Tesco PLC (LON:TSCO), J Sainsbury PLC (LON:SBRY) and Ocado Group PLC (LON:OCDO) all face risks from the added competition coming from a new generation of on-demand grocery startups, Credit Suisse has warned.
With the pandemic driving growth in online grocery, a “new disruptive channel has emerged”, the Swiss investment bank, with on-demand or ‘i-grocery’ services characterized by delivery times of 10-15 minutes from a network of small fulfilment centres in densely populated cities.
The handful of UK on-demand grocery startups include London-based Weezy, calling itself ‘the 15-minute supermarket’, and Dija, which was founded by former Deliveroo executives Alberto Menolascina and Yusuf Saban and is expanding from a few postcodes in London.
Other London-based names include Jiffy and Turkish-based Getir, while there are some adventurous startups that are not just focused on the capital city, including Grocemania, which also offers deliveries in Brighton, while Cheshire-based Beelivery is also delivering in Birmingham, Bristol, Cardiff, Liverpool, Manchester, Belfast and Glasgow.
And Gorillas Grocery, which was started in Berlin and has since expanded into London, Munich and Amsterdam, notched up a unicorn valuation after its latest funding round.
With the big supermarkets’ convenience stores seemingly most at risk from this new on-demand format, Credit Suisse Tesco’s has the highest exposure to the convenience format of the UK supermarkets, followed by Sainsbury’s, where more than 30% of its convenience stores are located in the UK’s most densely populated cities.
“Comparing the percentage sales area of stores at risk, we find Tesco is likely to be more at risk in the mid-term as on demand expands outside of London.”
However, the Credit Suisse analysts said Tesco and Sainsbury’s are both equally exposed to London, which is the key initial area of focus for almost all the UK on-demand grocery outfits.
Wm Morrisons Supermarkets PLC (LON:MRW) is seen as unlikely to be disrupted due to their lack of direct exposure to the convenience format.
On Ocado, they said the new start-ups are “unlikely” to disrupt the online grocery specialist current sales, “we do believe there could be risks to growth opportunities for Ocado Zoom, which offers a smaller range of products for a delivery time of less than 60 min”.