How Q-commerce startups are disrupting the online grocery industry
May 26, 2021
The formerly niche online grocery sector had previously been experiencing steady growth but was a small part of the industry*. This growth accelerated rapidly throughout the pandemic. In the spring of 2020, the demand for online groceries doubled in Italy. In the UK, Tesco’s online business jumped from 9% to 16% of national sales, while Ocado reported a tenfold increase in demand, and web traffic was 100 times higher than before the pandemic.
Untapped growth potential
Online growth during this period could have been even higher, but the demand for online groceries often exceeded supply, as some retailers struggled to cope with the surge. The availability of delivery slots has been an issue for some supermarkets during the pandemic, especially where the store had limited ability to ramp up deliveries to meet demand. As a result, customer satisfaction with grocery delivery remains low in some countries. Food delivery apps like Deliveroo, DoorDash, and Uber Eats also prospered during the pandemic, folding grocery deliveries into their business model to take advantage of this megatrend and satisfying some of the increased demand for fresh, healthy food delivered rapidly.
The long-term shift in shopping behavior
With new habits now formed, it is expected that many shoppers will continue to shop for groceries online post-pandemic. Indeed, McKinsey reports that only a “muted return to stores” has been seen to date, and they expect to see “the share of online sales to continue growing at a faster rate than it did before the COVID-19 crisis”. They also note that 10% of households expect to increase their online share of grocery volume.**
The chart below demonstrates how Statista forecasts the size of the online grocery market in Europe will continue its healthy growth trajectory – with Germany experiencing a compound annual growth rate of 23.2% between 2018 and 2023.
Forecasted online grocery market size in selected European nations from 2018 to 2023
Investors rush into the sector
Capitalizing on this predicted growth, an agile new arm of online grocery shopping is shaking up the industry. Several start-up businesses seek to change the grocery landscape with local warehoused services promising wholesome, fresh food delivered in less than 10 minutes. These quick or Q-commerce newcomers are the next-generation of e-commerce and are all about being fast. They are currently catching the attention of investors across Europe, as many well-known funds are backing them, including Blossom, Cherry Ventures, Heartcore, Northzone, and Target Global. This funding appetite is born out in the figures, with Dealroom stating that EUR 262 million was raised in Q1 2021 by Q-commerce grocery start-ups. Pitchbook believes these venture-backed grocery delivery firms have raised around USD 1.56 billion in Europe this year alone – already far exceeding the USD 687 million received by the sector in 2020.
Gorillas are one such on-demand grocery start-up. A newly crowned “unicorn”, Gorillas raised EUR 245 million in a Series B, bringing its valuation to USD 1 billion just nine months after launch – a first for a German start-up. Berlin-based Gorillas CEO and founder Kağan Sümer states one simple ambition: “to change the game in the grocery retail market”. This aim resonates with investors, with Gorillas having received repeat investment from Coatue Management and funding from Atlantic Food Labs, Dragoneer, DST Global, Fifth Wall, and Tencent.
Gorillas’ hyper-local approach aims to transform the way that consumers buy groceries and usurp convenience stores with its super-rapid fulfillment. Using more than 40 of its own warehouses (so-called “dark stores”) currently and employing a community of more than 1,000 delivery drivers, Gorillas can offer grocery delivery at retail prices in under 10 minutes.
Competition is set to heat up
Gorillas currently operates across 18 cities but is not the only business seeking to leverage this change in shopping behavior. In Germany, Flink is Gorillas’ main competitor. Flink launched less than three months ago and operates in just eight German cities, yet has already raised USD 64 million. In London, the British brands Weezy, Dija and Jiffy are operational, as well as the Turkish firm Getir. London is a competitive territory, with fierce marketing and discounting endeavors benefitting some neighborhoods.
In the US, Gopuff is backed by SoftBank and was valued at USD 8.9 billion in a USD 1.5 billion financing deal in 2021, while Instacart raised USD 265 million at a mammoth valuation of USD 39 billion. Earlier this month Gopuff made its first European acquisition, making a deal to purchase Fancy, a UK grocery delivery app.
Gorillas has ambitious plans for the future, including technology investment and expansion into 50 new cities in 10 countries. These include New York and Paris, where Gorilla joins Cajoo, which launched earlier this year and is comparatively less well-financed, with EUR 6 million raised to date.
A rush to fund
The land grab has already begun. Grocery delivery start-ups are rushing to differentiate themselves and gain a competitive advantage by honing their operations and expanding at high speed. Investors believe these start-ups will continue to flourish long after the pandemic ends. As these firms gain scale, they will become a target for acquisition and consolidation from some of the big tech names – like Amazon, which already has a presence in the grocery delivery space with Amazon Fresh.
As Yacine Ghalim, partner at Heartcore and a Weezy investor, explains: “Every single VC is rushing to make a bet in this category… I’ve never seen that before”.
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*Disclaimer: The above article is for educational purposes only and does neither constitute investment advice nor should it be considered to be an invitation or recommendation to buy securities or any other investment products. Please consult your financial advisor about the risks and opportunities prior to making investment decisions. By clicking on that link you confirm that you are a resident of Switzerland and a Qualified Investor according to the new Swiss legislation on collective investment schemes (CISA and CISO).
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