Path to Profit: 12 Steps You Can Take To Accelerate Your Path To Turnaround And Profit
How Leading Organisations Blend the Best of Digital and Physical Retail Build Sustainable Revenue Growth, Agility And Scale
Every company faces a fundamental strategic question: Which functions should it own and manage directly, and which should it pay outsiders to run? The rise of mobile computing, the cloud, data analytics, and AI have made it possible for upstarts to disrupt the retail landscape, giving rise to a proliferation of Quick Commerce/ Smart Mobility and Rapid Delivery startups, and cities like Berlin, Amsterdam, Paris, London and Cape Town are seeing explosive growth in this space. At present, more than 12 companies compete across Europe with an instant grocery delivery business model of which half were established in the last 12 months on the back of the pandemic. These companies have raised more than $2B to date. In a market dominated by Europe´s incumbent supermarket chains, with an overall $2T+ flat market. The Trillion dollar question on everyone's lips is what will it take to win? Who will win the race between the quick and the dead? Which business models will come out on top as incumbents and upstarts go head-to-head in the latest grocery wars?
''The entrepreneurial journey starts with jumping off a cliff and assembling an airplane on the way down.'' — Reid Hoffman
Grocery delivery isn't a new concept. Our great-grand parents used to walk into their local neighbourhood store, place an order and then walk home without having to lug their bags home with them. The groceries would be delivered shortly afterwards, often by a teenager, someone you might even know personally, on a bicycle. Not long ago in places like Garforth in Leeds or in cities such as Glasgow, eggs, bottles of milk, even kiln smoked kippers, would be delivered weekly to one's doorstep by a friendly face who would often let their customers pay at the end of the month. Intense competition in the 80's and 90's resulted in Store Wars that led to a shift in that landscape.
Over time, this gave rise to a proliferation in store formats. The battle for market share led to more innovation and the hyper-fragmentatation of product categories and sub-categories, ultimately resulting in a fast moving 'overpackaged' goods industry. The pandemic, along with its resulting supply chain issues, supercharged the world´s largest online grocery market.
Roll on to 2021, and quick commerce is disrupting how consumers used to shop. At least in
the major conurbations, for the time being, and will certainly continue to grow as incumbents battle it out for a place on the podium.
Economies of scale are still a huge advantage, favouring traditional but slower to adapt incumbents, although in some ways it’s harder than ever to manage a sprawling organisation across regions, countries, or continents. It takes strong and agile muscles to act “glocally”—making the most of both global scale and local expertise in challenging, distinct markets.
The instant grocery model has been one of the favourites of European entrepreneurs and VCs over the past twelve months when evaluated by the numbers of new ventures and funding. By comparison, investors seem to be undervaluing brick&mortar retailers.
Carrefour, which is valued only 50% higher than Getir, already has a +10 000 store network and does all sorts of Food Delivery services. But buying retail estates and land grabs are not enough if you're a Tesco or a Carrefour if you're no longer a preferred choice of customers. New startups are now offering a convenient, seemless experience, with a 5-15 minute delivery window. That's quick! Plus, the superapp data plays and benefits to the end consumer have not even featured yet.
Existing and well-funded players like Delivery Hero are also joining the race, focussing on merchandising/ assortment whilst also doubling down ON retail fundamentals, differentiating their offering in all aspects of service to build customer loyalty long-term, while managing the make or break tensions between delivery speed and average order value. Leading analysts and VCs point to lessons further afield, from the world´s largest online grocery market China, where online grocery penetration is >20%. Companies like Getir from Istanbul (total funding: $1B, last valuation: $7.5B) and Gorillas from Berlin (total funding: $335M, last valuation: $1B) are leading the way. Gorillas announced its $290M Series B less than 3 months ago, and achieved unicorn-status, within 9 months of launch; the fastest for a European start-up company to date. Gorillas is seeking Series C financing between $500M-1B at a $6B valuation.
Yet, there are many more companies chasing the success of Gopuff in the US and Getir / Gorillas in Europe. In total, there are now 10+ companies across Europe with more-or-less the same business model. Those include Flink (Germany-based, $300M raised), Zapp (UK-based, $100M raised), Dija (UK-based, $20M raised), Jiffy (UK-based, $7M raised) and Cajoo (France-based, $6M raised). There is also JOKR, which was started by the former CEO of foodpanda. JOKR was established only in Q1 2021 but raised one of the largest ever initial seed rounds (rumored to be $100M) to bring the model to Europe, Latin America and the US.
In Europe´s capital cities – especially Amsterdam, Berlin, London and Paris-pedestrians and cyclists need to dodge the delivery drivers and rides, as companies are going head-to-head in the battle to win customers.
Gopuff just entered Europe via the acquisition of UK´s Fancy. For Fancy no numbers are known.
Getir is still only present in 7 Turkish cities and London. Around 10% of app downloads came from the UK during the last 30 days while 85% came from Turkey, according to AppMagic data.
Gorillas are operating in 30+ cities (incl. Berlin, Hamburg, Munich, Paris, London, Milan, Amsterdam and New York), with around 200k registered users with the majority of downloads still coming from German users. Job postings by Gorillas point to future activities in Australia, Hong Kong, Israel, Japan, Mexico, South Korea and the US.
The Path To Profit: Building Sustainable, Profitable, Equitable Growth.
The Secret Sauce: Machine Learning, Advanced Revenue Growth Management (RGM) Analytics, And Customer-Centric Design.
Whilst the models are still being tested, and for now revenue is king, there will be a moment when profitable revenue growth becomes a key metric. Lessons from China point to a myriad of different business models that existing and emerging internet companies are taking to capture the online grocery space. They involve different combinations of SKU quantity, category coverage, pricing and delivery speed and bring different value propositions for consumers, depending on the nature of purchase (from impulse to planned) and development stage of geography operated. On this aspect, it is important to note the inverse relationship between delivery speed and SKU offering (less choice also tends to lead to lower average basket size), making many slower models more attractive from a platform operator / profitability point-of-view. That said, Getir and a few more traditional players in the UK are resorting to classical marketing and advanced revenue growth strategies and tactics.
Key Focus Areas:
Assortment, assumptions on key categories and frameworks for building sustainable revenue growth, anchored to consumer needs and occasions. Leading with a Fifth P style SOCC framework to focus on customer lifetime value and needs, opening up categories such as dentistry, eyeglasses, pharma, adult toys, etc. Think last minute Lovehoney, or Airpods, or laptop chargers. Easy to deliver, and higher spend per trip. Building loyalty by grabbing a share of the customer's total convenience requirements. SOLVE FOR REAL-TIME INVENTORY AND PROMOTIONS! A buddy app, where 3 housemates or work colleagues can share costs of delivery adds community value plus it also leads to a 3x improvement in unit economics ie cost
When it comes to SKU count and assortment, the average number is around 1000-2000 in Europe, and in some cases going up to 3000 SKU's in China. Early adopters shop for more fresh, organic products, although increasingly new categories such as DIY, tools, adult toys, beauty and perfume, are being considered. Use small scale experiments to 'Test & learn' to determine what works and what doesn’t.
Europe´s supermarket chains are much more dominant and have established strong bonds with brands and suppliers over many decades, operating advanced logistics systems. Leading grocers such as Albert Hein (Ahold) have experienced significant revenue growth in the last year (many hitting double-digits) and blending agility and scale. Much like Wallmart and Kroger in the US, they should not be underestimated.
Build adaptive frameworks and ecosystems that now go beyond conventional models, building +4 dimensional marketplaces that speak to retailers, brands, customers, riders/ shoppers and suppliers to enable a slick geographic density ordering model.
For a quick commerce business, RGM becomes a strategic asset, where RGM is the application of advanced analytics that predict consumer behaviour at the micro-market level and optimise product availability and price to maximise value growth. This is the secret sauce for Goliaths and will become increasingly important for disruptors to survive.
Machine learning becomes an explosive capability helping with tests for assortment, pricing and advanced revenue growth ie predictive algorithms using historical data to predict what conditions will look like, eg. seasonality, transit times, real-time traffic data, parking models to calculate how long it will take to navigate a store's parking lot, all important aspects to a 10 minute delivery promise.
Test & learn: harmonise & control assortment, focus on core range, mapped on convenience planograms and/ or wholesale assortments that suit the geo-demographic location; know exactly what these are and don’t change too frequently. The more you change, the more it impacts the speed of the picking and packing, and therefore efficiency/ cost.
In an order density model, efficiency and speed are key metrics. Purchasing functions are expensive at the first and second phases of a modular scaling plan.
For profitability, growth and revenue is critical. Key levers for this is average order value (again, think core range ie fresh food, beverages, dairy, bakery and confectionery, then upsell with Health/ Pharma (Africa/ Europe), medication, toys, batteries, everyday toiletries, beauty, perfume etc.
E-pharma (high value, high frequency) offer excellent margins, in compact, easy to ship packs e.g. Zurose in Suisse
Owning more aspects of the technology stack can increase customer intimacy, while owning fewer makes it easier to master the ones that matter most; focus on developing a sophisticated approach to balancing partnerships and ecosystems.
Optimise for local but build efficiencies from frameworks for service and revenue growth excellence from global.
Sources and publications:
https://spectrum.ieee.org/the-algorithms-that-make-instacart-roll
https://www.chargedretail.co.uk/2021/11/05/gorillas-expands-delivery-offering-with-groupe-casino/
https://progressivegrocer.com/how-google-helping-grocers-automate-e-commerce
https://www.businessinsider.com/future-of-e-commerce-logistics-watch-2021-11?r=US&IR=T
https://resources.algolia.com/videos/video-introducingvisualeditormerchandising-retail
The Brawns and Brain Company, Robert E Siegel, lecturer in management and has led primary research and written cases on Google, Charles Schwab, AB InBev, Instacart, Stripe, Target, AngelList, 23andMe, C3.ai, Majid Al Futtaim, Tableau, PayPal, SurveyMonkey, Medium, Autodesk, Minted, Zuora, Axel Springer, and Michelin, amongst others. He is also a general partner at XSeed Capital and a venture partner at Piva Capital.
Written by:
Andrew Soteriou, Co-Founder, COO, CEO/ Entrepreneur/ Venture Builder/ Powering Impact & Innovation At Scale | Growth Cultures, Advanced Analytics, Human-Centred Design, fmr Global Price & Strategic Revenue Growth Director at UpClear (New York & London) and CMO at Strategy & Consumer Tech Scaleups
Speaker: US Consumer Goods And Technology forums, webinars and keynotes events delivered in London & New York, speaker at the Price Optimisation Institute (Geneva and Budapest), and panel member and keynote speaker at the AI/ Big Data and Smart Cities Expo (Amsterdam)
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