Grocers and delivery firms delivering timely partnership

The economics of grocery delivery have always been hard to crunch, but partnerships between groceries and delivery companies are providing a way out.

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Grocery delivery has long been a problematic area for the major supermarkets. Since they first began experimenting with the internet as a platform for taking virtual orders over 20 years ago the model has proven stubbornly unprofitable. But they are fully committed to the channel, because customers now expect it and their rivals all offer it, so they continue to work on the economics.

Meanwhile, the take-away food delivery aggregators including Deliveroo, UberEats and Just Eat have also found it tough to generate profits from their models that have involved working with take-away brands and restaurants where the margins are thin.

Against this tough backdrop tie-ups between the delivery companies and the major grocers is proving appealing. It enables both camps to bolster their existing volumes of business and broaden their service propositions. The major supermarkets are able to tap into the appetite for on-demand grocery deliveries without the pain of having to set up yet more expensive infrastructure.

Working together

Among the partnerships that have been struck are: Just Eat working with convenience chain One Stop; Sainsbury’s with Deliveroo and UberEats; Asda with Deliveroo; and Co-op is gradually extending its partnership with the Deliveroo platform to offer delivery from 1,400 stores. Where it works particularly well is with retailers that have wholesale businesses – namely Co-op and Morrison’s – as they have the relevant mind-sets and infrastructures.

For Deliveroo, grocery is proving particularly valuable as it helped the company halve its losses for the first six months of the year and it is set to return £250 million to its shareholders. Such has been its success at delivering on-demand groceries for the major supermarkets and food retailers that it now works with 8,000 grocery partner sites in the UK & Ireland along with 10,000 overseas. This currently equates to 11% of its business globally, and a higher proportion within the UK where the company is now fulfilling more grocery orders per week than Ocado Retail, according to Deliveroo management.

Deliveroo is extending its partnerships with major supermarkets Asda, Morrison’s and Waitrose that includes the opening of the first Asda store that uses Deliveroo’s Hop (Hop-as-a-service) solution for rapid deliveries. The Asda Express outlet in North London leverages the delivery company’s tech infrastructure and gives Asda access to its fleet of couriers. The outlet also includes a dedicated picking space at the back of the unit where Asda employees prepare orders from the available range of 1,300 products.

Simon Gregg, senior VP of ecommerce at Asda, stated: “This expansion will provide more flexibility to even more customers, who will now have greater choice when deciding exactly how and when they shop with us, with a wide range of products that can be delivered to their door on the same day.”

Going dark

This move follows the opening of two new Deliveroo Hop ‘dark stores’ for Waitrose and Morrison’s that act as dedicated mini-fulfilment centres for the quick delivery of orders for the supermarkets – from an edited range of around 1,500 items. Will Shu, founder of Deliveroo, says: “We’ll add Hop stores where the economics work and where we want to expand more will be Hop-as-a-service.”

The Asda store in North London is the first major grocery outlet in the UK to use this solution and follows its adoption by the independent Supermarket of Dreams and overseas Auchan has licenced the technology at stores in Paris and Lille.

Startups suffering?

Such partnerships between the food delivery firms and the major grocers have put serious pressure on the rapid commerce players such as Getir, Gorillas, Asap, Dija, Zapp, Jiffy, Weezy and myriad other start-ups. They proliferated for a period but most have now succumbed to shutting up shop as their business models proved to be unsustainable. Only this month one of the leaders Getir – that bought Weezy and Gorillas – suffered the resignations of some of its leading executives and it is currently seeking new funding.

Despite this competitive scenario the delivery companies have not been averse to cut a deal with the rapid commerce players. Deliveroo has just announced a partnership with Gopuff that enables it to broaden its grocery offer by listing relevant items from the Gopuff range of 3,000 everyday essentials.

Demanding customers want on-demand

Another area of interest involves expanding out from just offering on-demand deliveries. Suzy McClintock, VP of grocery and retail at Deliveroo, says there is an opportunity to offer “narrow-window schedule” deliveries involving mid-sized baskets of £30-60 that can be ordered for delivery at a set time. Such a proposition would not compete with the scheduled large basket deliveries that the supermarkets handle in-house.

There is also an opportunity for the delivery firms to better integrate the grocery and take-away food elements of their businesses to enable restaurant orders to be topped-up with groceries through the order tracking page on the app. Such a move is smart because there is evidence that customers who use both grocery and restaurants have a higher retention than those who use restaurants only. In addition, grocery orders are incremental to restaurant orders.

Final thoughts

The success of the partnerships between retailers and the delivery firms so far suggests there is much more mileage left in these tie-ups and consumers will no doubt continue to benefit from them continuing to deliver interesting initiatives in the future.

Head shot of freelance business journalist Glynn Davis.
Glynn Davis

Glynn Davis is a business journalist specialising in the retail and food and drink sectors. As well as writing for publications including Retail Week, Ecommerce Age, Propel, Caterer and Retail Bulletin, he’s also the founder and editor of Retail Insider and Beer Insider.

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