Ultra-Fast Delivery Startups May Have Moved Too Fast
Ultra-fast delivery startups that have proliferated throughout the U.S. and abroad might have gotten ahead of themselves, according to a new study that finds that demand for the service is just not that big.
Only two percent of 1,000 U.S. shoppers polled in a new survey from Stor.ai said they were “very likely” to pay an additional fee to have their groceries delivered in 15 minutes. Further, 57.5 percent said they definitely would not pay a fee for the service, Forbes reports.
A representative for Stor.ai said the findings demonstrate that customers prioritize fulfillment over speedy delivery. Twenty-seven percent of respondents said they would use the ultra-fast services more if the user experience improved. Twenty-two percent complained of out-of-stocks as the worst issue experienced when using the delivery platforms.
Such findings were unsurprising to experts on the RetailWire BrainTrust like Neil Saunders, managing director of GlobalData, who in an online discussion last week pointed out numerous holes in the quick-commerce concept.
“The blunt truth is that the vast majority of quick commerce companies had business models that were broken from the very start because the cost of the service they provide is not covered by fees consumers pay,” wrote Mr. Saunders. “On top of that, quick commerce is a solution that went in search of a problem. The vast majority of people do not absolutely need things delivered in minutes.”
“With inflation increasing and companies not able to compensate for the fees, I don’t see this continuing as a needed service,” wrote Richard Hernandez, director of Main Street Markets.
“Unless it is an emergency, there really is no need for 15-minute deliveries,” wrote Zel Bianco, CEO of Interactive Edge.
The Stor.ai survey is not the first indication that ultra-fast delivery might not appeal to a broad base of customers.
Two ultra-fast delivery startups in New York City closed down in a single week in March, raising questions about the long-term viability of the model.
During that week, Fridge No More, a free-fee ultra-fast delivery startup, closed its doors for good after a failed attempt to find a buyer, according to CNN. This came days after Buyk, a startup with a similar model, shut down operations completely. The Russia-founded company pointed to difficulties with bridge-funding caused by U.S. sanctions against Russia as the reason for the closure.
“In NYC [quick commerce] is causing chaos,” wrote Mr. Bianco. “Battery-powered delivery bikes are absolutely everywhere — going diagonal across intersections, through red lights, on sidewalks, going the wrong way on bike lanes and on streets. Do we really want more and more people to be hurt and sometimes killed because you may be dying to eat Thai food tonight?”
More recently, NYC-/Boston-based startup Jokr just announced that it will be slashing its U.S. operations to focus on doing business in Latin America, according to Morning Brew.
And outside of NYC, Berlin-based ultra-fast delivery startup Gorillas in May announced that it would be laying off about half of its global office workforce, according to Modern Shipper.
Even apparent leaders in the space like GoPuff are slowing down after a period of rapid expansion early in the pandemic.
GoPuff began scaling back its warehouse operations at the end of May, closing or pausing operations at 22 of its 600 warehouses, all of which were experiencing low order volumes, according to The Real Deal. The startup also laid off three percent of its global staff in March.
Some BrainTrust members did, however, see a place in the retail landscape for the delivery model; the questions were how and for whom.
“As consumers, we will always take the faster but lazier approach,” wrote Ken Morris, managing partner at Cambridge Retail Advisors. “Were fast-food drive-thrus a fad? I don’t think so. No, if ultra-fast delivery is to succeed and push beyond the low numbers in the Stor.ai study, retailers must get fulfillment and service quality right.”
“There’s a lot of hype around on-demand delivery and, if executed well, it can build brand loyalty,” wrote Nicole Kinsella, SVP of global marketing at Fluent Commerce. “But you need to get your inventory accuracy up so you don’t end up disappointing customers and having to cancel orders. Companies should approach investments in ultra-fast services cautiously. And definitely make sure they get their stock availability right first.”
“I do think there is a market for this service, but it’s small and very niche,” wrote Gary Sankary, retail industry strategy at Esri. “I see high-end grocers continuing to provide this service to differentiate themselves in customer service. I also think in high density neighborhoods there might be demand for a few specialized items. Day in, day out grocery shopping? No.”