Quick Commerce – also referred to as rapid delivery – rocketed during the pandemic - no surprise when goods could be ordered in as little as 10 minutes without leaving the house - but in our view it’s not just a quick fad. The question is, what are the right business and partnership models for it to become financially sustainable and scale over the long term?
Although still significantly higher than before the COVID-19 pandemic, we have seen e-commerce penetration rates starting to tail off in recent months and this is already having an impact on the sector with user sessions and app downloads tapering off. There have been announcements in the press of staff cutbacks from ‘pure play’ rapid grocery businesses like Getir and Gorillas – a sign that they themselves are grappling with the future shape of the market. Inflation is at its highest level for decades, the cost-of-living crisis is worsening, and the unstable geo-political landscape is disrupting supply chains - making it not only more expensive but more uncertain for businesses. Users of rapid delivery services (e.g., groceries) will also be starting to feel the pinch and their purchasing decisions will likely become more cautious as a result. There’s no doubt that conditions have changed significantly since the beginning of the year and the market feels different now. We’re sure to see some fragmentation as a result – but this will create the opportunity for winners to emerge, too.
Our analysis predicts three possible growth scenarios for the quick commerce sector in the UK from today to 2030 despite a tricky global economy:
Base case scenario: a flattening as the market consolidates and natural saturation is achieved. That would still mean a tripling of growth by 2030, from £1.7billion today to £4.4billion in sales.
Upside scenario: growth to £6.1billion, by 2030, which could be 1-2 years longer if the cost of living crisis is sustained beyond mid-2023. This will be achieved through successful partnership strategies and effective marketing to raise consumer awareness and willingness to try, replicating the recent growth seen in the e-commerce channel.
Downside scenario: the market growth slows to only reach £2.7billion. In this scenario, growth is slowed by the cost of living crisis and inflation. As providers struggle to make the model profitable, the market would remain focused on Tier 1, typically large cities (e.g. London, Berlin, Istanbul, Singapore, New York), with a balancing act of promotional measures and pricing elasticity needed to continue to tempt shoppers.
Graph below shows the growth scenarios in the UK for the quick commerce sector, from 2021-2030
Looking at our own team, where we have a mix of Gen Z and also new parents as an example, their usage of (Getir, Zapp, Gopuff, Gorillas etc.) reflects how pure players will need to extend their proposition beyond its present core of urgent/distressed buys (i.e. needing some nappies in a hurry!) to increase basket size. For example, connecting the service to other spend categories like leisure & hospitality, pharmacy or wider consumer goods to unlock larger opportunities (take for example the recent launch of Zapp Boutique). They also need to find ways of extending their core customer base beyond Gen Z and professionals in Tier 1 urban settings.
Another consideration to take a bigger slice of the pie is if pure players look to combine grocery and take-out services, by merging the two, partnering or expanding their offering to cover both. Although a lot of the large aggregators do cover both, these two markets currently operate two separate quick commerce missions however combined could strengthen overall market position.
At present, the pure plays rely heavily on promotions to lure in new users as they grow their consumer base – with over a quarter of items discounted by 30- 40 percent. That’s not sustainable in the long term and a strategy of when to reduce/ switch-off the discounting will need to be in place. Most players are debt-financed and will eventually need to make a profit especially with “cheap” money becoming less readily available.
Our view is that the future market is only large enough to sustain 3-5 credible pure play operators alongside the large aggregators (e.g., Just Eat, Deliveroo, Uber Eats) who are already embedded in consumer consciousness. A divide is becoming apparent between those that are well-funded in the near term, evident in their marketing efforts and visibility across major cities, and those that are smaller scale, more localised, and likely to be subsumed as the market matures. We’re seeing growing demand from these operators to help them think through the M&A market and opportunities that may arise.