Q-Commerce: How do retailers cater to the customers’ #NeedForSpeed

While commodities and materials constantly get replaced by newer introductions in the market, when deciphering the value of things, it is time – the one intangible thing – that forever remains precious. In fact, the value of time keeps getting more and more precious with each passing day of a person’s life. That is perhaps why the definition of ‘fast’ keeps changing in today’s world for people who have been spoilt in the digital, technology-driven age where everything is available in the click of a button and at doorsteps.

Consumer expectations and purchasing habits evolve as technologies that facilitate retail evolve. Convenience and speed are now equally as important as the product itself, where e-commerce players are trying to offer it all to acquire and retain customers. The MENA Q-commerce (on-demand or rapid delivery) model is set to reach $47 billion by 2030, growing at an impressive 17 percent CAGR, according to a research report from Redseer. While the market is still predominantly (80%+) driven by food delivery and grocery, the market split is drastically evolving.

Today, 2-day or even same-day delivery isn’t considered fast enough. Its 30-minute and 15-minute deliveries that are now considered efficient. How do retailers achieve it? In q-commerce, online retailers fulfill orders using a network of urban-located micro-fulfillment centers that are usually only 2,000 to 5,000 square feet, unlike the usual warehouses that could be as large as 15 to 20 football fields. This reduces the distance to the customer, dramatically increasing delivery speed. The approach fits especially well with household and perishable items, such as groceries.

Many q-commerce retailers opt for less expensive real estate in the heart of urban locations to reduce delivery times, with some even converting rental apartments to fulfilment centres. To further increase delivery speed, q-commerce retailers minimize complexity by carrying far fewer items for sale. While a traditional grocery store has up to 60,000 SKUs, q-commerce micro-fulfillment centers generally only hold 2,000 to 4,000 SKUs of the highest turnover items.

Fast and Furious, but how?

FreshToHome, one of the world’s largest fully integrated online brand in fresh fish, poultry and meat e-commerce, with approximately 1.5 Million B2C orders per month and $85M annualised sales run rate on its platform, has been capitalising on its quick delivery options.

“It goes without saying that deep integration between the producer-produce and the customer is the key to a seamless delivery process. We ensure this by forecasting supply and demand using Big Data Analytics; implementing an efficient e-commerce system and factory automation; enabling Route Optimization which helps us get to the customer faster; and using IoT Temperature Tracking to ensure the order reaches the customer in the best and freshest possible form,” said Arun Kumar Krishnan, Chief Technology Officer & UAE General Manager FreshToHome.

Even now, most modern logistics companies are geared for next day delivery due to aggregation and sorting requirements. “Very few of them have the capacity for same day delivery. If you use an external company, it often gets tricky especially when it comes to express delivery and delivering perishable commodities such as chilled meat, fish or vegetables etc. Since we are all about “freshness”, this system does not work for us,” he said.

“FreshToHome’s own well-integrated cold chain infrastructure and state-of-the-art logistics’ optimisation technologies have been developed to meet the challenges posed by express deliveries,” he added.

Dubai-based 15-min grocery delivery service YallaMarket recently reported that its daily orders rose by 330% in the first three months of 2022. According to the company data, energy drinks, dairy and fruits became the most ordered items. Beverages was the top category in YallaMarket mobile app in the first quarter of 2022. Dubai residents tend to order energy drinks and soda during the day. Dairy is on the heels of beverages as the best-selling category. Low-fat milk, eggs and yogurts are the most requested as they economise time for preparing breakfast.

At the same time Dubai citizens seem to buy more fresh fruits and vegetables online. According to YallaMarket, double growth can be noticed compared to 2021 with bananas and strawberries as the most popular fruits.

Dark Stores – The Key Link

As a concept, dark stores compliment quick commerce with a physical building — often a repurposed retail store or supermarket — that acts as a retail shopping center focusing purely on quick commerce and online purchases. The YallaMarket service operates through “dark stores” located in JLT, JVC, Dubai Marina, Business Bay, DSO and Deira.

“Ultrafast grocery delivery is generally thought to be limited by snacks and soda, but the more our customers get used to the delivery model, the more categories they are willing to try. Thus, the demand for fresh vegetables, fruits and meat surges from month to month. We are confident that the fresh category is YallaMarket’s main competitive advantage. Our entire team works hard to ensure that our clients receive high quality products, whether it is breakfast or a family dinner in just 15 minutes,” said Leo Dovbenko, co-founder and CEO of YallaMarket.

Delivery Hero-backed talabat is another regional leader in the Q-commerce space, with 120 talabat Mart stores that facilitates delivery under 30 minutes. These stores are not accessible to the public, and uses in-store pickers and riders to ensure efficient flow and quick delivery of orders.

“We have spaces that have been converted into small supermarkets, which are 200-300sqm. Once the order is placed (on the app), our pickers pick the products and give it to the riders, who deliver the items to customers. In this way, the picking timing is short (1 to 2 minutes), the service is available 24/7, which makes it a great value proposition for customers,” said Tomaso Rodriguez, CEO of Talabat.

In addition, restaurants are also expected to deliver freshly cooked food at shorter delivery times, forcing the emergence of dark/cloud/ghost kitchens – another consequence of the pandemic.

“Today, a lot of fine dining restaurants are getting into food delivery. The rise of kitchens is another key phenomenon we are seeing. Additionally, faster preparation of food is becoming important as convenience is becoming a priority as a result of which delivery times are shortening,” he added.

Aggregators – Friend or foe?

Now, talabat and other food aggregators have been under scrutiny, especially during the pandemic, being accused of charging unreasonable commissions on delivery. Restaurants started questioning if aggregators are in fact friends or foes of the food service industry.

However, talabat justifies its role as a facilitator of the restaurant ecosystem by connecting food chains to a wider customer base by explaining restaurant economics.

“When you look at restaurant economics, cost of food is generally 20-30% of the final price. Then they need to pay for the staff, overheads etc. And then they make a certain margin (say, 10-20%),” he explained. “For every food delivery order on top of what they do, the only additional cost they have to pay is the cost of the ingredients as all the other overheads are paid for already. The incremental margin they get on a food delivery order is around 70%. If the food item cost increases, then it goes and eats into that margin. So additional income that comes from food delivery for restaurants can go as low as 10% to as high as 40%.”

The Debate – What’s the point, really?

Now, there has been a lot of debate on whether 15-minute deliveries are actually needed. One argument questions the safety of drivers who are overwhelmed by the need to adhere to speedy deliveries. Earlier this year, talabat published its first edition of the annual rider report that showcased all rider initiatives launched in 2021. The report included over 15 dedicated rider initiatives and projects, from road safety training sessions across the emirates, to protective gears, to additional insurance coverage, salary cards and rider resting areas. But does that quite make-up for the pressure of increased orders, reduced times, and faster speeds?

Another challenge for retailers is the logistics conundrum. As is, last-mile is the costliest link in the supplychain. A study by Capegini found that the cost of providing last-mile services accounts for 41% of overall supply chain costs. Concerningly, much of the costs incurred for last-mile delivery are variable, meaning that as online grocery delivery volumes increase, so will the costs for last-mile services, thereby increasing the proportion of supply chain costs going toward last-mile delivery. This gets that much more trickier with ultra-fast deliveries as there is usually a huge reliability on hyper-localised dark stores, with enough square footage to store goods close enough to consumers. There will always be an upper limit on the amount they can store and easily transport as well.

Today, retailers must undertake a difficult balancing act between consumers’ delivery expectations and maintaining their own profitability. While every businessman is part of an insane race in this on-demand ‘fast and furious’ world, which is perhaps why Q-commerce, ultra-fast and 15-going-on-10-minute deliveries are faring so well, scheduled deliveries aren’t going to stop dominating the market anytime soon. Or are they?