The food delivery market is a growing area with a current value of over $150bn.
“83% of consumers say convenience while shopping is more important to them now compared with five years ago”.
This new industry still has some growing pains, with concerns over how to become profitable, as well as how to handle their workers.
Just last week, the Dutch supermarket chain, Jumbo, and the German instant grocery delivery company, Gorillas, announced a partnership within the Netherlands and Germany. This strategic partnership would mean that shoppers will be able to get Jumbo groceries delivered to their homes by Gorillas within a few minutes. This move is in line with the growing consumer demand for more shopping convenience. According to IFT, “83% of consumers say convenience while shopping is more important to them now compared with five years ago”.
According to the consulting firm Mckinsey, food delivery has become a global market with a value of over $150bn, with the Dutch company, Just Eat Takeaway having $9.67bn market capitalization. This has over time evolved into the launch in the last few years of several companies seeking to fill the market gap of instant grocery store deliveries, with companies like Flink, Gorillas and Getit emerging. Covid -19 arrived at the perfect time for these young companies, as more consumers stayed at home and opted for these fast delivery services. Since then, investors have also been taking note of these startups, and have invested 14bn dollars into these companies during the pandemic alone.
However, despite 2021 leading to a growing number of customers and more money being poured in by investors, there are still growing pains for the industry as a whole. One major problem is the fact that many of these companies are bleeding cash, which leads to the question of whether or not these companies will ever be profitable, and what changes need to be made to make that happen. According to the consulting firm Simon - Kucher, there are three main strategies which firms can take in order to reach the point of profitability:
Raising the minimum delivery amount
Higher fixed delivery costs
Higher product prices
Another factor which may eventually lead to the profitability of certain firms is the exit of some companies from the market, as well as market consolidation. In 2021, there were already discussions of the possibility of a merger between Gorillas and Flink, which could lead to the formation of a $5bn company. Although the talks between these two specific companies fell through, there is still room for consolidation between other players in the market to increase their market share and boost profitability prospects. One other problem facing the firms is how to handle their employees. Just last year, Gorillas workers in Berlin were on strike over working conditions and pay, and this is an issue which will continue to be problematic for the gig economy as a whole.
Overall, we can see that the growing taste for convenience which consumers have is not going to falter anytime soon. With more and more investors hopping on to this new growing industry, we are left to see how these companies will continue to meet customers’ insatiable demand and expectations, and what new products may come out of it.