer which runs out-of-town warehouses
and trucks to stock the shelves of middle-class Britain, has
partnered with a courier firm to test faster orders in London.
Co-founder Tim Steiner questioned however just how many
people would need instant delivery. "I'm not saying it's a fad,
but I think that some people's expectations of the size of the
market are massively out of whack," he said.
Still, the rapid delivery groups say the initial reaction
has been strong, and there is a road to profitability after
consolidation. Shopper Dean is sold.
"We have a small kitchen with a small fridge," he said. "The
convenience thing is huge. Now we can finish work and fifteen
minutes later we're cooking our evening meal."
($1 = 0.7052 pounds)
(Writing by Kate Holton; Additional reporting by Nadine
Schimroszik in Berlin; Editing by Paul Sandle, Guy Faulconbridge
and Jan Harvey)
Tesco (TSCO)
Ocado (OCDO)
