Grocery delivery is not a new phenomenon. In fact, it’s been around for more than 3 decades, although the ongoing pandemic has certainly lifted the market to new heights. However, I should clarify that when I say grocery delivery, I am talking about e-commerce grocery delivery. The home delivery model has been around for a lot longer than 3 decades, with milk and dairy service jumping out as the obvious one.
The e-commerce grocery delivery market has been evolving over the last 3 decades. Founded in 1989 as a small family run shopping and delivery service, Peapod is generally considered to be the godfather of grocery delivery services. Working in partnership with Ahold USA, Peapod enables home delivery of groceries through a variety of regional chains, such as Stop & Shop and Giant Food Stores. An interesting side note, one of the original names that was considered for the business was IPOD, an acronym for Information and Product on Demand. It definitely makes you wonder what Apple would have done with its music player without the use of the name.
The E-Commerce Grocery Market
The e-commerce grocery market is continuing to grow at a rapid rate. Venture-backed grocery companies have raised over $10 billion so far in 2021, according to data from Pitchbook. This is already $3 billion more than firms raised all of last year. This number encompasses overall e-commerce grocery, not just grocery delivery. The pandemic drove more interest in curbside delivery for many consumers that traditionally had not used the Web for grocery shopping.
According to Statista, the US online grocery market is estimated to hit $41 billion in 2021, up from $34 billion in 2020. And by 2023, that number should eclipse $59 billion. For those companies that offer curbside or in-store pick-up of grocery orders, store associates pick items and prepare them for a staging area. These staging areas are usually temperature controlled so frozen food stays frozen and refrigerated items stay cold. Depending on the model, customers either park in designated spots and call for an associate to bring the order out to them or go to the pick-up location inside the store and retrieve their items from a locker-style system.
The other side of e-commerce grocery is the delivery service. The market has becoming saturated with crowdsourced delivery models that generally give specific timeframe windows for when orders can be delivered. The pandemic put added strain on these models, with timeframes selling out in ridiculously short periods of time. Amazon even stopped accepting new customers for its delivery service because the strain on its supply chain was too great.
Grocery Delivery Changes
Instacart is largely considered to be the golden child of grocery delivery. When Amazon acquired Whole Foods, this turned out to be a blessing in disguise. Whole Foods and Instacart had inked a long-term partnership, but with the acquisition, the partnership did not work out out. The result was Instacart expanding its partnerships and relationships with many additional national grocery chains. As of the writing of this article, Instacart is valued at $39 billion.
For most e-commerce grocery delivery services, the turnaround time for a same-day order is anywhere from one to five hours. However, the name of the game is speed, and there are new entrants to the market that are betting big on speed as a differentiator. As I mentioned in last week’s news roundup, more and more 15-minute grocery delivery services are trying to compete with Amazon, Instacart, and DoorDash.
In recent months, several 15-minute or less grocery delivery services have launched in American cities. These startups include Fridge No More, Gorillas, and JOKR. To execute on the concept, these companies use centrally located ghost shops in densely populated areas. The execution relies on streamlined logistics, which is a combination of centrally located cloud stores and software.
Fridge No More is now offering 15-minute delivery in two New York City neighborhoods, with plans to expand across the city by building 40 or more tiny fulfillment hubs in the coming months. The company sells produce, fresh meat and seafood, milk, packaged pasta, bread, and baked goods, using a network of dark stores that hold up to 2,000 items. The company has raised $15.4 million in funding.
Gorillas is headquartered in Berlin and has expanded its service to more than 12 cities, including Amsterdam, London, and Munich. The company lets you order groceries and other household items on-demand with an average delivery time of 10 minutes. The company uses a dark store model with 40 spread across Germany, the UK, and Netherlands. Gorillas recently raised $290 million in Series B funding and has a valuation of $1 billion.
JOKR is focusing on New York City, promising delivery in 15 minutes or less, with no order minimums, and a selection of products that you might find in the local deli or convenience store. The company uses a network of storefronts on side streets in densely populated areas. JOKR has funding from SoftBank, HV Capital, and Tiger Global, but it is unclear how much the startup has raised.
The online grocery market is clearly not going away. The question is becoming “how fast can I get my groceries delivered?” While Instacart and Amazon have been moving towards faster deliveries, the spread-out nature of their businesses make this harder. New entrants such as Fridge No More, Gorillas, and JOKR are using hyperlocal dark stores in densely populated areas to shrink delivery times to 15 to 20 minutes. With more and more funding going into these grocery delivery start-ups, the market will continue to be saturated. At some point in the very near future, it will come down to survival of the fittest. And this survival is going to depend on the greater logistics network.