The Rise of Grocery Delivery amidst E-Commerce Giants
Updated: Jan 18
Authored by Rebecca Chee
Edited by Samuel Tan
Home-delivery is prospected to be the future for food shopping as demand for and use of e-commerce services generally are growing. Consumers are increasingly using online services as their disposable income increases, electronic payments become more trustworthy, and the range of suppliers and the size of their delivery networks expand. .
Shopping via online grocery delivery platforms provides consumers with more benefits than what is offered by regular in-person supermarket shopping, and with less effort expenditure (through the use of an app or website). For example, consumers are offered a large selection of products, updated notifications on stock availability, the monitoring of payment, control over the delivery time and method (collection vs delivery), and the ability to track their order. Therefore, expansion into home-delivery services is of benefit to the client because of the increasing consumer attraction and demand for digitalised services. Figure 1 further supports this by revealing the growing demand for food-delivery services worldwide, with a 12.2% CAGR between 2018 and 2024, presenting significant prospected growth of this market .
HOME DELIVERY: THE FUTURE OF GROCERY SHOPPING POST-PANDEMIC
Home-delivery is an especially relevant market segment for the client given the current COVID-19 pandemic. Supermarkets have been reported to be the most common exposure setting for COVID-19, as surveys have revealed that individuals who received a positive test result were very likely to have visited one in the days leading up to their result  Home-delivery methods have subsequently been encouraged due to being less risky; a Professor Bloomfield from the London School of Hygiene and Tropical Medicine states that, once the food has been delivered to a customer, “any chance infectivity is already lower… Also, the items have probably been touched by relatively few people… the risk of home delivery is very small compared with visiting the supermarket." This encouragement has seen a positive response; Google searches for home-delivery reached an all-time high in April (during the first lockdown period) and the online food delivery service Ocado’s share price on the London Stock Exchange jumped from 1,126 GBX on 3rd March 2020 (when the UK government announced its first action plan for COVID-19) to 2,302 GBX on 22nd November 2020. Further research data also shows that 29% more consumers are food-shopping online who didn’t before the lockdown began, with 20% of these individuals planning to continue using food-delivery services post-pandemic .
20% of individuals are planning to continue using food-delivery services post-pandemic
OPPORTUNITIES AND CHALLENGES
There are general considerations for supermarkets and grocery stores expanding into this market segment with regard to brand loyalty. Consumers tend to remain loyal to their existing supermarkets, which presents both advantages and disadvantages
The key advantage would be a stable customer base for the client due to prior brand recognition and engagement. On the other hand, expansion into this market segment may be capped and difficult to break past a certain level when trying to convert customers from other supermarkets or consolidating. However, this does not present a significant cause for concern as 33% of customers show to be completely detached from a particular supermarket, and 32% only partly connected to one. Therefore, there is still capacity for securing these customers who represent the majority of the market.
... key advantage would be a stable customer base for the client due to prior brand recognition and engagement.
The COVID-19 pandemic specifically presents implications regarding supermarkets’ ability to be competitive in this market segment. This is because only 17% of fruit and 50% of vegetables sold in supermarkets are grown locally . Consequently, the uncertainty surrounding the duration of the pandemic and its impact on general business functioning brings the reliability of the import networks they depend so heavily on into question. Without these networks or other means to subsidise the loss, supermarkets would be unable to meet customer demand.
A further cause for consideration for the client is that venturing into this market segment places them in the same domain that purely e-commerce food delivery platforms such as Ocado and Amazon Fresh operate in. Consequently, it is necessary to compare supermarket operations to these delivery platforms to understand the best ways to approach expansion into the home-delivery segment. These comparisons are as follows:
Online food-delivery platforms such as Amazon Fresh operate off a shorter supply chain and can therefore offer customers same-day delivery options. Prime members especially have the additional option of collecting their items within as little as 30-minutes
With supermarkets and grocery stores offering home delivery, the supply chain process is elongated compared to that of e-commerce platforms. This could, therefore, negatively affect the door-to-door delivery time. Consumers desire fast delivery, especially when it comes to food products, so this is a large factor that needs to be considered in the strategic approach for the client.
Delivery on the Amazon Fresh platform is free for Prime members and free for orders over the local free shipping threshold before tax for regular Fresh customers
Supermarkets and grocery stores are more limited with regards to their capabilities for getting products to customers. The high demand for delivery slots but small delivery networks compared to those used by e-commerce platforms results in customers turning to other brands or begrudgingly traveling in-store to shop or pick-up their pre-packaged items (lower customer satisfaction).
Amazon Fresh has an extensive network of Amazon-owned warehouses and external partnerships with chains such as Morrison’s. This allows the service to have sufficient access to a wide selection of products to fulfill consumer demand.
The average supermarket’s store capacity only holds a day’s worth of fresh products . This may present difficulties for supermarkets in matching the competitiveness of an online platform's product selection and availability to meet consumer demand.
MAINTAINING A COMPETITIVE EDGE
By looking at the pie chart on customer connection above, solutions should aim to target the population of supermarket shoppers who are disconnected, indifferent or partly connected to a particular supermarket/grocery store. The following solutions focus predominantly on the delivery network and product variety factors mentioned above, but have a cascading effect on delivery time:
EXPAND CAPABILITIES OF DELIVERY NETWORK
TAP ON THE POWER OF GIG ECONOMY
There is a large pool of potential employees due to the COVID-19 pandemic, which has unfortunately resulted in an increase in unemployment rates, from 4.1% in August 2020 to 4.8% in November 2020. This figure is expected to rise to 7.7% in April 2021 as the full effects of the pandemic unfold .
Hiring more drivers would increase the selection and availability of delivery times for customers, with the minimum financial cost to the client because they do not have to invest in their own fleet of vehicles. Using temporary contracts means that the client can easily hire or terminate contracts according to customer demand. Terms of driver employment can also include a contractual agreement of the employee not working for another food-delivery platform concurrently to prevent conflicts of interest.
Hiring more drivers would increase the selection and availability of delivery times
ADOPT OMNI-CHANNEL DIGITAL SOLUTIONS
The efficiency of this delivery network can be further increased by grouping incoming online orders by customer location using their postcodes. Although this enhanced efficiency won’t increase supermarket capacity for products, it relates to maintaining product availability and variety by reducing the storage span of products in the supermarket (products move through the store faster). Therefore, supermarkets can request and cope with larger stock orders.
Case Study: Amazon Transportation Services (ATS) and Amazon Flex
ATS is Amazon’s department coordinating the company’s transportation network. The use of their own vehicles, plus Amazon’s Flex service allowing individuals to use their own vehicles to deliver packages for Amazon proved more reliable than outsourcing. This is because Amazon experienced a catastrophic blow to business during the 2013 Christmas period whereby FedEx and UPS experienced delays resulting in customers failing to receive their orders on time .
PARTNERSHIPS WITH OTHER RETAILERS AND BRANDS
The client can reach out to partner with independent, local supermarkets and grocery stores that are not benefitting as much from the boom in home-delivery (either do not offer the service or do not possess the delivery network).
These independent suppliers are offered the opportunity to list their stock on the client’s website for a commission from sales. This would mitigate the issue of product selection and availability presented by supermarkets’ storage capacity limitations.
Case study: Dada Group
Dada has formed partnerships with more than 65% of the largest supermarket chains in 2020, including Walmart, Yonghui Supermarket, and CR Vanguard. Apart from major nation-wide chains, partnerships were established with regional supermarket chains, providing a wide variety of products and one-hour delivery services for consumers throughout China.
Beyond partnerships with supermarket chains, Dada has collaborations with over 130 domestic and international FMCG brands, enhancing brand marketing and sales growth for its platform as well as its partners. Exclusive brand campaigns have boosted the publicity and marketing efforts of Dada. 
The growth in popularity of e-commerce services generally and the implications of the COVID-19 pandemic make the home food-delivery market segment a promising area for the client to expand into. The main causes for consideration when formulating an expansion approach into this area include the limitations supermarkets and grocery stores present in comparison to purely e-commerce platforms with regards to delivery time, delivery network, and product variety. However, using Amazon (Fresh and ATS) and Dada as case studies present plausible solutions to these issues; the client should expand their delivery network via hiring from the gig economy, and form external partnerships with independent retailers and FMCG brands.
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