Services that deliver groceries in hours or longer have margins that are razor thin. The wholesale cost of the goods a customer ordered goes toward the online grocery basket. Overhead costs, wages of in-store workers who pick items from the shelves and pack them into bags, and the cost of delivery are some of the overhead costs. According to a recent report from McKinsey, the typical North American grocery store loses 13 percent on each online order. The companies that piggyback on the infrastructure and stock of existing stores by partnering with grocery businesses have done better.
The Pandemic inspired more people to avoid in-store shopping and has led to a surge in demand for online groceries. Online grocery orders increased 50 percent in 2020. Vishwa Chandra is a partner at McKinsey who coauthored the report. How do you manage the economy?
Rapid delivery startups might be able to improve their businesses by keeping items in dark stores that are designed to make it quicker for a worker to pick out and pack a basket of goods than it is in a conventional retail store. For example, if they sell a loaf of bread for $6, they can pass on more costs to the customer. It takes a lot of money to build enough dark stores to serve all of the city. It's difficult to make sure the correct items are always on hand. You need enough demand to make a return on investment in this case.
Delivery costs are more expensive for rapid delivery companies. People are more likely to make impulse purchases when they can get what they want in a short period of time. A $75 bag of groceries can be delivered by a delivery driver for the same price. When orders must arrive within 15 minutes, it's difficult toBatching orders together, so a courier makes multiple drop-offs on a single trip. What did the result look like? Eisenmann says that many fast- delivery services lose money.
Rapid delivery companies have made their economics worse by offering generous promotions. 1520 offered 15-minute delivery with no minimum order or delivery fee. Maria Daniltceva suggested that 1520 could improve grocery store margins because it didn't have to invest in retail space. By the end of 2021, 1520 ran out of money.
There aren't likely to be generous promotions in the future. They will need to prove that they can make their economics work quickly in order to keep up with the competition. The company that has become a leader in same-day grocery delivery is working on its own service. Whoever can deliver on their promises the fastest will be the winner.