BRENDAN GRUNDLINGH: Groceries in a flash — it’s speed that will slow the competition

The on-demand retail landscape is no longer just an accelerating phenomenon in developed markets; emerging markets are also experiencing rapid growth in new offerings, and increasingly competing on ever-faster delivery times. 

The market for food and grocery delivery across Africa and the Middle East is estimated to be worth $1-trillion. Heavily urbanised cities in Egypt, Nigeria, Kenya and SA are at the forefront of growth, as a young and growing population adapts its shopping behaviour to cater for convenience. 

The retail investment trends of improving route-to-market access across emerging markets echo what has already happened in Europe and the US. Another trend is the consolidation of grocery service providers that offer scale and last-mile delivery, where items are sent out from local warehouses for final delivery to the customer. Funding for these opportunities has been primarily from the private sector, rather than traditional capital markets access. 

In Egypt, Appetito recently raised $2m in first-stage funding, while Weezy, a UK-based fast-grocery start-up, was acquired by Getir, the Turkish online giant, indicating the crossover between emerging and developed market interests. 

In Sub-Saharan Africa, specific local markets often require a unique model reliant on the retailer’s capability. Most of the new entrants in Africa, such as Zulzi and Onecart, have been using marketplace or aggregator models, which aggregate orders across different retailers. These on-demand services direct consumer focus to the product and not the source or brand. However, we are beginning to see more direct ownership by retailers. 

In SA, for instance, Checkers Sixty60 is Shoprite’s on-demand grocery application and the largest in SA, with more than 1.5-million downloads. The service promises to deliver within an hour and offers direct-to-consumer grocery delivery from 233 retail outlets nationwide. 

With the rapid adoption by consumers of competing services such as Pick n Pay’s ASAP! And Woolworths’ Woolies Dash, speed is now an expectation and is fast becoming the competitive advantage that differentiates on-demand grocery offerings. However, speed is a function of both the shopper cart on offer and the fulfilment solutions. Spar has also recently announced its entry into the space, with SPAR2U, which will rely on the Spar network of stores to fulfil a select basket of groceries and liquor. 

Retailers are being forced to do more strategic thinking about how to fulfil orders in this new channel, which requires more nuanced ideas about warehouses, logistics and micro-fulfilment centres. Some are adopting the traditional storefronts as fulfilment centres; others are looking into dark stores — a small local store dedicated to delivery, but without the customers. 

One of the most significant changes in the model concerns the way companies use labour and logistics, as on-demand retailers hire workers who can pick and fulfil orders quickly, pack the items and then get the orders to the consumer. 

As emerging markets play catch-up, developed markets are still pushing the boundaries of home delivery. For example, Walmart, a US multinational retail corporation that operates a chain of hypermarkets, discount department stores and grocery stores, is already expanding its service to have groceries delivered directly to your refrigerator. 

Its InHome service offers a facility that has a Walmart associate enter the home by way of a smart lock and pack the groceries into the fridge or pantry. 

The service is available to more than 6-million households in the US and will lead to the hiring of more than 3,000 delivery drivers and an investment in a fleet of all-electric delivery vans. To achieve these goals, Walmart has announced a partnership with BrightDrop, the last-mile delivery company owned by General Motors.

Today, in the traditional non-discretionary retail sector, investment and innovation occur at the intersection of retail and technology. 

One of the challenges of this new model compared to brick-and-mortar retailers is that it dramatically decreases in-store impulse buying, which puts a percentage of in-store revenue under fire. Retailers need to be innovative to find new revenue streams to make up for this loss. For instance, through the on-demand model they could consider how they personalise the mobile experience for the shopper by providing incentives and recommending products based on buying patterns, to encourage more discretionary spend.  

As we have seen in other markets like Europe and the US, SA retailers are looking to partner with expertise in the e-commerce and logistics space to be able to meet consumers’ changed buying behaviour. 

Shoprite has recently entered a joint venture with its delivery partner, RTT Group, as part of its strategy to grow its e-commerce platform business. RMB acted as sole financial adviser and transaction sponsor on the transaction. 

This on-demand model has by far been one of the biggest growth areas in the retail sector that has emerged out of the pandemic. Convenience, ease of shopping and speed of delivery are likely to become the differentiators of success in the SA retail market.

• Grundlingh is sector head: retail & multinational corporations at RMB.