Has grocery delivery gone bananas?

Sascha: [00:00:35] From Equity Mates media, this is the dive, I'm Sasha Kelly, your host. They did say cash is king, but these days it's more like convenience is king. No, I'm a woman so I can open my phone and instantly I've got access to on demand transport. Amazon can deliver me something on the same day. I can order a pizza in minutes and I can watch whatever I want when I want. And now we're starting to see this trend move towards grocery shopping. Over the last couple of years, there's been an absolute explosion in the number of instant on demand grocery delivery companies Uber Eats, Milk Run or Wally. And along with this surge in consumer adoption. There's been equal interest from investors. Today, I want to know, is this convenience culture gone mad or is this the future of grocery shopping? To answer this, I'm joined by my colleague and co-founder of Equity Mates Bryce Leske. Bryce. Welcome. 

Bryce: [00:01:35] Thank you, Sasha. Really excited to be here 

Sascha: [00:01:37] and we're not just hearing from you today. We're also going to be joined by a very special guest later in the episode, the co-founder of On Demand Grocery Start-Up Voly. But first of all, let's get straight into it. Why are we seeing this rise of on demand grocery shopping? 

Bryce: [00:01:52] Well, Sasha, you said in your intro that convenience is king, and these days we want everything now or we want it fast and we want it free. 

Sascha: [00:02:01] Yes, we do. That sounds great.

Bryce: [00:02:03] So these days, getting something on demand is almost a minimum expectation for retailers. Providing goods and services on demand can be a big competitive advantage. But it's also an age old problem known as the last mile problem 

Sascha: [00:02:18] before you get any further into this Bryce. When you pitched the last mile, it's the first time I'd ever heard of this concept. Can you give me a quick explanation? Once again, the last 

Bryce: [00:02:28] mile is the very last part of the delivery process of a product. It's the last leg, often the shortest of a journey from a transportation hub to the final destination where

clip: [00:02:38] you have your distribution facilities. What kind of facilities you have and how you use them is basically the most strategic question that you have to answer. 

Bryce: [00:02:47] Imagine your box has been picked up packed at the Amazon warehouse and it's sitting ready to go. The last mile is that really short distance from the warehouse right to your front door. It's the journey the grocery driver takes from the distribution warehouse to your home to deliver your weekly groceries. The last mile problem is that this part of the journey accounts for a large portion of transport costs and can be very, very complicated. It can actually account for up to 53 percent of the total cost of shipping. 

Sascha: [00:03:18] I can understand it's a bit of a pain to deliver my emotionally charged purchase of a bottle of red wine. Maybe a box of chocolates, something from Adore Beauty, but 53 percent is massive. I had no idea it was that much of the total cost of shipping. Why is this the case? 

Bryce: [00:03:35] So you mentioned your bottle of wine, your groceries, your products from Adore Beauty and these are all sort of individual small products. And the biggest factor contributing to the last mile problem is the cost of transporting individualised shipments to distinct, often unreliable destinations through constantly changing routes. It's not like the FedEx or Australia Post driver can rely on a set route every single day, and every trip is different and at all costs, there's a level of unpredictability that is most challenging for retailers looking to perfect the last mile.

Sascha: [00:04:09] I'm trying not to take it personally, but yes, my shopping habits are unpredictable, so I have to agree with that. 

Bryce: [00:04:15] So other factors that go into the last mile problem customer availability like Sasha will always be home to accept the parcel.

Sascha: [00:04:22] I don't know why not package

Bryce: [00:04:25] congestion on the road. Seasonal volumes variation in routes, different parcel sizes. It all adds to the complexity and unknown aspects that go into this part of the journey, and that's why it is so expensive. So due to the high costs and complexity of the last mile, grocery is one industry that for a long time has been quite behind the eight ball when it comes to on demand delivery. A lot of the big players in grocery have really attempted to keep up with the demand for convenience, offering things like same day delivery. As you said, Amazon do click and collect options and delivery to your boot. But no one's really nailed it, and this has led to the explosion of on demand grocery start-ups. 

Sascha: [00:05:10] It's interesting that you bring that up because when I did live in London, the same day delivery for parcels or purchases like books or non-perishables was much easier. But you still had to plan. You still had to think what grocery food I want in two days time. So you're mentioning now that grocery stores are trying to replicate this purchase experience? Can you? Tell me a little bit more about this. 

Bryce: [00:05:33] Yes. If you're listening in Europe or America, you've had same day delivery of groceries for a while now. But over the last couple of years, there's been a huge jump in the number of On-Demand grocery delivery businesses and buy on demand. I mean, businesses not only delivering same day, but within 60 Minutes. 

Sascha: [00:05:52] So that's really going to that convenience culture of like, I open my phone and I've run out of milk. You know, I've made myself a T. The milk's off. I really need something. I don't want to get in my car and go to the shops. I'm going to get something within the hour. 

Bryce: [00:06:06] That's it. I mean, we can get something from Amazon within a couple of hours. We can get something from Uber Eats within a couple of hours. And so that culture is now demanding grocery stores do the same. The US grocery market is estimated to be worth one trillion dollars in the grocery market in Europe is a whopping two trillion. Here in Australia, it's not quite as impressive, but worth a healthy $122 billion. Alongside this growth, there has been record inflow of investment from venture capital funds who have piled in 14 billion into on demand start ups since the start of 2020. A staggering $39 billion is what some of the big players are now worth. Very, very few of these companies, if any at all, make any money. For example, did you know that Uber Eats is actually not profitable tonight? 

Sascha: [00:06:54] Obviating pesto gnocchi and garlic bread to keep me carved up? That's shocking to me because based on my orders, it should be profitable, so I really want to know. You've mentioned the U.S., you've mentioned Europe. Let's go to Europe fast. Who are some of the major players? 

Bryce: [00:07:09] So Europe is one of the most established regions when it comes to On-Demand grocery delivery, with some companies having started operations all the way back in 2015. But Sasha, let me tell you, it is a game of growing and acquiring at a rate of knots. Some of the major players include Gettinger, based in Istanbul. The name means bring it. They've raised four hundred and twenty eight million, valued at $2.6 billion. They're going to get here. You've got it. However, they are not profitable. On the whole. The business is not profitable and will continue to be unprofitable as it expands. That is a quote from the CEO of Berlin based company Gorilla's. They raised $290 million. They can deliver anything in under 10 minutes. They are also not profitable. Globo, a Spanish company, they raised 450 million euro and no surprises there. They are not profitable, despite the CEO saying they could be. Not really sure why they would say that, but 

Sascha: [00:08:08] that sounds like it's a choice miss. I'm assuming 

Bryce: [00:08:11] it's not. It's a bit silly. The other names fancy dangers that flank many more established names in in the UK, but again, the message here is that they are not profitable.

Sascha: [00:08:23] OK, let's travel across the ocean and go to the United States. These same names making a play in the U.S. as well. 

Bryce: [00:08:32] No so different names in North America. Instacart, the largest grocery focussed On-Demand delivery service in the U.S. They recently valued at $39 billion, and they have a slightly different model to some of the other players in the market, but no surprises. They're not profitable, either. 

clip: [00:08:51] No one can deliver your mom's homemade short ribs.

Bryce: [00:08:57] Gopuff they're in Philadelphia, they raised one point one $5 billion, valued at just shy of nine billion. They do have a different model, and three quarters of their distribution warehouses are profitable, but not an entirely profitable organisation. And then DoorDash, they're a US leader for restaurant deliveries, but they're expanding into groceries now with this booming demand for convenience and on demand delivery, despite being the leader for restaurant deliveries. They are also not profitable, so there are some other big names South America rapidly and grab over in Asia. Plenty of massive names out there. They've raised huge amounts of money. Investors are pouring money into it because they see great opportunity for grabbing market share. But the question that we raised at the start around is this demand for On-Demand grocery going to stay. It's hard to tell, given how unprofitable all of this is. 

Sascha: [00:09:58] Bryce that's been a great one to one. You've told me what the last mile problem is. You've absolutely floored me with the fact that so many of these are unprofitable when so many of my peers, so many people I know, just rely on the convenience and pay a premium for it. So after the break, we're going to talk to the founder of one of these on demand companies to help us understand if this really is the future of grocery shopping. Let's do that in a couple of minutes.

Sascha: [00:11:05] Welcome back to the dive, I'm Sasha. I'm joined by my colleague and the co-founder of Equity Mates Bryce Leslie, and today we've been talking about the future of on demand grocery shopping and the problem of the last mile. Before the break, Bryce, you explained why we've seen an explosion in instant grocery start-ups and he gave me some examples, gave me a bit of a who's who in the is around the world. But with so many of them, literally every single one you are naming was unprofitable. My big question is, is this going to be here to stay? 

Bryce: [00:11:38] Great question, Sasha. Now I don't run one of these grocery stores, but two, we are fortunate enough to know someone who does. So I jumped on the phone with Marc Haith is the co-founder of Volley. As you mentioned, an Australian on demand grocery start up earlier today to find out what his thoughts are on the future of on demand grocery. So I'm joined by Marc Heath, co-founder of Voly. Mark, welcome. So let's start at the top. Can you explain to us what is volley?

Mark Heath: [00:12:10] So really simply, we get groceries to your door in 15 minutes or less? 

Bryce: [00:12:16] That is very simple. 

Mark Heath: [00:12:18] You're essentially a lost ball player, which means that we have a series of dark stores we call them. So stores without customers in them, we stock those with with groceries, alcohol and we're adding new lines and ranges every day. And yeah, through our application, you press a button. We pick, we pack in a couple of minutes time and then we get it to your door unlocked. That transaction from pressing the button to getting it to your door is 15 minutes or less. So quite literally, the last mile has been turned into last minutes. 

Bryce: [00:12:51] It has been fascinating to see, and I think, you know, there's no doubt that COVID has accelerated the adoption of the online delivery. You mentioned the doc stores, but can you unpack that a little bit further? Like, we have a lot of conversations with mates, you know, having a few beers and we all have sort of our idea of how you do deliver in 15 minutes. But like, do you own the full supply chain you vertically integrated? Can you just talk us through that a little bit more? 

Mark Heath: [00:13:18] I would. I would love to hear some of the ideas you guys were trying to work on in the way it works. So we own the inventory. So that means that we spend a lot of time talking to our customers and talking to local suppliers and saying This is what people want and we go out and resource those products and we buy them ourselves and we bring them into our network of stores. And that's a really important muscle for us to build because it means that we can respond to your needs and we're very agile at it. So when you say innovative, integrated, it's it's us connecting directly with suppliers. We don't go through the wholesalers, et cetera, and bringing in really, really agile supply, depending on what people want on any given day. And then, you know, when that's brought into these stores, into the stores or the network, we we track every bit of inventory. We know exactly where it is on a shelf, you know, whether it's in store a day or so, etc. And when you order from us, you know, essentially we just print out a calculation of, all right, we need to walk around these aisles, pick these things off the shelves and put it into this bag and get it on a career and get it out the door. So at that point, it becomes all about pops, really just operational excellence, and we're building that muscle every single guy. 

Bryce: [00:14:35] He spoke about The Courier, and I've noticed that one of your big call outs on your website is how you treat your workforce and how that is different to the traditional idea of a gig economy who contract their workforce. But how do you treat your labour model differently? 

Mark Heath: [00:14:54] Full disclosure I used to work at over and the gig economy has its place for us. We we directly employ every member of staff, every team member. So it's a career is sending up to your door with groceries in hand. That person is employed with full benefits and assurance. We provide the bike safety equipment, training the law and the reason we do that is, you know, it is obviously fantastic for our customer experience to have that person turning up, you know, with an amazing attitude and being incredibly invested in you, having a great experience as a customer, but to go a little deeper here as well, because we are delivering from a network of stores that is based, you know, you're not going to a different restaurant or whatever it might be. Each time we have the same customers over and over again, we're building trust and frequency. And so for us, we can also build trust, frequency and efficiency into our career base by having them repeat orders over and over and over again. And so what that means is you're very likely to get the same career every time. He's very likely to know the shortest way to your house, very likely to know how to get up your apartment building and get. Theodore as well, and all of these things come back to efficiency, but also a fantastic and virtuous cycle of customer and career experience. 

Bryce: [00:16:11] So one question that our audience have sort of asked this similar question, and that is why don't these sort of large retail incumbents, the Woolworths, the Coles, the Wal-Marts? Why don't they just do this themselves?

Mark Heath: [00:16:24] Look, I think those in their minds potentially done part of this, you know, in in the partnerships they've done with the online food delivery players. So, you know, very soon you DoorDash's. But the reality is, you know, even that service doesn't really compare to so what we do and how quick and reliable and efficient we can pay. I think you would see them potentially try and do something like this over the next 12 to 24 months. And you know, when they do do it, they'll be thinking about planning it around their existing infrastructure to do something like this that inherently we have the absolute benefit or opportunity of building this thing from scratch. We set it around you as a customer. And so it's going to be a challenge for them to sort of adapt and be able to compete on this level

Bryce: [00:17:09] and to close out. And thank you so much for your time to help us unpack this. But if you were to be acquired by one of the two big retail firms here in Australia, Woollies or Coles, who would be the dream acquisition 

Mark Heath: [00:17:23] I'm going to go with Option C. Neither know what we're building here. If you zoom out is next minute delivery infrastructure, which is going to be the customer expectation for every industry in Australia in the next few years. So it's not about selling the Woollies or Coles. It's about all of those other adjacent industries that are going to have to provide that service to their customers, and it's going to be offset on that infrastructure. So we're not selling.

Bryce: [00:17:49] So, Sasha, some great insight there from from Mark. And no doubt he's very bullish on the future of not only on demand grocery but on demand delivery in general. But some of my closing thoughts, while money has poured into the industry and it continues to grow at a rate of knots, it's worth noting that these companies are just a means to an end and they really only just getting us the products faster. But have they really solved that last mile problem? Convenience culture isn't going anywhere. We're still going to want everything fast and everything. Now the question is, can these businesses find a sustainable way to do it to ensure that this is the future of grocery shopping?

Sascha: [00:18:30] Well, Bryce, I hope they can, because I love the fact that I can get things to my door in under 60 Minutes. I know that's a very selfish to answer, but I'm just being honest because if you can't be honest with friends, who can you be honest with? 

Bryce: [00:18:45] That's it, Sascha. 

Sascha: [00:18:46] Thanks so much for joining us for today's edition of the dive. If there's a story that you want us to talk about, then contact us. The dive at Equity Mates WSJ.com is our email address. It's in the show notes below, or follow us on any and all of the social media channels. All those details right there in those notes in your podcast player. Remember to give us a rating and a review. Five stars, please really appreciate it and subscribe. So every time we drop a new episode, it's right there in your podcast play. At the moment it drops. Thank you so much for joining me today, Bryce. Until next time