Quick commerce and new online players. What is a value proposition and challenges for brands?
In the highly competitive sector of food delivery, FMCG manufacturers are increasingly interested in the quick commerce market. They are betting that some of them will survive and have entered a "test & learn" mode. This market questions them all the more, as Gorillas, Deliveroo and Uber Eats are now actively developing advertising offers, to compensate for the difficult profitability of their core business. How can FMCG brands work effectively with them? What are the budget trade-offs compared to traditional retailers?
Article written by Sophie Baqué, published on 1 July 2022
In the niche market of quick commerce, companies (aggregators or pure-players) have not yet reached profitability. However, FMCG brands want to take a position in this market, to be where target consumers are, especially young urban, tech-oriented and upper-class shoppers. They are therefore entering this market in “test & learn” mode, betting that some companies will survive. Is quick commerce a bet on the future or a market with potential? How can brands work effectively with such players, who are actively developing retail media offers? What are their profitability levers and weaknesses?
-March 2022: Getir’s latest fundraising (€695 million)
-July 2022: Deliveroo launches an advertising offer with Criteo in the U.K. to be followed in 10 countries including France, Italy, Emirates and Hong Kong.
-UK’s quick commerce market : € 1.67 billion in 2021 (Statista)
-France’s quick commerce market : €122 million in 2021 and €88 million in the first 4 months of 2022 (January to April) vs €8.7 billion in 2021 for the aggregator market (IRI)
-Average basket : €20 in 2021 (IRI, France)
-Frequency: 8 deliveries per year on average (IRI, France)
-Penetration rate: 13 % of UK shoppers reported already using quick commerce services
-Market share in France: Uber Eats 34%, Deliveroo 7%, Frichti-Gorillas 32%, Flink 9%, Cajoo 9%, Getir 4% (source Data Impact, March 2022)
Quick commerce: 3 types of players
– Aggregators: Deliveroo, Uber Eats (no direct relationship with the FMCG brands. The offer is managed by retail partners such as Carrefour, Sainsbury’s, etc.)
– Quick-commerce: Getir, Gopuff, Gorillas, Weezy, Zapp, etc. Some negotiate directly with the brands (such as Getir), others rely on partnerships with historical retailers (Tesco, Casino, Carrefour). In France, Gorillas sources from the Casino / Monoprix central purchasing office. It also negotiates with certain FMCG brands directly.
– Pure-players: Picnic, Ocado, Amazon Fresh…
Alliances: There are also several types of partnerships with retailers, as we mentioned in this analysis of 23 February 2022.
Challenges for brands
Sourcing and supply. For an FMCG brand, the work with the purchasing and supply-chain teams must meet 3 challenges:
– Be available: have strong brand reputation, demonstrate the impact of SKUs on any increase in the average basket, and minimise the risks of unavailable stock as the main weaknesses of quick commerce companies. In January 2022 in the U.K., according to Data Impact, the out-of-stock index at Getir reached 329 for ice creams, 221 for cheese and 746 for washing powder (compared to a base of 100).
– Be visible, by topping lists of search and keywords
– Be attractive, by optimising prices, product pages, ratings & reviews. Price points are generally higher at quick commerce apps than at traditional retailers. According to Data Impact, in the UK, Gorillas’ average price index reached 105 on ice creams, 111 on chocolate, 107 on cheese, 115 on deodorant and 120 on laundry (data from January 2022).
Category expertise. Although managers in quick commerce companies come directly from retail, many are not category specialists. However, choices concerning the offer and listings have all the more impact as their product ranges are small, with 10,000 references at Picnic but 2,500 at Gorillas and 2,000 at Getir. In the U.K., for example, in the cheese category, Tesco has 359 references, Waitrose 301 and Asda 241, compared with 23 for Gorillas and 13 for Getir (Data Impact, January 2022). Brands can therefore bring their categorical vision to enrich the offer, reference their best SKUs and encourage conversion from enquiry to sale.
Supply-chain. For many FMCG brands, a major difficulty is to adapt logistics to work with these platforms, which have smaller sales volumes. “We deliver full trucks and homogeneous pallets,” explains the e-commerce Director of a major FMCG brand. “In concrete terms, it costs us twice as much to send a lorry full of 10 pallets to deliver a quick-commerce warehouse as it does to send a lorry full of 23 pallets to deliver to a Carrefour. Especially as we have short shelf lives and products that can be broken. In the end, the P&L is not the same as that of traditional retail”. The feedback is the same for this brand: “For us, financially, quick commerce is a balanced channel. The P&L is not valuable, but we have a bet on the future. We are not looking for profitability. We want to be where the shopper is”.
Commercial negotiations. Compared to traditional retailers, negotiations are different with these new players. “The comparisons are not the same. For physical stores, you negotiate promotions, planograms and promotion highlights”, said an FMCG Marketing Director. “In quick commerce, the challenge is to appear on the first two lines in the app”. This is another facet of the key account business, with digital skills that must be integrated.
Challenges for new players
Amongs the French quick commerce players, only Frichti (acquired by Gorillas in March 2022) declared that it reached profitability last year. For the others, there is no doubt that they are not profitable. Turkey’s Getir announced earlier this year that it was projecting a loss of US$1 billion in 2022.
Gorillas does not publish turnover, but it claims 1,200 employees in France, which corresponds to around €60 million in staff costs. Since the quick commerce market reached €122 million in 2021, with a 16% market share for Gorillas in December 2021, revenue from product sales would have reached around €20 million in 2021 (excluding advertising revenue). In 2022, the acquisition of Frichti should enable it to increase sales activity.
In 2020 and 2021, the quick commerce sector was very attractive to investors. By 2021, seven companies had raised more than US$ 1 billion in funding.
However, in recent months, fundraising has become scarce as investors seek more stable investments and interest rates increase. As a result, the quick-commerce market is concentrating, and waves of redundancies are following. In May, Gopuff cut 3% of its payroll worldwide. Getir laid off 4,500 of 32,000 employees in all positions (14% of its payroll). At the end of May, Gorillas laid off 320 employees at its Berlin headquarters (50% of administrative positions) and announced closure in Denmark, Italy, Spain and Belgium.
Advertising, a profitability driver:
–Instacart, Delivery Hero and Jokr are already complimenting their core business with advertising devices.
-Deliveroo, whose share price lost more than 50% in the last six months, is launching an advertising offer with Criteo in July in the U.K., with 10 countries afterwards, including France, Italy, United Arab Emirates and Hong Kong. “The Deliveroo Media & Ecommerce platform will allow brands (non-restaurant owners) to advertise to consumers via the app, the website, and other channels such as sampling, e-mail, social networks and push notifications,” explained Gwenola Coicaud, Managing Director Retail Media EMEA at Criteo. “Brands will be able to promote their products through a variety of activations, from banners and sponsored products on the home page, retailer home page, in navigation and search, to the order tracking page”.
For the past year, Gorillas has launched advertising on its app and has carried out campaigns with brands such as Häagen Dazs and Michel et Augustin. ” For this, we work directly with the brands,” explained Pierre Guionin, C.E.O. of Gorillas. There are few banners available, but this business has been accelerating very fast with us. We’re also going to promote it on the Frichti app”.
At UberEats, developing retail media is also a priority. “We recruited a Head of Advertising almost a year ago to define our global strategy on the subject,” explains Chloé Baruchel, General Manager Grocery & New Verticals at UberEats. We have already launched some features allowing restaurants and retailers to purchase advertising inserts in the app, and will soon do so for brands in the grocery delivery section. At a local level, we are also recruiting teams to have more specialised expertise on advertising”.
Status of platform workers. For FMCG brands distributed on these platforms, as well as for the end customers, this is a key issue. “I think that quick-commerce platforms need to clarify the status of their workers as soon as possible,” explained the Marketing Director of an FMCG brand to mind Retail. “As a brand, we are very careful about our CSR commitment. In concrete terms, we could, tomorrow, decide to leave platforms that do not have their own fleet of delivery staff and opt for self-employed profiles”.
What strategic direction? Another point to clarify is marketing positioning. First of all, with regard to consumers, some companies such as Gorillas are promoting ‘click & collect’ services to escape from the status of “dark stores”. Is this a long-term strategic aim, or a tactical response to pressure from municipalities regarding town center planning? How can such firms broadcast promises of time savings, when the New York City councilman Christopher Marte is working on a bill to ban advertising for very fast delivery times?
With regard to their partners (brands and retailers), some companies say they want to remain supply-chain players, and others want to compete directly with traditional retailers. To clarify their promise, they need to adapt their marketing messages.
Demonstrate R.O.I. To guarantee the sustainability of their model, quick commerce companies have to demonstrate to FMCG brands the incremental value generated on their platforms, and therefore the sustainability of working with them. “The media/advertising offer of quick commerce has to become more professional and more attractive”, said the Director of a European quick commerce company. Few players are sufficiently mature to offer brands precise metrics (ROAS, transformation rate) on investments and advertising performance. “We are becoming more professional, but we don’t yet have the degree of precision that others can offer,” explained to Mind Retail Pierre Guionin, Managing Director at Gorillas. “For the moment, brands can read the click rate, the number of views and the uplift generated on sales.” In this respect, Deliveroo’s alliance with Criteo is an interesting step forward. For performance-based campaigns (linked to product pages), it will certainly be a model of CPC (cost per conversion). In a second phase, when the offer is more mature, the spaces on Deliveroo are likely to be accessible via Criteo’s purchasing platform, and therefore via a programmatic bidding system.
Solve data opacity. FMCG brands, which have to make budgetary trade-offs between traditional retailers and quick commerce, do not have enough data on these new channels. What is the role of a Nielsen, a Kantar or an IRI in regulating data access? “When we are asked for €15,000 a year to have data sharing for a business that weighs almost peanuts, it is not possible for us,” explains the Marketing Director of an FMCG brand.
Conversion rate by product searched
Number of complaints per customer
Number of support tickets related to missing products
Customer retention rate