Groceries are simply failing to deliver
Delivery services have suffered a slowdown as Covid consumption fades
New Zealand’s grocery delivery services have suffered a slowdown as Covid-19 consumption trends fade, with some smaller ventures shutting down altogether.
The first major victim, Supie, ceased trading on October 30. The company was placed in voluntary administration, with staff being let go without receiving their final wages or being made redundant.
Teddy, a grocery delivery start-up that, as recently as April last year, was planning to employ ChatGPT to compete with big industry players, appears to have vanished into thin air.
The Teddy app told users it was going on a break over Christmas and would return on February 1. As of May 1, it is yet to.
The slickly marketed Australian outfit Milkrun took a similar route and suffered a similar fate.
In May 2022, the company’s founder, Dany Milham, told the Australian Financial Review that Milkrun would be larger than Coles or Woolworths in 10 years.
One year later, the company went under with 400 people’s jobs and A$75 million ($82m) of seed funding lost in the process. It was subsequently bought by Woolworths and is operating in New Zealand.
A nut worth cracking?
The strife of grocery delivery services is partly related to consumers tightening their belts and putting less of a premium on convenience, said the managing director at First Retail Group, Chris Wilkinson.
Much of it is also part of larger trends related to changing Covid-era consumption habits and miscalculations about delivery’s role in the grocery trade.
“Supermarkets are still very focused on home delivery, and many of them believe this is the way forward because of consumer changes and accessibility, and all kinds of different things pointing to future growth in home delivery,” he said.
However, Wilkinson said that deals such as the free delivery services for purchases of more than $100 offered by Foodstuff’s New World in recent months “reflects growth has slid, stopped or gone backwards”.
“Businesses are looking to regain market share or introduce people to the channel.”
Not for lack of trying
The upshot, said Coriolis director Tim Morris, is that Covid gave delivery “a boost”, but it was more of an aberration than a meaningful shift.
“[For the supermarkets] it requires its own trucks, you have to build a completely parallel distribution architecture . . . you work out quickly that delivering groceries is a lot harder than anyone thought. People keep trying, but you need a hell of a lot of money to do it.
“Overseas, Amazon clearly has had many looks at grocery, and they’re still not putting grocery trucks on the road. They’re playing around with it in places globally. But in practice, they’re not scaling that model.”
Another option is outsourcing delivery to actors with the required infrastructure. This is what Supie and Teddy tried and failed to do.
Uber Eats has demonstrated success in this area and already delivers Foodstuffs groceries across the country.
Woolworths’ acquisition of the failed Milkrun, which is using Uber’s drivers, looks like a validation of its main competitor’s strategy.
New Zealand-owned and operated food delivery service DeliverEasy also indicated to BusinessDesk that it is considering grocery delivery in the next few months.
But, according to Morris, the market is not as big as people think it is, and it is unclear whether it is worthwhile for suppliers and deliverers alike.
“Honestly, hundreds of start-ups have tried this model globally over the past 25 five years. All have failed. What magic does this version have?” he said.
“It is a segment of the market. I think where we make the mistake is to assume that it will become 100 per cent of the market in any reasonable timeframe.”
My Food Fad
Wilkinson said the model of supplying ingredients and recipes to cook meals is likewise in trouble.
“For the likes of My Food Bag and others, just drive around the suburbs on a recycling day, and you see a lot less of the boxes post-Covid,” he said.
In annual earnings to April 2023, My Food Bag’s profits fell 60.5 per cent to $7.9m, compared with $20m the prior year.
The market’s noticed. Since debuting on the New Zealand stock exchange (NZX) and Australian securities exchange (ASX) in March 2021, raising $342m in its initial public offering (IPO), the company’s share price has collapsed.
The shares have never been higher than the $1.85 IPO price. They sat at $0.14 at last look.
German big brother Hello Fresh is likewise in trouble. It saw its international active customer base, which includes New Zealand, fall 7.8 per cent from 3.26 million to 3.01 million in the year to December 2023.
Small fish
The trends affecting larger companies have also hurt small and medium-sized businesses that pursued delivery strategies during Covid to stay alive.
Wilkinson said that during Covid, consumers had no choice but to “migrate online” for their shopping.
“[There] was this huge transition where people were going a lot broader, so for instance, people were searching online buying fish from Taranaki or fruit from Central Otago.”
Not only did people have more discretionary income during Covid, but they had more time to think about how they were spending it, said Wilkinson.
However, recessionary head winds and alternative goods have “curbed a lot of that type of spending”, he said.
Some businesses, such as Waikanae Crab — a delivery fishmonger in Paraparaumu — have managed to lock in the delivery part of their business, Wilkinson says.
Wonky Box, a service that delivers excess or oddly shaped fruit and vegetables that don’t meet supermarket standards, has also demonstrated an ability to fight the tide.
It expanded its business into the South Island late last year.
But these success stories are few and far between.
“Covid was a really weird thing,” Morris said.
“People are creatures of habit. They like shopping, they like that hunter-gatherer experience.”