by Ahmad Tuffaha, COO of eddress
Q-commerce players have been blooming like flowers all over the world during the pandemic. Jokr, Getir, Weezy, to name a few. But now, their exponential growth is slowing down.
the slow down phenomenon
Australian instant grocery delivery provider, Send, went into administration after successfully raising capital in October 2021. Founder Rob Adams named the war in Ukraine and the abrupt fall of technology stocks as potential causes for Send’s downfall.
Additionally, Buyk, which launched in 2021 in New-York City, also named the Russian-Ukrainian war as a reason for filing for bankruptcy. While it is true that worldwide fluctuations have an impact on businesses, q-commerce players face a much more significant challenge: Fast grocery delivery is extremely capital-intensive.
In fact, U.S. q-commerce grocery delivery business, GoPuff, was preparing for an IPO at $9 billion and an expected valuation of over $40 billion. In March 2022, the IPO crashed, and investors rushed to eliminate their stakes.
Furthermore, two of the largest European players, Gorillas and Getir, announced in May 2022 their plan to reduce headcount in an effort to reach profitability. Berlin-based company, Gorillas, let go of around 300 employees. On the other hand, the Turkish q-commerce Getir laid off 14% of its 6,000+ employees worldwide. They are not the only companies forced to slam the brakes, as London-based venture Zapp is also considering redundancies in some European locations.
affecting every q-commerce location
For instance, the city of Amsterdam is even putting on hold the opening of new quick distribution centers called dark stores, from residential areas. The reason? The many complaints received by residents citing noise disturbances, traffic congestions, as well as the aesthetics of the “dark” stores. What is important to highlight here, is that this freeze is not based on the concept of such stores, but more on their locations or how some of them are operating.
Q-commerce companies all around the world are struggling to raise additional financing. In a sector that requires a lot of capital, rapid and uncontrolled growth has led to a sharp loss in profitability. So, what can you do to improve your contribution margin, and be on the path to profitability? Our eddress experts weigh in on the profitability challenge.
What could be potential remedies?
Increasing the promised delivery time
How quick should q-commerce be? Most q-commerce players are committed to bringing groceries and other items in a record time, focusing on average on 15 minutes. Gorillas even used to guarantee grocery delivery within 10 minutes of ordering in big cities. The company scrapped that 10 minutes promise from its catchline in February 2022.
As of June 2022, Gorillas states that their delivery is “faster than you — groceries at your door in minutes”. Yet, the hyper-fast delivery model needs to evolve to remain viable and profitable. Aiming for a little longer delivery time could reduce fulfillment costs, as it would require fewer riders or drivers.
But, longer delivery times should not hurt the customer experience, as their satisfaction remains your business objective. After all, the idea is to deliver fast, preferably faster than the customers could get it by themselves.
Adopting a hybrid model
The first and most important question that you should ask is: When do customers need their orders delivered? After all, customers may not necessarily be willing to wait until the last minute to plan their grocery shopping. Therefore, you could adapt your q-commerce presence to include a broader delivery schedule. Indeed, allowing customers to choose whether they need to receive their order right now or a few hours later during the day, could make a big difference:
- Reducing operational costs
- Increasing basket sizes (weekly orders rather than a single missing item)
- Improving long-term loyalty
Optimizing your warehouse and fulfillment centers
The traditional q-commerce model encourages a decentralized warehouse management approach, having as many warehouses in a city as your business caters to individual neighborhoods. However, this approach could lead to inefficiencies in terms of fulfillment management and increased costs. It may be interesting for q-commerce players to consider optimizing their operations through the implementation of a centralized warehouse & decentralized fulfillment centers to:
- Reduce disparities between multiple warehouses
- Cut down management costs and efforts
- Preserve hyper-local delivery needs
- Improve customer experience
Remember: You have to be able to deploy robust and adaptable technology. An outdated marketplace solution will quickly lead to additional costs and inefficiencies.
Optimizing supply chain and consumer behavior predictions
Today’s consumers want responsiveness and flexibility. Therefore, it makes sense to transform the reactive supply chain fulfillment model in q-commerce. According to logistics analysts, forecasting the demand enables you to meet customers’ expectations. You can take the pressure out of the supply chain when you can predict future demands and use smart stacking solutions as optimization.
Your business could inject flexibility into the supply chain, ensuring it can respond more effectively to demands. When you accurately monitor, track, and predict demand trends, you can gain a competitive edge, saving on inventory storage and management costs.
Expanding product offering by adding a business segment
Amazon recently announced that third-party merchants would be able to provide free and fast shipping Prime membership advantages to their customers outside of the e-commerce giant’s platform. The option enables merchants to use Amazon’s fulfillment services, sending their products to Amazon’s fulfillment centers for packing, shipping, order returns, and customer service management.
You can follow the same principle, called retail-as-a-service, sharing your marketplace and operations with multiple retailers to:
- Offer a larger selection of products
- Increase audience reach
- Share fulfillment management and costs
Improving the operational side of the business
Profitability doesn’t happen overnight. Therefore, you need to look for solutions to increase your sales and reduce overall costs. Rather than attempting to develop a fully functional marketplace platform, you can reach out to a tech partner whose expertise can make the marketplace development and management:
- Cost-effective
- Tech-supported
- Maintained and updated to latest trends and requirements
- Secure
- Timely
Big players like Amazon and Uber have shared their marketplace, allowing other businesses to focus on sales without worrying about operational management and costs.
What’s next for q-commerce?
Q-commerce is here to stay. But maintaining profitability requires a new business strategy that can grow contribution margins while keeping costs minimum.
A very interesting example we stumbled upon is Frichti, a French grocery and ready-to-eat delivery company. In fact, Frichti provides eco-friendly in-house prepared meals to its customers. By cooking the food in-house and using seasonal products, they can control the overall supply chain which allows them to reduce waste, hence minimizing costs. The result? You’ve got it. Higher profit margin.
While q-commerce is not here to compete against traditional commerce, it can learn a few tips from the retail environment, such as:
- Increasing delivery time to reduce operational costs
- Promoting multiple products within the same shared place
- Producing/creating their own products/brands as it gives a higher flexibility in pricing, hence in profit margin
- Varying their retail services like French q-commerce Frichti, which provides both groceries and ready-to-eat deliveries
- Improving demand forecast
- Optimizing warehouse and fulfillment center management
- Adopting a hybrid delivery model
Still unsure how to boost profitability? We’re here to help. At eddress, we have a long experience in delivering white-labeled marketplace solutions to our q-commerce clients, helping them adapt to the changing market needs.
Get in touch with our expert team to talk about what we can do for your contribution margin and more.
