A host of delivery startups are potentially the third significant change to the grocery landscape since the financial crisis, JP Morgan has warned, putting pressure on the economies of the major supermarket’s online models and convenience format stores.
The investment bank suggested to “play the theme” by buying shares in Delivery Hero, the largest dark store operator globally, and going negative on J Sainsbury PLC (LON:SBRY), where its grocery business is “facing risk from discounters”, traditional convenience is “overearning” versus the expansion of the new ultrafast delivery startup model in London, a management track record described as “mixed”.
The JP Morgan note follows the rise of well-funded “ultrafast” grocery delivery companies in the past few years, which saw a surge in interest and funding during last year’s pandemic lockdowns.
Examples include Beelivery, Flink, Getir, Gorillas Grocery, GoPuff, Jiffy, JOKR and Weezy.
“A new breed of online grocery players is entering large city centers, redefining ‘convenience’,” the JPM analysts said in the note, describing
While some of the big supermarkets like Morrisons used established online delivery players such as Deliveroo for local delivery, the analysts noted that the new ultrafast players offer 10-minute delivery times, with the companies owning both grocery inventory and delivery logistics.
“These players build out their own, hyper-local, delivery-only fulfilment centers (“dark stores”) and deliver through fully employed riders.”
Already this sub-industry is “highly crowded”, the analysts noted, but many are well-funded and rolling out their operations in the dense major cities.
“While questions over the long-term sustainability of the business model remain, skyrocketing valuations (Getir recently valued at US$7.5bn) indicate perceived potential – grocery shopping behavior might – once again – potentially change significantly.”
“Ultrafast grocery delivery might become the 3rd significant disruption for the grocers since ‘08 (following discounters and the shift to proximity and online).
“It will inevitably put pressure on the unit economics of their online models, whilst contributing to a re-set of their traditional convenience format (a rare source of profitable growth in the last decade).”
The analysts suggest there is potential for the new entrants to operate at a higher degree of profitability compared to traditional convenience stores.
As a young and fragmented market, discounting is rife as a means of customer acquisition and mark-ups to current retail prices are low, which is “key” for consumer acceptance.
What’s more the new business models provide “strong cost advantages over traditional grocers in terms of speed and space”.
To become profitable in the long-term, these outfits will need to increase basket size, delivery fees and driver utilisation rates.
While most of the newer batch of these newcomers are loss-making, Turkey-based Getir is gross margin profitable in its homeland and already EBITDA profitable for repeat customers, the investment bank noted.