More expensive and slower
Blitz delivery services will not be able to keep promises
8/16/2022 5:59 am
Blitz delivery services are booming during the pandemic. The industry, which was once so popular with investors, is now also feeling the effects of the end of the corona restrictions, the effects of high inflation and the war in Ukraine. The collapsing demand is forcing the market to reposition itself.
In the middle of the Corona crisis, they suddenly appeared: startups like Gorillas, Flink or Getir. They set up a dense network of warehouses in the big cities, hired hundreds of drivers and promised to deliver supermarket products such as cold cuts, drinks or frozen food to your home in just a few minutes. Customers can use the app to conveniently order at supermarket prices. The segment is called quick commerce. Demand boomed during the crisis, and investors had plenty of money.
But that has long since changed. “Quick commerce was the topic in 2021 that went through the roof the most in retail,” says Kai Hudetz, Managing Director of the Institute for Retail Research in Cologne (IFH). “Even back then, you had to critically question whether it could be a working business model to bring a single yoghurt pot to your desk in fifteen minutes.” The industry is now feeling the end of the corona restrictions, the effects of high inflation and the war in Ukraine.
The demand for online groceries has decreased significantly. According to Hudetz, investors are more cautious. Some delivery services that have relied on rapid growth are now in trouble. The Berlin start-up Gorillas, for example, announced that it would be cutting hundreds of administrative jobs a few months ago and recently gave up some locations in North Rhine-Westphalia.
The market is consolidating
Competitor Wolt actually does its core business with restaurant deliveries. But the most recent experiment with supermarket products from its own – few – warehouses has now also ended. In view of the numerous players on the market, the competitive pressure is enormous, and maintaining your own warehouses is expensive. Added to this is the self-confidence of the employees, who are increasingly successful in their fight for better pay, safe working conditions and works councils. In turn, screwing up prices is risky.
“As soon as delivery fees are charged, the customer often drives the 300 meters to the supermarket himself and buys what he needs or orders from a cheaper competitor,” says Hudetz. Nevertheless, companies have little choice. According to Flink, free deliveries are now only offered from a shopping cart size of 50 euros. Everyone has said goodbye to the once ten-minute delivery promise. Gorillas and Flink only advertise that they will be at the door “within minutes”. The market is consolidating, some companies would give up, others would stay, says IFH trade expert Hudetz. But the offer will not go away. The growth potential remains too great.
According to the German Trade Association (HDE), the retail trade made 204 billion euros in sales last year. The online share was only 2.4 percent. Competitors who are solvent are positioning themselves. With its Lieferando brand, the Takeaway delivery group has dominated the market for restaurant deliveries in Germany for years. A few days ago Lieferando set up its own warehouse for groceries in Berlin-Charlottenburg. From there, more than 1,000 products from local brands are now being delivered to customers as a test. Wolt hasn’t given up the food segment either, merely changing the concept.
Deliveries will take longer
Instead of setting up an expensive warehouse infrastructure, the company is now cooperating with local supermarkets, from whose branches the goods are picked up and delivered. Large retail chains such as Rewe or Edeka have also been involved with their own services for some time. Rewe, for example, is not only invested in its own range, but also in the startup Flink.
The French retail giant Carrefour is also on board after Flink took over the local competitor Cajoo. With such business partners, the startup sees itself well prepared for the changing market and is even looking for further acquisition opportunities: “We are taking a very close look at it,” said a spokesman. “We have cash available.” For consumers, this could soon mean a change. Deliveries will take longer and also become more expensive, says trade expert Hudetz. “They need to move away from the 10-minute delivery promises for everyone and for free. It’s going to be a premium service.”