Consumers embraced instant delivery during the pandemic because of its convenience, making it one of the fastest-growing segments in grocery. Although it still has a small share of the market, retailers must now determine whether and how they want to capture market share in instant delivery and how they want to further differentiate their other e-commerce propositions. The market is likely to continue to grow and evolve at a quick pace, requiring an agile response and an evolved business model from both incumbent retailers and (instant) delivery players.
Instant grocers, often backed heavily by venture capital, private equity, and technology investors, have rapidly disrupted the EU online-grocery landscape. In the first nine months of 2021, nearly $5.8 billion was invested globally in “dark convenience stores.”1 The instant-grocery boom raises numerous questions: How big will instant be, and how will it evolve? Will customers continue to use it? How will retailers respond? And will there be a road to profitability for the business model?
Consumer needs are trending toward ultraconvenience
Instant grocers offer immediate delivery (typically within 30 minutes), often delivered by drivers on electric bikes or scooters and fulfilled from urban dark stores or microfulfillment centers. In our European-consumer survey,2 33 percent of instant-grocery customers in France, Germany, the Netherlands, and the United Kingdom indicated they value this service because it offers ultraconvenience (Exhibit 1). They perceive instant delivery to be faster than shopping at a store, and they see it as a solution for their direct-consumption needs and cravings when they are unable to leave the house, typically from the hours of 4 to 10 p.m. Our analysis also found that respondents’ instant-grocery shopping replaced purchases in other channels; just 9 percent of respondents indicated their purchase was additional (for example, for extra snacking, a special celebration, or a seasonal event).
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Customers prioritize the following criteria when choosing an instant grocer: an intuitive shopping and user experience (32 percent); the fastest delivery (30 percent); reliable, high-quality delivery (29 percent); availability of products (27 percent); and a relevant assortment of products (26 percent).
A critical question is whether consumer demand for instant delivery will endure after the pandemic abates. In contrast to scheduled e-commerce shopping, respondents in our instant-grocery survey indicate a positive net intent3 of four percentage points. In all, more than three-quarters expressed an intent to maintain or increase their current use of instant delivery (Exhibit 2).
Competitive responses reflect growth and consolidation
Several instant players—such as Flink and Gorillas—have grown rapidly, adding a combined total of about 350 locations through the end of 2021. Some players are reporting revenues of approximately €500 million and claim they have achieved profitability in certain urban hubs. Most customers (47 percent) have used just one instant provider to date. But a significant group of customers (42 percent) use two or three providers, switching between providers for rational and opportunistic reasons.
Incumbent grocers have responded with instant propositions (for example, Ocado Zoom, Sainsbury’s Chop Chop), partnerships, or even “VC-like” investments in instant players (for example, Carrefour and Cajoo, and Rewe and Flink). Meal delivery platforms such as Deliveroo and Uber Eats have added groceries onto their platforms and sometimes also offer white-label partnerships to incumbent grocers.
We also see that the instant-delivery industry is consolidating faster than the meal delivery industry did initially. DoorDash acquired Wolt and Gopuff bought Dija in an attempt to internationalize their footprint, while instant players such as Gorillas have purchased local heroes (for example, Frichti). Furthermore, meal delivery platforms have made strategic acquisitions, such as Delivery Hero’s purchase of a majority stake in Glovo. This could reflect increasing scrutiny on the next rounds of investment.
Navigating the headwinds: The State of Grocery Retail 2022: Europe
Sustainability of the business model and economics
Instant delivery’s business model is still evolving. Most instant players are improving their basket economics by improving their average order value with attractive assortment additions (for example, including over-the-counter health and beauty products, specialty food and alcohol, seasonal products, and select nonfood items) and by optimizing fees, pricing, and personalized offers. We also see attempts to improve fulfillment costs and the cost of goods sold (COGS), often through direct sourcing from manufacturers and retailer sourcing collaborations or through an increased share of private-label goods. Additional opportunities include extending assortments with relevant goods, adopting technology, and evolving the business model toward profitability. For example, companies could differentiate the proposition of a given location to make it suitable for different demand density, move toward a platform or marketplace model, or develop an advertising or data monetization platform. However, this would happen in an environment with many uncertainties on future financing, with technology and regulation requiring players to anticipate changes and stay agile.
Consumers indicate some of their instant-delivery needs are still unmet (such as meal delivery, pharmacy product options, local food shops, and pickup services). If providers succeed in addressing these additional convenience needs, they could further improve their share of the market and attraction to consumers. Given the track record of growth and attraction of funding levels of instant players, more innovation is likely on the way.
