Europe’s grocery delivery market is in flux.

Europe's grocery delivery market is in flux.

The Challenges and Potential of Rapid Grocery Delivery in Europe

As July came to an end, Turkish rapid grocery delivery startup Getir made headlines with its announcement to withdraw from three markets – Spain, Portugal, and Italy. This move decreased Getir’s European presence, leaving just four countries in its portfolio. However, Getir is not the only player facing difficulties in the rapidly evolving q-commerce or rapid grocery delivery market in Europe. The sector is currently undergoing a challenging transition as venture capital (VC) funding decreases and consumers face cost-of-living challenges.

The decision to slim down operations was driven by the need to focus financial resources on existing markets that offer stronger opportunities for operational profitability and sustainable growth. This refocusing strategy has become a common theme in the industry. Just a few months ago, Getir saved the day for rapid grocery delivery in Europe by acquiring Berlin-based Gorillas at a reduced valuation just before its collapse. Similarly, Getir acquired UK competitor Weezy in 2021. Rumors even circulated that Getir was in talks to purchase another German rival, Flink. However, the company is now facing its own hurdles.

According to Alex Frederick, an analyst at Pitchbook, the rapid grocery delivery segment is not coming to an end but is rather contending with a growing list of challenges. “It definitely is more challenging to execute profitably than standard delivery,” Frederick commented.

The Pandemic’s Rapid Delivery Boom

2020 witnessed several startups bursting onto the scene, offering grocery and convenience goods delivered within minutes via networks of fulfillment centers in cities. While critics voiced concerns about the economics of these services, VCs poured massive sums of money into the startups. However, as the pandemic eased and lockdowns gradually faded away, the market dynamics and customer profile changed. Food price inflation and higher cost-of-living expenses reduced consumer spending power.

“The q-commerce companies look to raise massive amounts of capital to operate profitably in new markets. However, this strategy relies heavily on VC funding,” explained Frederick. The market volatility of the past year pushed many VCs to urge their portfolio companies to cut costs, focus on top-performing markets and verticals, and create a clear path to profitability, departing from the previous “grow-at-all-costs” approach.

Viable Markets

Getir is reportedly close to securing a deal with Abu Dhabi’s sovereign wealth fund Mubadala to support and finance its renewed focus on its best-performing markets, including the UK, Germany, the Netherlands, Turkey, and the US, which generate 96% of its revenues. Determining the most viable and lucrative markets in Europe for q-commerce companies can be challenging. However, analyzing the markets that companies have recently exited sheds light on the challenges they faced. For example, Getir, Flink, and GoPuff left France due to regulatory hurdles in the country.

One major market that continues to stand out is London. British player Zapp has realigned all its resources to concentrate solely on the UK capital after exiting markets such as the Netherlands and other British cities like Manchester. Steve O’Hear, SVP of strategy at Zapp, highlighted the company’s success in London, stating that Zapp’s business in the capital has tripled in the past 12 months. He emphasized the significant growth opportunities in online convenience retail in the city.

Sammie Ellard-King, a financial advisor and host of the Up The Gains podcast, believes that while European grocery delivery is currently in a “tumultuous” state, there is still potential for the sector. According to Ellard-King, companies need to concentrate on perfecting their operations in locations where they have a strong presence, similar to Zapp’s focus on London. They should streamline their offerings and ensure a good match with local demand. On the other hand, food delivery giant Delivery Hero, unlike its smaller peers, remains invested in rapid delivery through its Dmarts division. The company views quick commerce as a strong addition to its core platform business, enabling it to provide more value to customers.

Luring Investors Back to Rapid Delivery

To raise capital again, companies that raised significant funding during the pandemic need to focus on demonstrating sustainable growth and profitability. Mark Osborne, director of retail and execution at RSA America, highlights the promising future of the grocery delivery market: “Although the pace of recovery might be slower than desired by investors, it is still a promising market with an expected annual growth of 1 to 3%. Moreover, as the millennial and Gen-Z populations continue to settle down, the demand for grocery delivery will increase and become more rewarding.”

Taking a long-term view, a generational shift in customers could potentially benefit these companies. Frederick from Pitchbook believes that the success of q-commerce and rapid grocery delivery relies on consumer behavior changes in grocery shopping, which will take time to fully unfold. He suggests that companies could leverage automation to streamline operations and reduce costs. For example, Israel’s 1MRobotics raised $25 million in funding last year for building automated “nano fulfillment centers.” However, it remains uncertain whether these developments are enough to ensure the sustainability of the q-commerce model.

The fate of once high-flying grocery delivery startups is still unclear, but as consolidation and market exits persist, the number of players in the market will likely reduce significantly.