Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:00:20} Paul, can you give us a quick introduction to when you first joined Glovo and your role and responsibilities?

{audio:0:00:27} I was working in strategy consulting in London and showing Glovo to a launch strategy team there, around February 2019 and I stayed there until December 2020. I worked with the strategy team, which was a consulting team, working on a wide range of projects for the company, which means that we had a unique 360 view of everything that was going on in Glovo, across different verticals, different geographies and different departments. The projects that were being worked on were things like competitive intelligence, exporting to new countries, commissioning strategy, scaling the product team and the engineering team and processing product requests. I was looking at the company top line; it 3x or 5x’d, depending on if you look at it like for like. Right now, Glovo is operating across 20 or so markets, in food delivery and other categories.

{audio:0:01:26} Were they only doing food and restaurant delivery when you joined?

{audio:0:01:33} Glovo was a copycat of Postmates. The story is, Oscar the founder was in the US, saw Postmates and thought that it was a great way to replicate this business model where you put in touch people who don’t have time and have the need of a product, with people who have the time to actually do this work for you. Today, the motto of Glovo’s vision is, deliver anything in the city, 30 minutes or less. From the start, it really encapsulated a multi-category angle.

{audio:0:02:06} It started with delivering anything. Actually, there was a very simple text box, on a web page where you could type what you wanted. You could say, I need a drink or, I need you to go and pick up my clothes, I need you to buy an iPhone, then they would fulfil that order. What happens is, you quickly realize that people eat three times per day, 21 times per week. That’s why everyone went to food, because that’s how you get frequency and retention.

{audio:0:02:37} At the start, the business was multi-category and then, very quickly, it went to food, as its main thing. But they still had some other categories that were quite big, such as the courier category which is basically picking up something at point A and dropping it at point B, which was pretty big at that time. You also had a grocery category which was really big which was a mix of marketplace, partnering with supermarkets, such as Carrefour and Aldi, or even local shops and dark stores. You also had a ‘quero’ category; Quero means, ‘I want something’ in Spanish which is, literally, we’ll get you anything. You pay an €8 fee and we’ll get you anything.

{audio:0:03:23} You also had a small retail category with partnerships which would deliver flowers, chocolates or balloons for Valentine’s Day and things like that. It was less frequent but helped to make the app a bit more unique.

{audio:0:03:38} Was that grocery on-demand as opposed to scheduled delivery grocery like Ocado type services?

{audio:0:03:46} Everything is on-demand. Everything comes from 10 minutes to an hour, maximum.

{audio:0:03:52} If there were so many categories, what was the focus at Glovo, during your time there?

{audio:0:03:59} Glovo was launched in 2015; pretty late in the food delivery world. Deliveroo started in 2013; Uber started in 2014. When Glovo was growing and raising 10 million, Deliveroo was raising 200, so it’s always going to be David against Goliath. Because you had this lack of funding, the key to winning the market was delivery. The focus was always around the key being food delivery. Food delivery was both Gen 2, which was most of the orders and logistics, and Gen 1 which was the marketplace model which we were using in some cities.

{audio:0:04:35} Today, it is starting to switch. Today, Glovo is bigger, it is more established, with more penetration, so you can really push your users towards new categories and they have been doing this very successfully.

{audio:0:04:46} Why do they want to push them towards convenience or new categories?

{audio:0:04:51} If you push them, you get more frequency and more frequency comes with more retention. Today, real estate or your phone is expensive. If you have Uber Eats and Deliveroo and you are comparing everyone for food delivery, then you might go to a competitor. If actually, you say, hey, I’m ordering groceries twice a week or I used Glovo to drop my keys or to deliver packages, you stay with them. You can see those who have more than one category have much better retention, so that’s the first reason.

{audio:0:05:26} I also think it’s very easy. There is no CAC; you have already acquired the user. You push them towards other orders, to a positive gross margin, just by increasing their activity. Also, the other order curves are very different. You order food delivery on a Friday night, but when you are going to use the courier or grocery service, it’s going to be a different order curve. It helps with the orders during the day, to utilize to the maximum, when food delivery is a bit quieter.

{audio:0:05:58} Lastly, it’s a great way to differentiate yourself as compared to your competitors. When you want to acquire customers, you can tell a different story and tell them, that’s why you should download my app. You still have some users that come in via another category and then expand to other categories and go to food delivery, as well.

{audio:0:06:18} How do you look at the Gen 1 business models, such as the Just Eat Takeaway pure marketplaces? They have slowly moved into logistics. Do you think they should be moving into convenience?

{audio:0:06:44} I think it’s a mixed bag. On one hand, most of the Gen 1s don’t really have an infrastructure, which is why they can’t really move. Yes, Just Eat is moving towards Gen 2 but, technically, these guys don’t really have a logistics network. That is why, for them, adding a new category is quite complex, especially when you are talking about retailers or grocers where none of them have their own fleet of couriers so there is no point trying to make a partnership. That is the main thing that is stopping them from doing it.

{audio:0:07:14} Some of them, like Just Eat Takeaway, are moving to Scoober. I think the question here is, if you have a Gen 2, should you do it? I think there is another advantage, that we discussed before but, at the same time, you have better retention, but it’s not really direct competition. The direct competition is pretty small. It may be competitive in a market with multiple players, but if you are the only player in the market, people that want to order flowers or people order that want to order groceries have a lot of options. Where I think there is a risk is if you get into 10-minute convenience delivery, I think it can start to eat into your market. That is just ordering a low-cost pizza, at €10 from the really bad pizza man next to you. If I can get one in 10 minutes, instead of 30 minutes, for €3, I am paying less and it comes faster. But I don’t think it’s that massive a part of the market.

{audio:0:08:17} Looking at Just Eat Takeaway, how much would convenience delivery drive the existing network effects?

{audio:0:08:30} You can think of this in two ways, at the supply level, where having more density helps you to have a quicker delivery time and lower costs per order. Then you think of the network effect of acquiring more users which helps you get more restaurants. On both sides today, in very penetrated markets, such as London or Barcelona, how many more users are going to help you with the network effects? There is a diminishing curve that we are starting to see in some of these very penetrated markets. I think it’s more about retention and differentiation. I’m not sure that if you get many more orders, you are really going to see a huge decrease in your CPO (cost per order). A small one, yes, but I think it’s more about improving the technology today than around adding network effects. At least, that was the case at Glovo, where technology was a bigger driver of improvement to the CPO.

{audio:0:09:41} I guess the question is, how much do consumers really, really want convenience on demand? Do we see Just Eat’s customers, potentially, drift more towards Deliveroo or Uber, if you can get the convenience in 20 minutes?

{audio:0:09:59} In a competitive market, being a go-to for convenience is probably going to be a big differentiator in acquiring customers. You can clearly see, the different convenience players who have launched couriers – the Weezys and the Flinks of this world – have the most incredible traction, similar to what Glovo had in the groceries products. This is a much higher frequency product than food delivery, with a much better retention rate. It is clearly something that the customer wants.

{audio:0:10:32} I guess the question is, how much are customers willing to have multiple apps on their phone to complete the different missions of, I want convenience delivery and I want food delivery, versus having the vision of, I prefer to have everything within one app. That is going to be something that drives how much better your retention is going to be, by offering convenience.

{audio:0:10:58} Just going back to the Glovo story and looking at frequency, how did the McDonald’s deal really change the game for Glovo in Spain?

{audio:0:11:08} It was huge. Glovo was a tiny start up and we signed McDonald’s. One of the key arguments for signing McDonald’s was that they had their own bubble. If you look at the Glovo app, it is multi-category when you open the screen; you have food and grocery and so on. When you go into food, you have McDonald’s and then you have the rest. So McDonald’s gets huge ad real estate which, for them, translates into more orders so they are happy to partner with Glovo. It was a huge thing in terms of being able to develop it and when we were looking to launch within new cities in Spain, or in new countries, one of the key things was, can we launch with McDonald’s?

{audio:0:11:47} I think it’s very specific to McDonald’s. A KFC or a Burger King doesn’t have the same appeal. It might have in one or two markets – such as in Africa for KFC – but I think that McDonald’s is the only brand that has such huge customer loyalty, as well as a huge presence everywhere, which means that, very quickly, you get density. It was key for the growth of Glovo but I think, today, it’s becoming less important as you have much more content and you are less dependent on having McDonald’s, either with exclusivity or not.

{audio:0:12:20} How did they even sign McDonald’s?

{audio:0:12:27} You need to think about the magic of that sales team. I’m not sure how they pulled it off. A lot of determination.

{audio:0:12:37} I don’t think it was only that. Do McDonald’s have better terms than other players? Yes. But is it profitable for McDonald’s orders? You might get a lower commission – maybe a 16% to 20% commission – but I think it’s in line with other massive brands.

{audio:0:13:02} How did it change the frequency? Did you see a material step change where you could do many more drops per hour? What was the operational change you saw?

{audio:0:13:13} McDonald’s was launched from the start, so it’s hard to answer that because they were around from the beginning of Glovo, in its first years of existence. It’s more about the fact that McDonald’s was used as a tool to acquire customers and that was their main purpose. Typically, with McDonald’s and Burger King, when you go into a country you do co-marketing, so McDonald’s would pay for half of its TV campaign because as the campaign would say, order McDonald’s from Glovo; it benefitted both.

{audio:0:13:50} What’s your view on the risk of restaurants converting customers away from third-party platforms to their own apps?

{audio:0:14:00} It depends on the market but I think it’s limited. If you look at the distribution of orders, most people order from a lot of different restaurants. Very few people only order from one place.

{audio:0:14:16} Is that true? Let’s take an Uber or a DoorDash which has the majority of the bigger chains. Wouldn’t we see the same people ordering from the big chains time and time again?

{audio:0:14:34} I there is a difference, culturally, between the US and Europe. In the US, most of the companies are chains so, by default, you would eat more at chains because that is what is available. You probably get Mexican, so Chipotle, and McDonald’s and then you probably get Five Guys. Does it make sense for you to have 10 apps on your phone? People are lazy; downloading an app is actually quite complex. I think it has a use case for very small players and I don’t see a lot of companies being able to do it.

{audio:0:15:18} Unless the restaurant can offer me a really good deal to go direct, like Shake Shack are trying in the US?

{audio:0:15:24} It’s a debate and we will see how it plays out. But how much of a discount will you need to give for people to download your app and keep it on your phone all the time? You have the cost of maintaining your app; you have the cost of acquiring these people by getting them to download your app. It’s not such an easy sell. I think a good comparison is, look at all these restaurants. In some countries, McDonald’s has delivery and they are still very happy to give you your orders if you go to them. You go to countries where these big chains have delivery – typically LATAM – because it is more of a market thing and when you come in, they are quite happy to say, we’re going to hand you our operations. They are not annoyed about it. Their core business is not in operations; their core business is in making food. I strongly believe that they are very happy to focus on their core business and to leave you the other parts.

{audio:0:16:31} How exactly was Glovo’s customer proposition unique in Spain?

{audio:0:16:37} This takes us back to the multi-category question. All the other players in Spain are, basically, only doing food. Glovo was the only player who had this multi-category offering. It grew from there and, probably, multi-category was 30% of the orders and I think it will probably keep growing and become much bigger. You could say, there was both a local player, that benefits you at the beginning and a multi-category proposition, which means you will get quite different things from Glovo as opposed to other players.

{audio:0:17:15} At the same time, Glovo is one of the most established players so it has the top content so that is a good reason to get Glovo over other competitor’s apps. What Glovo didn’t have was all the discounts that Uber would typically offer. Uber was very aggressive with the discounts, which was never part of Glovo’s strategy. That would be where Glovo would struggle a bit; every time a competitor gave discounts, they would pick up a bit of the market share.

{audio:0:17:47} How did you see consumers behave, in terms of order patterns between different categories?

{audio:0:17:54} Typically, you see the user comes in in one category – most of the time, in food – and then you move them, progressively, towards other categories. There is a huge overlap between food and groceries which has been massively pushed by Covid, of course, where you saw grocery orders went up significantly by something like 25% or 30%. As time goes on, Glovo will develop more and more dark stores, more and more grocery ownership, where you can improve the unit economics which today is not that good, just because there is a lack of focus of the team at base, due to other priorities. Typically, grocery doesn’t have a huge tech team but I think users are going to move more and more towards other categories.

{audio:0:18:44} Just touching on the unit economics of the restaurant food delivery, given that Spain is supposedly moving more towards a full-employment model, how do you look at the unit economics for a player like Glovo or, frankly, any of the logistics companies, with drivers actually earning a full €12 to €13 per hour?

{audio:0:19:09} I’m not sure about the €12 to €13; I think that’s come about because it’s what Mox is offering. But if you look at it, the minimum wage in Spain has just increased but is now something like €13,000 per year, which is roughly €7.50 per hour. Even if you add taxes for the company, I don’t think you are going to get to €13; I think you are more likely to get to around €10 or €11. The key issue is that then, you need to run two systems. You need to run a freelance system in some countries and a full-time system in others. That means massive back-end and IT costs and it will take a lot of time up for your engineering team. I think that is going to be the biggest issue and that is what is going to impact most of the players.

{audio:0:19:09} For a company like Glovo, Spain is your home market; Spain is still the biggest market. You are never going to leave Spain, so you are just going to go through this process. I think the question was about comparing to Deliveroo, which still has a very small market in Spain and has no chance of becoming a top three player. In no other market are they facing any difficulty so why stay in Spain and have to run this double system? It seems likely they will leave, I assume. It comes to the regulations and the impact on the incumbents. These new regulations will be hard when they come in and will be a barrier to entry.

{audio:0:20:36} Why do you have to use two systems?

{audio:0:20:38} The regulations for the drivers will be quite different. If you have a freelance model, the Ubers of this world basically let anyone come onto the app but full-time drivers have to be managed differently. If you have a full-time guy, you need to manage his calendar and you probably need to build a lot of tools, internally, to make sure it works. The reward system that is used for freelancers, to decide who is going to get orders, can probably not apply to full-time workers. The regulations will stop you or it just doesn’t make sense because you always want the closest guy to have it. There are a number of small peculiarities of the system that are just not going to translate from freelance to full-time.

{audio:0:21:23} You actually think that even on the fixed full-employment model you can probably pay drivers around €10 an hour, which obviously makes the gross profit per order above €1, I guess? Maybe €1.30 or €1.40, on 1.5 orders per hour?

{audio:0:21:47} I think Glovo is a bit different because they actually have a funny system. Basically, they use slots. Days will have slots every hour and they will forecast demand and say, we think there will be X amount of demand, so we need to open 200 slots for riders. That is basically what the companies are going to have to do when you move to a fixed-time model. It is actually not that complex but still quite annoying to have to do.

{audio:0:22:15} What we are then looking at is that we are making this promise to the riders that you are going to make X amount per hour which I think was roughly around €9. That’s what the riders were looking at; they didn’t really care about what their favorite app was, but just about what they were going to make per order. That was also what Glovo was tracking; how much are these guys making per order as it is a key KPI of the company.

{audio:0:22:42} I think if they move to full-time for riders, are they going to have the same logic? If before they were working for €9 and now they are working for €11, there are some extra costs on the company side, of course. But I don’t really think there is going to be a big difference. We are not supply constrained; it’s not like Uber where you need drivers who have cars so they’re hard to find. Here, you only need a bike, so there are no supply constraints. There is high unemployment in Spain so a lot of people want to work for Glovo; there are people queuing up to work for Glovo. I’m not very worried about the price of riders going all the way up to €13. I think it’s going to be a mid-point between what we were paying before and €13, probably due to the extra social security costs.

{audio:0:23:35} You don’t think this will actually break the economics?

{audio:0:23:42} I think it’s going to be the same for all the players. I don’t think it’s going to completely break the economics. Because of its model where you had slots, it’s probably a smaller step change for Glovo than it is going to be for Uber, to actually move to a full-time model. I think it’s starting this summer, in August, so we will see how the companies reacts and what is going to happen. I don’t see this as the end of Gen 2 food delivery. It’s unclear between these players, probably going long term against the benefit of consumers.

{audio:0:24:21} When you look at density, what is the reasonable orders per hour that you would forecast for a leading player in Spain, for example? Is it realistic to get to three orders an hour? Can you even stack those on the bike?

{audio:0:24:40} Yes, I think you can probably get there. One of the benchmarks is that, I think, in Oslo, Deliveroo did five orders per hour; Wolt, in Helsinki, I think has similar numbers. For Glovo, for all of 2020, they were focused on increasing orders per hour which had not previously been a key focus of the company and it went up pretty rapidly. It reached 2.5 in Madrid, pretty quickly. That is not even trying too hard; that’s managing the customers there are and other things around that. With density and further development, I think three orders per hour is a good, realistic mid-term target.

{audio:0:25:24} For the market leader, if you’ve got the majority of the market, you can get to that three per hour number?

{audio:0:25:29} It depends on how the market is split. The number of orders you have is going to be driven mostly by the maturity of the market and then by your market share. Today, a player with 20% market share is probably doing more orders than four years ago, when they had 80% market share, because the market has just grown so quickly. While market share is going to be a long-term advantage, I don’t think it’s the only driver. The market is increasing and the wave is carrying everyone up.

{audio:0:26:06} That’s what is interesting because, if you believe in online food delivery and consumers being lazy and paying for convenience, then the two or three players left in the market, in five or six years’ time, can actually have pretty strong unit economics, with a full-time employment model, at two to three orders per hour, if you’ve got the order volume?

{audio:0:26:34} Yes, for sure. If you look at the business model, virtually everything is in cash so I don’t think a lot of people are worried about long-term unit economics of food delivery. You need to pressurize markets, which has been happening quite a bit so that time was pretty crazy. I think you still have a few big battlegrounds and the UK is going to be one of them. Outside of this, you can get quite good cash flow currently and I think that is just going to increase.

{audio:0:27:11} What is your view on the UK with Just Eat blitzing the market with free delivery, rolling out Scoober?

{audio:0:27:20} I don’t think it’s going to play out well because you have two theories. The first theory is that Just Eat is going to win, but Deliveroo and Uber are never going to leave the UK so it will take years and everyone is going to suffer during that time. Or secondly, Just Eat is not going to win and then the others will be hurt for a bit less, but still for a few years. No matter what, these battles are expensive.

{audio:0:27:52} I think Gen 2 has won over Gen 1 in pretty much every market, maybe excepting Brazil. It is clear that Gen 2 is a better UX for consumers. Sometimes I order and it’s a Gen 1 order and you have way more issues, way more missing products and the UX is not as good, for sure.Another point would be, I don’t think Just Eat has a very strong reference point in defending their markets. They had 100% market share across places such as Poland, Portugal, Romania and Israel. Arguably, they are still the leader but, in Israel, they have probably gone from 100% to 55% or 60% in 18 months or so. They haven’t yet shown that they can really defend their markets.

{audio:0:28:53} In Germany, I think Wolt is making good headway and now you have Uber who is going in. On top of that, Just Eat needs to manage the Grubhub acquisition. It seems as if it is a lot for them to handle and they don’t have the track record of being able to say they have done this many times, successfully. PedidosYa, which is a Delivery Hero brand, has been able to keep their market share by adding to Gen 1. But if you look at Argentina where they did this, there is still a battle between them, Uber and Rappi. It is not as if anyone is back up to 80%. They just, basically, sell themselves and it’s a scenario with three players.

{audio:0:29:35} I don’t really see Just Eat taking over all of the UK. Are they going to be able to keep a strong position in tier 3 cities? Maybe, but how big that business will be, I don’t know; probably not in the majority of the UK.

{audio:0:29:52} Do you think, eventually, these models will converge with the full categories, so with convenience as well?

{audio:0:29:59} That’s a good question and it remains to be seen. You have some players, like Glovo or Wolt who are betting on this quite heavily. I think it’s interesting that Getir started with convenience in Turkey and they have also moved into food delivery there, so you can see some comparisons in a number of countries.

{audio:0:30:19} At the end of the day, convenience can be split two ways. It can be split into the, keep it fast, 10 to 15 minutes, or it can be a marketplace offer; I will get your groceries from Carrefour or Aldi. I strongly believe that the first one is going to beat the second one. They have just not managed to create good UX for the second one and the economics are worse. There are a lot of issues about missing items; you cannot have a good, live accurate stock. When you order at 6PM, there is a queue in the supermarket. The supermarket isn’t going to prioritize its offline customers, so they can just breeze through; that’s not going to happen. This model always has a bad UX and that will put people off.

{audio:0:31:11} I also think that the hyper-convenience is a secular trend that means a lot of different things. If you know that your groceries are coming in 10 minutes and it’s good quality, at the market price, without any premium on top and you are lazy, why would you want to go to the supermarket. But it also means, why do I do meal planning? Why do I buy for a whole week if I can get it for the same price in 10 minutes? I can just think about what I want to eat this evening or for the next two days.

{audio:0:31:43} If you look at what people are buying today. It’s not like a Gopuff in the US, which is booze and alcohol; you actually have people buying fresh products, such as avocado and buying pretty similar to what they would actually buy if they were doing their weekly supermarket shopping. It’s also a great retention. I think users are going to move to a 10-minute model of grocery and that is going to be the big secular change that is going make our frequency of shopping go up.

{audio:0:32:15} Isn’t that only a small market? I think I read a stat in Ocado’s reports and they split it up and say, roughly 40% of the market is actually weekly shopping of £120 plus and 60% is sub £55 or £60, which is more convenience and topping up the weekly shop. Do you think that these convenience models are actually really competing with the convenience stores, rather than the weekly shop?

{audio:0:32:58} Yes, because I think people are going to start moving their weekly shopping to a convenience model; that is the effect you are having. You probably use it the first time because it’s late and you are doing drinks with your friends and you’re out of drinks or because you are missing some ingredients for cooking. Then you realize, actually, this is a pretty good experience. Why do I get an Ocado shop? Why do I have to wait for my next slot in two weeks away? It’s a two-hour slot and I need to stay home for two hours and I’m not going to get the 6PM to 8PM slot. These models just do not work. The UX for the consumer is just not there; not being able to match what they are promising to the customers because the operations just do not work. I think convenience just works.

{audio:0:33:46} Can we just go through convenience in detail? Maybe we could take a step back and look at how the marketplace and dark store model differ, at a fundamental level?

{audio:0:33:59} You can think about it in two ways. Firstly, about the unit economics and, secondly, about the UX. With the UX and marketplace, you still have someone who goes to a shop, picks out the items, goes to pay and then delivers it to you and it takes much longer but also, you don’t have good integration with the shop. You need to order things and probably something like 20% of your orders are going to have missing products which is going to be annoying for the consumer, who may be missing the one thing they care about. Then you need to have a customer service agent to call the customer and ask what you should do. Shall we send someone back to buy it for you?

{audio:0:34:40} Why would they be missing items? Is that just because they don’t have the inventory in the store or in stock?

{audio:0:34:44} Yes, generally, because they don’t have it in store. The other big issue is, if I’m rider and I go to a restaurant and there is a bunch of different rices and spaghettis, and they want you to get a specific one, you may not recognize it, so you are just going to make some mistakes as well. That is on top of missing inventory because the store doesn’t have a good integration with the marketplace. That is not really fixable. It is very complex to fix it.

{audio:0:35:14} The other thing you have is, as a store, as a Carrefour, how are you going to handle the offline customers as compared to your online customers? If there is a big queue at the tills, which one goes first? You’re not going to be able to add special teams for Deliveroo or Glovo riders; you just don’t have the space. It’s a bit different in the US, with big hypermarkets where they have more space. Here, it’s not doable and they are not going to change. I don’t really see a solution there. On the unit economics side, the retailers, the supermarkets, do not give you great margins so, typically, you would take a commission but you are also going to add a mark up to the items to make sure you have a good margin.

{audio:0:36:00} In the dark store, you control the entire experience so there are no missing items and it is much faster. But you also buy at the same price, more or less, as somewhere like Carrefour, so you have a similar margin to a supermarket, which turns out to be pretty healthy.

{audio:0:36:18} For the marketplace model, what you are saying is that if you are picking and shipping from a Carrefour, for example, you might have to pay an extra 5% or even 10% margin on top of the product but you also then have to put your own mark up on it, to cover your costs of picking and delivering to the customer, so it could be more expensive?

{audio:0:36:39} Yes. I think, typically, the marketplace model is often more expensive; not always, but often more expensive for the end consumer than the full stack model. The full stack model, if you look at all those that have launched in the past six to nine months, they all will tell you that they sell at supermarket prices.

{audio:0:37:09} They will rent 200 to 300 square metres of retail space, that they can typically convert very fast, in 48 hours. You put in some fridges, some shelves and all the products. Then the journey is, an order comes in, you have pickers who know the layout of the store, go to a product, scan it, so it reflects the stock in real time, in the app. You also know you have the right amount of products. They scan and pack everything in about 90 seconds, then hand it to a rider who goes and delivers it, typically within a two-kilometer radius from the dark store.

{audio:0:38:04} Here you have a difference between the couriers and Getir who only do that and the riders are only doing a link to a dark store. They go to the customers and then go back to the store. Whereas in Glovo or Delivery Hero, the riders might also do other types of orders. They might do one convenience order and one food delivery. They will come just in time to get the product, drop it at the consumer’s house and then go somewhere else.

{audio:0:38:32} The benefit of that model for Glovo is that you probably have lower delivery costs. However, you cannot adapt your orders. If you have a really big order, such as someone spending €80, you cannot do it because your bike cannot handle it. Whereas someone at a full stack provider might be using electric bikes, they might have cargo bikes, so they would be able to handle really big basket sizes and really big orders, in one go.

{audio:0:39:01} Why do these players need to be completely vertically integrated?

{audio:0:39:08} It gives you two things. If you have integration, you have the workers for the whole journey, the whole experience, so it is a better UX for the customer, which I think is the main reason you would want to do it. But also, you get better margins because you are actually buying the product at a similar price as a big supermarket. You might go directly to some of the FMCG players and you are probably also able to move to white-label in a few years, by having your own brand of rice or pasta.

{audio:0:39:42} They procure inventory directly from the big Coca-Colas and all the big FMCG brands?

{audio:0:39:48} Yes. You can get inventory that comes directly, probably every 24 to 48 hours, because you have a small warehouse where everything is turned around really quickly so everything stays fresh. You don’t have issues about stock handling or thinking about stock quality and stock expiry dates because everything moves out very, very quickly.

{audio:0:40:12} Effectively, you are a retailer – you are a restaurant or store – so why don’t you put your store on another marketplace, such as Uber Eats or Just Eat, to maximize your fixed costs?

{audio:0:40:21} That’s a good question and I do think, at the end of the day, it’s a retail business and the winners in the convenience space will be the people that understand retail as well as tech. it’s not going to be someone who only does and understands tech. Some players are doing this. For example, Dija who are on Deliveroo, and they use Deliveroo riders. At the end of the day, you want to own your customer and you don’t lose your customer to a player like Deliveroo, Glovo or Uber Eats. These guys will also take your commission. How much are these guys going to be willing to add you to their app if they also have their own dark store?

{audio:0:41:02} But you’ve got a relatively high fixed cost because you’ve got pickers, you’ve got rent so you still have to have the throughput to make it work.

{audio:0:41:15} This is why you have a lot of small stores so you can reach a big capacity quite quickly.

{audio:0:41:24} You said the dark stores were about 200 to 300 square meters. How many orders would they do a week, from there?

{audio:0:41:31} You would probably get to 500 orders plus per day.

{audio:0:41:35} What are people typically purchasing from these stores?

{audio:0:41:44} A lot of people think about the US where you have Gopuff which is vapes and alcohol, where they have big margins so it is a very different business model. They don’t do fresh because fresh is complex. These players in Europe are adapting to the consumers which is really about simulating your weekly shopping so they would do fresh and you see the average basket which is pretty much split into a third fresh, a third dry and a third drinks. It differs by player. Some players, like Zap, are saying they will only do dry so it differs a bit. You see the average order value going quite high. It was probably around 20 for Glovo in Spain. You see players, in other markets, that are already much higher than 20. It depends on a number of factors such as whether you are doing free delivery or if there is a minimum order value?

{audio:0:42:50} The key question is, people are buying pretty big baskets, but are they big enough to lead to profitability and that show willingness to changing their way of doing a weekly shop, by buying one sauce or a Coke, or I just want some booze at 10PM?

Glovo & EU Convenience Delivery

Former Corporate Strategy at Glovo

inpractise.com/articles/glovo-and-eu-convenience-delivery

Why is this interview interesting?

Executive Bio

Paul-Louis Lepine

Former Corporate Strategy at Glovo

Interview Transcript

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Glovo & EU Convenience Delivery (May 14, 2021)

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