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An interesting development is large retailers coming on board with ecommerce and being more aware of what's going on. Many large retailers have built their ecommerce divisions and tested things, which is a very important step because it makes them aware and open to potential collaboration with any new players coming in. A second wave is the rise of the quick commerce platforms, with Gorillas making the biggest splash in France. Other players include Getir and Flink, for whom France was their first priority.
Currently, the French market has two big players: Uber Eats and Deliveroo. Others include Frichti, which was recently acquired by Gorillas, and Just Eat which is less important than the UK.
Just Eat were very successful in the UK because their model works well due to the existing delivery culture of some restaurants having their own fleets. France did not have that at scale in the areas where Uber Eats and Deliveroo were successful. Their product market fit was initially good for the UK, but did not transfer well into France.
Uber have a big ride sharing business that they have obviously leveraged. McDonald's is the biggest fast delivery food market in France and one of their most successful markets globally. Uber Eats developed a global partnership with McDonald's which proved to be particularly successful in France, relative to other markets. That helped them develop, because the McDonald's brand is loved by fast consumers. They have also made a big investment by renaming the football league in France.
No, but in the beginning, it was only Uber Eats, then McDonald's spread.
Yes, and that particular move worked well for them.
I am surprised as I don't think there is a meaningful difference in numbers.
Perhaps geographical footprint makes a difference or there's a long tail thing going on, but in terms of the quality of the app for fresh consumers, Deliveroo is much stronger than Uber Eats and that is felt by many customers.
It depends on the location so those numbers are not meaningful.
With any large company, you compete with the strength and simply focus on what you do. Uber also has to focus on profitability and meaningful growth, so you have to put your head down and do what you do best, which is very feasible.
Deliveroo initially had very high-quality restaurants and were more focused on food as a pure brand. They were first to roll out dark kitchens and Deliveroo Plus. The quality of selection is more important than the absolute number of restaurants.
There is obviously a big market with McDonald's and other large accounts, which is probably slightly different to other places. There is also a rise of very large independent chains which are very successful. Poke bowl and Thai chains understand delivery and are going national and are very successful in the areas they operate. There is also the very long tail of larger independent restaurants.
French people are very foodie so you have to work with the right restaurants in the right areas who can deliver that experience. It's about the right burger in the right place, but they differentiate their delivery offering to be successful. French cuisine would not work for delivery so you have to adapt it for fast food.
Any company who wants to compete with Uber has to compete with an established brand with an active customer base. Deliveroo is a very established brand whose French marketing pitch is, on s’fait un Deliveroo? which is good for Deliveroo as it's almost a word to say that. To compete with that, you need a lot of fire power on marketing to raise yourself to the same level of awareness, and time, I guess.
I cannot comment on their numbers but what does adjusted mean? How much is the very large marketing investment they're doing and do they factor in cross-marketing from other platforms. But showing profitability is good for the market.
Correct, I would assume not, but they are saying they are having a good run in France and everything is improving. They are also saying there is place to play in this industry which is sustainable, because being profitable is possible in France.
Several years ago, they merged their apps, which is huge. Now there is a pop up in the beginning of the funnel where consumers choose between ride and eats, so they made it front and center for ride customers that they also have eats offering.
No, they use different drivers as it is different markets.
It is very unlikely that was scaled up as those are different markets with very different needs. Some riders can do it in some markets as top-ups, but that would not work in France because there are regulations which govern ride share drivers.
I cannot predict the future but there is a healthy market for riders and drivers which works well in France. Many people are happy for the opportunity they get so it's about finding the right balance between regulation versus not. The only question is how and when and to make it successful, but for me it's clear it is here to say and is something which both customers and riders/drivers love.
I cannot comment on this as it is very hard to tell.
The first ones entered one and a half years ago with Gorillas, whereas Getir and Flink came to France from other geographies.
They have dark stores and do their own picking, procurement and delivery. They rent expensive real estate in the center of cities but what is more interesting is how different they are compared to existing grocery models. They have 2,000 SKUs which is small compared to supermarkets which have 15,000 to 20,000 SKUs. They have their own picking whereas most delivery guys do not. They have their own procurement similar to larger players, but delivery is the biggest difference. Most players pool several orders into large trucks whereas they do single deliveries with their own electric bikes.
To be successful in retail in general, you need low prices, otherwise you cannot scale. You need a high basket value with several items to make margin to pay for all the costs. You need a reasonable time to deliver and the ability to pool orders, which is difficult. Gorillas are currently offering price matching and I find it hard to believe the purchasing power of Gorillas would be on par with large retailers. At scale, there will be much more collaboration, which we've seen happen between those players and the large retailers.
They have partnerships with large brands.
They will partner with Carrefour and offer any of their products. Basket values are a challenge because they cannot physically fit more than X items in a box. That limits the type of assortment so you cannot deliver toilet paper or bottled water. There is also the question of reasonable time, so you have to pool the orders.
It depends what level of margin you want to make. Either you have a high level of density or you cut down your costs by pooling your orders, and a high density of orders will only be feasible in few locations.
You can typically pool two restaurant orders, perhaps three.
Pooling two grocery orders is different from pooling two restaurant orders.
How profitable is that $15 to $20 order and what AOV do you need to be profitable? Bain looked at the average basket size needed to break even based on the number of deliveries you will do, and they came up with €30 to €40 minimum.
I find it hard to believe they are able to achieve 50% gross margins.
I don't know how they could achieve higher gross margins than retailers.
Clearly, they have a grocery where they go direct but that would assume they would get a better deal than Carrefour.
No, I mean gross profit, if you look at the procurement side of Carrefour.
No, because a large retailer like Carrefour would always be better at buying than Getir or Gorillas. The question becomes what deal you can strike with large retailers to offer an end-to-end proposal which is attractive to customers? My understanding is that they are able to make it happen with that model.
I don't know what the numbers are but it's similar to the restaurant model where they have a shared basket.
Picking costs are dependent on basket size. You can take five minutes to pick an order with a few items, but for bigger basket sizes that goes up dramatically. The picking time for a €20 order would probably be five or six minutes.
You are assuming you will get five orders without lag.
Yes, but it's important to know that because the demand is not flat during the week or day. The peak levels in the model are when people order and eat. That model at scale, with the level of density and promise you have, is very challenging. What is Gorillas doing that retailers are not? They pay rent so have to amortize 100% of it on those orders. I would assume rent is more expensive because it's more central. There is a delta on picking because most retailers would not pick. There is also a delta on the delivery but the average basket size is not huge. All of those collectively make it challenging at their current valuation. This model can work and the way Deliveroo is doing it is quite smart. They partner with retailers to benefit from their buying size and also leverage their delivery network. In that case, you no longer rely on one segment to be dense and profitable, but bring two strong players together. I don't think one player can capture the grocery delivery market share they need, knowing how limited they are with access to rent, ability to scale order size and the required density.
In Italy, they partner with retailers to build a dark store, so it's like Gorillas.
You are doing something similar to Gorillas. I would assume you would use your delivery network and the buying power of the retailer to make it more effective. I don't know how they share capex because you could do it from existing retail locations.
They have an existing network so it doesn't depend on only one order. My point is that you have access to something which already exists, and is simply slotted in. That has been going on for years and has proven to be profitable, so that's not an issue.
That was not a big trend.
Many people want to become riders and choose one which fits their needs. They have a different model which many people will dislike because it is less flexible. Many of them are employed which makes it less flexible due to the times you work and the fees you can get.
Just Eat recently announced they want to have employed riders in France. Many riders are not attracted to that model in terms of hourly fees and no flexibility.
The official number for Deliveroo in France is €14 per hour.
That is why you need larger basket sizes to have good profit margins.
Quick commerce is trying to get everything at once. They want the same prices with lower gross margins and quick delivery without pooling of orders. To make it work at the scale they are saying is the biggest question because something has to give. Either they have to increase prices and lead times or change vehicles and pool orders.
They need to focus on their core business of restaurant deliveries, which is successful and good to build on because it gives them density on the networks. They need to get into quick commerce but not as capex heavy as Gorillas. Collaborating with retailers is very smart because the retailers are the key to making it work eventually.
You can make it work because you don't carry 100% of all those fixed costs. You have to have good utilization of assets in your dark stores, which is not something you carry yourself. You also don't have the fleet which is utilized well in other models.
I don't know how it works but I think both models could work. They will do it such that everybody makes money on both ends while contributing what they can. Somebody has to do the picking and support and somebody has to pay for it. An end-to-end deal will be struck but I don't know the exact details.
You have to respect the math of how it's going to work and differentiate the grocery market because everyone won't buy everything in their fridge from Gorillas. Ocado have built the infrastructure to be able to scale profitably while serving a weekly family basket of €200. Brick and mortar will not go away, there is place for convenience. I do not believe they can do it by carrying huge fixed costs and buying low end prices. The right way to do it is gradually like Deliveroo are doing, and test the model they believe in to see how they can expand it and make it work. There is currently hype on the valuations of quick commerce and what it will become but the model is not certain.
It is more about the occasion than the customer. Food delivery customers live in city centers where there's a good correlation with the convenience aspect. People who like to eat out, also order in. The question everyone is asking is how big the rest is and how much penetration you can get into your daily routine. There is a big difference between how people do their weekly or half weekly shop and a small €15 convenience top up. If you divide a €200 basket into €20 orders, people will not pay multiple delivery fees, so it's simply about finding the right way.
No, they would have to make radical changes either in prices or the way they deliver. Woolworths is a big online player in Australia and they pool 40 orders into one truck and do a milk run, which is the only way they could do it profitably. There is a huge difference between that and quick commerce. They could rather have a good offering on the convenience aspect of it than making it in the weekly shop segment.
I would assume they would not have said that in their pitch deck. They would have said they can do way beyond, which you have to question at scale. Even if you only believed it was convenience, it would still be a big bucket, but would it justify a $12 billion valuation? That is probably not too far from the market cap of Carrefour.
Offline groceries will not disappear overnight, so you would have to believe in a radical market shift from those people to make it happen. There is an element of how much you can make those orders happen in a very small area and how many more areas do you have like that to justify this kind of density. The market is huge as people need to eat, but I would challenge their willingness to pay for a 10-minute delivery.
There is space for both but it is hard to guess how the market consolidates based on current valuations. Gorillas recently acquired Frichti because they have such a high valuation but maybe Frichti wasn't doing so well. There is clearly a place for a very successful restaurant business and those two have very good synergies.
Restaurant and groceries because there are potential product synergies. Some restaurants have offerings in the grocery section and vice versa, but in general, those two segments have different occasions of eating and interact with different players, so you have to treat them as two separate segments to pool into one company.
People don't have the answer now as you need to wait for consolidation. Many of those players are going down or being acquired so it will happen, but once the hype is gone, they will be faced with hard profitability questions, at which point you will see what the actual size of that market is. Uber Eats and Deliveroo will play that game and they are currently partnering with retailers who will also play that game. I would bet on the retailers with delivery networks than those spending billions on heavy capex.
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The executive spent nearly 3 years at Deliveroo, responsible for running operations in France..
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