Last mile Food delivery services: challenges and opportunities

So-called last-mile delivery services have grown fast over the past few years, especially during the pandemic. At least for non-food products. With lockdowns thankfully rarer in Europe, most people still drive to the supermarket to do their grocery shopping. Nevertheless, instant on-demand deliveries are on the rise.

(Photographer: Hollie Adams/Bloomberg via Getty Images)

For retailers, last mile delivery is one of the most complex and cost-sensitive parts of their customer service offering. And no wonder – smooth and efficient delivery is one of the major factors contributing to customer satisfaction. This particularly applies to food retailing. Despite a surge in online grocery shopping during Europe’s lockdowns over the last couple of years, many people have ditched it and gone back to doing their weekly shop by car in a supermarket. A McKinsey retail insights study reports low penetration of the online grocery sector, with the UK the most advanced at up to 6.9% compared with 5.0% in France, 1.7 percent in Spain, 1.5% in Germany and just 0.7% in Italy. The same survey shows low levels of customer satisfaction too, due to errors, late deliveries and other issues.

Last mile challenges

The challenges faced by retailers include cost – probably top of the list with the current cost of fuel – as well as the difficulty of meeting delivery deadlines. This can be tracked back to too-tight lead times as well as traffic problems due to road accidents or bad weather. There’s also a lot of competition for drivers, with a corresponding shortage of skilled workers. Many supermarkets use in-store pickers to collect the ordered goods and this approach – given the need for speed – can lead to errors and even an additional delivery to correct them. These challenges have led to a rise in instant grocery delivery services such as those provided by companies like Gorillas and Instacart.

Gorillas: efficient e-bike delivery

The German e-bike delivery firm Gorillas burst onto the scene in 2020 and has since turned into a unicorn – a young start-up already valued at over a billion dollars. Gorillas is a retailer in its own right with its own “dark stores”, which are city-centre mini-warehouses used exclusively for fulfilment. The German Flink and French firm Cajoo work in the same way. Customers select the products they need on an app and Gorillas (or other platform) says it will deliver within ten minutes. Gorillas’ model has driven breathtaking growth, going from a single Berlin district in 2020 to dozens of cities throughout Europe in 2022. The fact that it controls its own inventory means that it knows how much of each product it has in each depot. That gives it an edge over supermarkets, who often don’t update stock levels in real time.

Instacart and similar offerings

US-based Instacart has a different model to Gorillas in that it works with existing local shops and markets. The required goods are picked and delivered by a self-employed personal shopper. As such, the customer orders from, and pays, Instacart – not the store. The Italian start-up Everli offers a similar service and has recently expanded into France, saying it will soon be opening up in the large German market too. Personal shoppers use their own vehicle to get to the customer’s chosen supermarket, select and pack the goods, and drive them to the customer’s home. Everli has signed partnerships with several major retail chains in Europe, increasing customer choice. UK-based Grocemania is following a similar trajectory but is at an earlier stage of development than Everli.

Fast-growing market

All in all, the grocery delivery segment looks like it has a promising future, assuming that both the business/profitability model and the ecological aspect are sustainable. With relatively few people doing their grocery shopping exclusively online, there’s a lot of growth potential – and competition. The race is on!

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