Well that was quick: Deliveroo takes its first step into rapid grocery deliveries

October 9, 2021

3 min read

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What's going on here?

Deliveroo, in partnership with Britain’s 4th largest supermarket chain Morrisons, is entering the rapid grocery delivery sector.

What does this mean?

Building on the success of its food-delivery founding, Deliveroo entered the grocery delivery space last year. The company works with some of the biggest supermarket chains in the UK, with Waitrose, J Sainsbury, and Aldi amongst its 4,600 supermarket and convenience store partners. It now plans to offer rapid deliveries with a new service known as “Deliveroo Hop”. This will initially be available to residents in southwest London, with plans to scale up the project rapidly. Demand for this type of service is high. Over the last decade, the number of British individuals shopping online for food and other groceries has doubled.

Deliveroo’s partner on this venture, Morrisons, already offers grocery deliveries through the platform at 327 supermarkets across the country. While the current service takes 20-30 minutes, the “hop” service aims to get groceries to customers within 10-15 minutes. Deliveroo will use a “dark store”, a dedicated delivery-only warehouse with real-time inventory control, providing a more reliable customer experience. These warehouses, which will house a range of up to 2,000 Morrisons items, are set to make the company a force in the rapid grocery delivery sector.

What's the big picture effect?

By moving into the rapid grocery delivery space, Deliveroo aims to build upon its impressive growth during the pandemic. Net revenues for 2020 reached ÂŁ1.2bn, up 54% from the previous year, whilst the first half of 2021 saw 148.8m orders through the platform. The company also raised ÂŁ1bn from its much-hyped IPO at the end of March 2021. With a sizable mountain of cash, huge brand recognition, and the backing of giants like Amazon (which is offering Deliveroo’s service to its prime members), Deliveroo will pose a significant challenge to other platforms offering quick grocery deliveries to UK customers. Providers like Getir or GoPuff cannot currently match the “world-renowned logistics algorithms and existing network of over 50,000 riders” belonging to the platform. 

By partnering with Morrisons and its chain of integrated suppliers, Deliveroo could become a reliable source of fast, and easily accessible grocery products. Morrisons has relied on its vertically integrated suppliers for over 30 years. Vertical integration occurs when a company acquires another company operating in the production process of the same industry. For Morrisons, this translates into the direct ownership and running of 17 meat processing facilities and arrangements with 2700 British farmers. It also means that products vulnerable to rising costs in global shipping make up less of its sales mix than its rivals. Although this will not wholly protect it, and Deliveroo, from domestic and global supply shortages, customers are unlikely to suffer high prices on their staple grocery goods and may have access to greater product variety than rival stores.

Additionally, this partnership is significant for Morrisons as it stakes a new future as a privately-owned supermarket chain. With a bidding war to excite even the biggest Storage Hunters fan, the US private equity giant Clayton, Dubilier & Rice (CD&R) won with a ÂŁ9.97bn takeover bid for the ownership of Morrisons in October 2021. Although private equity funds are infamous for their asset-stripping, high-return ways, it is unlikely that CD&R will follow. With 85% of the freehold (complete ownership) on its stores, a ÂŁ342m net profit forecast for the financial year, and partnerships with Amazon and now Deliveroo, Morrisons represents a safe return on investment with an innovative and profitable future. In combining the impressive management and logistics technology of Deliveroo with the product range, brand recognition and reliable supply of Morrisons, the owners have demonstrated why CD&R were willing to go the distance.

Report written by Jude Folorunso

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