Home delivery of groceries has been booming for the past eighteen months. Earlier this year Uber paid more than $ 1 billion for drink delivery company Drizly – your name is slightly misspelled de rigueur in this market – while in the US Lantern now brings cannabis to your doorstep (which comes to think that it may already be available in many cities in the UK, although not is not officially).
No one would deny that there are sales to be made. The problem is, it may never be a profitable industry. Here’s why.
First, demand has been artificially boosted by the foreclosure. When we’re all stuck at home in front of Zoom all day, it might have been tempting to have coffee and a sandwich delivered to our office. You can even share one remotely with a colleague.
Supermarkets weren’t much fun with social distancing restrictions, and cafes and restaurants were all closed. There wasn’t much to do. However, as the lockdown starts to decrease, that will change. In fact, people like to leave their homes and they like to mingle with others. The delivery market is much smaller than it currently looks.
Then it gets way too competitive, with VC-backed start-ups battling established giants. Everyone in this market is full of cheap cash, whether from their investors or from big companies like Tesco or Amazon making money elsewhere.
Either way, and for different reasons, they are willing to tolerate losses.
Considerable amounts of money have to be spent on marketing, and on discounts and coupons, to keep any kind of demand alive. People are interested in ordering something when they get £ 10 off to sign up as a new customer. They may well be much less interested when they are expected to pay full price.
If it starts to become clear that many market players are structurally unprofitable, many of them will cope. At least one has done it before: Waitrose substantially abandoned its in-house delivery business Rapid before expanding its partnership with Deliveroo.
Finally, a wave of labor laws and regulations is about to hit the industry. Uber has already been forced to change the way it treats its staff. Concert work may well be subject to more regulations, just like any type of freelance work.
In reality, the economy of delivery largely depends on the presence of many independent drivers who, although controlled by the app, are not actually on the payroll.