.jpeg)
With soaring inflation and mounting pressure from stakeholders for increased profits in e-commerce, where does this leave quick commerce? There is no doubt that consumers enjoy and expect same day delivery. The pandemic fuelled a distinct growth in quick commerce, rapid delivery and on-demand services. But can these businesses sustain this level of growth without profitability and how can CPG brands engage?
Cutting staff and reducing market scope is the latest move from Berlin-based rapid delivery service Gorillas, with a view to boosting investor confidence. It seems the fastest ever unicorn brand has switched its strategy from growth to profitability. Very quickly, and possibly unwillingly. As skepticism grows around the ability of the quick commerce sector to realize a profit, it’s hardly surprising that (at the time of writing) no one has stepped forward to rescue the struggling business. While market confidence in the sector might waver, shoppers' expectations of same day or rapid delivery remain the same. In the true spirit of omnichannel selling, CPG brands must be where their shoppers want to find them.
Have investors lost confidence in quick commerce as a last mile fulfillment option?
Personally, I don’t think there is a global answer to that. It very much depends on the market and also the business model. For example, in January 2022, US pioneer Gopuff was valued at $40 billion and had plans for an IPO. By March, the valuation nose-dived to $15 million and the IPO is now on hold. By contrast, Columbian-based, on-demand delivery app Rappi is moving from strength to strength, now operating in nine LATAM markets.
Rappi’s success in LATAM is in some part due to being in the right market at the right time. Increasing migration in the market combined with a large working class creates the perfect economic model for quick commerce success. But Rappi has also got its internal profitability strategies right. The app offers the widest assortment imaginable including groceries, OTC medication, event or travel tickets, fast food and even cash. Unlike Gopuff which relies on car delivery drivers, Rappi uses bikes - by far the fastest and most economical mode of transport in cities where the infrastructure is poor.
Following the pandemic, many markets became crowded with companies raising large amounts of capital to build very similar services. There was little room for differentiation and go-to-market strategies were focused on rapid growth. Consequently, some markets are still overcrowded and Europe has seen consolidation. Intense competition in the sector is further adding to the profitability challenge.
How CPG brands can achieve growth through quick commerce partnerships
Understanding the fulfillment providers’ business models will be key to defining the strategy and framework for sales optimization in the last mile. What do brands want to achieve: is it branding, margin, customer retention…? Once this is clear, you can begin to tune the fine details around assortment, pricing, content and promotion. And measurement is key. If you can’t measure your execution, how will you know if it’s working?
Lastly, beware of private labels. Quick delivery players are creating their own private labels in an attempt to increase profitability. You will need to address the threat.
- Understand the size of the threat. Your digital shelf monitoring tool should be able to spot and track these labels as they are introduced.
- Focus on the products without private label rivals and use advertising where you can to boost visibility.
You can check out more of our top tips for competing with private labels here.
What does the future hold?
The race is still very much on, particularly in Europe and the US, to see which of the quick commerce, rapid delivery or on-demand businesses will emerge as leaders in terms of scale. Profitability also remains a problem for most.
What will happen to the businesses that are struggling? We might see further consolidation or we might see retailers purchasing rapid delivery businesses in an attempt to compete.
Personally, I think that brands are most likely to take a market-by-market approach to their investment in quick commerce partnerships. They should remain prepared to compete with a rising trend in private labels as investors turn up the heat on profitability. Also we should keep in mind the role Dark Stores will play in increasing profitability, but is this model scalable?
It is hard to predict the future but one thing is certain: successful companies win with structure, processes and scale. Will today’s generation of ‘last milers’ have what it takes to play a sustainable role in this ecosystem?
