Background
Much has already been written about ‘the last mile’ in supermarkets. Since the 1990s supermarkets have trialled different business models, store formats, technology etc to create a positive shopping experience for home delivery. Supermarkets have invested in ‘the last mile’ as part of an overall offer (in-store and online). This is generally called omni-channel. The goal is to meet shoppers evolving demands for an enjoyable, personalised overall shopping experience (in-store and online). My blog, Omnichannel category management provides more details.
During COVID much was written questioning whether shoppers switching to digital orders (click and collect, home delivery) was temporary or a long-term trend. Generally speaking, shoppers are returning to stores post COVID. Digital grocery orders are steady / slight decline after significant growth during COVID.
COVID created a situation of increased shopper demand for home delivery, including Q-Commerce (quick commerce). Many Q-Commerce businesses were launched and have now closed. For example, Quicko, Send, Voly and Milkrun. So, why would Woolworths buy Milkrun and re-brand Metro60 as Milkrun?
Q Commerce
Initially e-commerce supermarket orders were generally delivered the following day. Q-Commerce (quick commerce) aims to deliver the shoppers’ grocery order within a quick timeframe of between 10 minutes to 2 hours. There is still some debate in the industry about what is a realistic timeframe for Q-Commerce. IMHO (in my humble opinion) the long-term timeframe will be 30 to 60 minutes.
Q Commerce Australia
“Even when they weren’t overwhelmed with orders from new customers, the big retail players couldn’t deliver within a matter of minutes, or even a matter of hours, during the lockdowns. I can see why those behind SEND, Quicko, Milkrun and Voly thought they were onto a winner. But the economics of rapid grocery delivery were always going to be tricky. They’ve become trickier now shoppers aren’t worried about entering brick-and-mortar outlets.”
Professor Gary Mortimer
Source: Smartcompany , After the collapse of SEND and Quicko, can rapid grocery delivery businesses survive in Australia? May 22
During COVID there was a dramatic increase in demand for grocery home deliveries. Coles and Woolworths had to temporarily suspend online orders in early 2020 as they were unable to meet the significant increase in demand. This created an opportunity for new businesses (Q-commerce) to offer fast home delivery of grocery orders for Australian shoppers.
Numerous Q-commerce companies were launched to meet the increased demand. Unfortunately, most closed within a few years. Some of the businesses that closed included Quicko (March 22), Send (May 22), Voly (Nov 22). April 23 Milkrun collapsed but was bought by Woolworths in May 23. (AFR, Woolworths buys failed fast delivery start-up Milkrun, May 23).
So, why would Woolworths invest in Q-commerce after so many failures?
Hard Discounters Financials
‘Our profit margins are significantly lower and actually below industry standard and last year we had even lower profits’
Oliver Bongardt, MD of national buying, Aldi Australia
AFR, Aldi says it’s 17pc cheaper and shoppers think it’s worth the trip, Mar 23
As outlined in my blog, Does EDLP, including P/L (private label), improve business results? , hard discounters are generally prepared to work off lower margins than publicly listed supermarkets such as Coles and Woolworths. This occurs in many markets including Australia, UK and USA.
This is not a new trend. For example, McKinsey research (Reviving grocery retail: Six imperatives, Dec 2018) highlights declining grocer profitability in 2010’s. Simply put to maintain sales / share supermarkets matched hard discounters P/L offer – improved quality, increased SKU count, lower prices. This tactic did not stop the sales / share growth of hard discounters (Aldi is number 4 supermarket in UK now) but it did lower profitability. Financials shocks, such as GFC and now COL (cost of living) pressures have also supported the growth of hard discounters in many markets.
Source: McKinsey , Reviving grocery retail: Six imperatives, Dec 2018
So why would major supermarkets, such as Woolworths, want to continue to compete directly with hard discounters? Maybe differentiation is an option.
Aldi Australia has indicated they will only offer a digital service (click and collect and/or home delivery) for groceries once the business case highlights it will not increase retail prices for shoppers (inside retail, Aldi Australia plays down imminent e-commerce expansion reports, Aug 23).
COVID
COVID created an opportunity for supermarkets to regain sales / share from hard discounters. Generally speaking, supermarkets had experience and supply chains to support digital orders and hard discounters did not. In many markets hard discounters did try to offer digital orders. For example, Aldi UK launched click and collect of groceries in 2020. This service is now offered from over 200 stores in UK (total store count approx 1,000). As reported by The Grocer , (Aldi axing home delivery of Specialbuys and booze, Jan 23) Aldi UK has ceased home delivery for special buys, alcohol in 2023 and in 2022 ceased its partnership with Deliveroo for delivering groceries.
So, did Woolworths invest in Milkrun to differentiate its offer from hard discounters such as Aldi Australia?
Amazon Australia
As outlined in my blog, Amazon Australia – successful launch or failure , the initial launch of Amazon in Australia (Dec 2017) did not meet shopper’s expectations. Over time Amazon Australia has improved its offer. Recent analysis by UBS suggests 9.4% of Australian shoppers use Amazon Australia as their primary retailer for buying groceries online, up from 8.9% pre-COVID (smh, Amazon gains ground on supermarket giants thanks to cash crunch, Sept 23). For the same period the % of Australian shoppers using Coles as their primary retailer for buying groceries online dropped from 30.8% to 28.8% and Woolworths dropped from 45.4% to 44.7%.
Amazon Australia can deliver in 2 days (for Prime customers) and now is offering one-day delivery in select areas (conditions apply). So, did Woolworths invest in Milkrun to differentiate its offer from e-commerce platforms such as Amazon?
Amazon US and some other countries do have digital orders for fresh SKUs – called Amazon Fresh. Since 2019 Amazon Fresh has offered one and two hour delivery of meat, seafood, eggs and produce in Tampa, Florida (Wikipedia). In 2023 Amazon did announce the closure of some sites and paused new openings (Forbes, Amazon Is Closing Some Amazon Fresh and Amazon Go Stores – Are Groceries Profitable, Feb 23). So, did Woolworths invest in Milkrun to deter Amazon Australia from offering an Amazon Fresh style offer in Australia?
Share of stomach
The global foodservice market was estimated to be USD $2.52 trillion in 2021 and predicted to reach USD $4.43 trillion in 2028 (statista). Supermarkets globally are trying to increase their ‘share of stomach’ by offering ‘grab and go’ options to compete with foodservice. An obvious example is AFC partnering with Woolworths to have fresh sushi made in store since 2011.
Foodservice, including QSR, does already offer q-commerce. Generally speaking, hot food can be delivered within 30 minutes. For example, Domino’s pizza. So, did Woolworths invest in Milkrun to generate incremental sales from shoppers demanding quick home delivered hot food?
Woolworths has been offering hot roast chickens in store since the 1960s. Woolworths already sells 20 million+ hot roast chickens in their stores each year (7 news , Woolworths supermarket confirms flash sales on hot BBQ chickens in every store, Aug 23). Will Q-Commerce grow hot roast chicken sales?
Some may suggest that it is too difficult to offer hot food, plus groceries, to be delivered within 30 / 60 minutes. Sept 22 Woolworths announced it would offer home delivery for hot roast chickens in selected areas via Metro60 service (seven news, Woolworths is now offering home delivery on hot roast chooks for selected areas, Sept 22). Some may suggest this type of service could only work in major cities (high population density). However, August 23 Walmart announced it is now offering hot rotisserie chickens home delivered nationwide in the US (supermarket news, Walmart’s next delivery move is rotisserie chicken, Aug 23). Previously Wal Mart offered cold chickens home delivered. The obvious question is then can other store formats, e.g. hard discounters match this offer? September 23 Aldi UK announced they are trialling delivering hot pizzas in 3 regions (Manchester, Edinburgh and Cardiff) (grocery gazette, Aldi launches Domino’s inspired pizzas and home delivery service, Sept 23).
Summation
Disruption is the new normal in supermarkets. For supermarkets to be competitive they need to ensure the overall offer (online and in-store) meets shopper demands. An increasingly important aspect of online is Q-Commerce. I must stress that Q-Commerce is an important factor, not the only factor, to meet ever changing shopper demands.
IMHO shoppers expect quick (30 minutes) delivery as they received this service from QSR (e.g. Domino’s) for decades. Other retailers (e.g. The Iconic) and platforms (e.g. Amazon) are generally offering same day delivery now. Generally speaking, the market is improving it’s offer to deliver within hours (Q-Commerce). The next challenge for supermarkets is to offer Q-Commerce to ensure their offer remains competitive.
In the 1960’s Woolworths could offer a hot chicken in store and meet shopper demands … now they have to deliver it hot within 60 minutes, maybe 30. So Woolworths invested in Q-Commerce (Milkrun) to meet the changing demands of shoppers in Australia and ensure they had a competitive offer … potential new slogan could be Woolworths the fastest fresh food people
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