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Another great Sacra article to slowly read and think through the whole ultrafast delivery phenomena!

Read here the whole thing

Today, there is a new crop of companies looking to push the envelope on shipping even further. Dark store-enabled, “ultrafast” delivery companies are getting funded and expanding across Europe, Asia, Russia, South America, and the United States.

Their big brand promise is 10 to 15 minute delivery—or “faster than you can,” as the tag line for Gorillas goes—on grocery items.

With dark stores in densely populated urban areas on the back-end, and armies of delivery people on bikes and scooters for the last mile, they’re betting that delivering items in just 15 minutes can be as powerful a wedge as Amazon’s promise of two-day shipping was in 2005.

The strategy is largely out of the same playbook as other on-demand apps—capture customers, consolidate control over a high-frequency behavior, expand and cross-sell to other higher-margin categories. But their challenges are significant as well, from spoilage rates on grocery to hard-to-predict inventory requirements and building relationships with upstream suppliers.

Key points

• Ultrafast delivery services operate out of 3,000~ square foot dark stores in urban core areas. That enables 10-15 minute delivery within their .75-1 mile service radius, as well as reducing supply chain costs and minimizing spoilage.
• Dark store profitability is measured with contribution margin, which excludes fixed costs. With $25 average order value in a mature ultrafast dark store with 500 orders per day, we project about 13% contribution margin.
• In 2020, the growth of the online grocery market rapidly accelerated in the United States. The share of all grocery spending that took place online grew from 5% to 7%, with $96B in total online sales for the year up from $62B the previous year.
• We expect the total volume of online grocery sales in the U.S. to continue to grow, hitting $192B by 2025. 60% of people bought more groceries online during COVID and said they plan to buy groceries online at the same frequency or more often in the future
• The ultrafast vision is to replace the local grocery store the way Uber disrupted car ownership. By turning groceries into something summoned at the touch of a button rather than something planned and scheduled, ultrafast services want to change how we shop entirely.
• But the economics of ultrafast are hard, and micromobility is a cautionary tale. Both are capital-intensive industries with no customer loyalty, low switching costs, and limited network effects.
• Non-perishables with a high premium on fast delivery are where the ultrafast model makes most sense. Convenience store-type products like detergents, tobacco, phone chargers and grocery staples have low spoilage and consumers want to get them quickly, which fits the dark store model.
• Ultimately, CVS ($110B) and 7-Eleven ($42B) should be ultrafast’s real targets, not Kroger ($28B) or Albertsons ($9B). Online grocery is a massive challenge both in logistics and demand generation, and ultrafast services are better off building a better convenience store than challenging for the whole of the online grocery market.