The big Q-commerce race part 2

A year ago, I wrote about last mile delivery intermediaries (LMDI) and Q-commerce players. Since then, this dynamic space has rarely been out of the news. There have been billion-dollar acquisitions, mergers and a handful of bankruptcies. So how did my past predictions hold and what is the future of this space??

When it comes to LMDI let’s start by defining what we are talking about. Last year, I ran an inconclusive poll on Linkedin defining this channel. I have learnt that the reason it is hard to define is that there are many different business models within LMDI. The three most common are 1. Restaurants (LMDI delivers takeaways to home), 2. Marketplaces (where the LDMI picks from a fourth party retail store) and 3. Dark stores (where LMDI buys and distributes stock, fueling the Q-commerce model).?

Many pandemic fads have lost steam but the staggering growth of LMDI players remains. Despite the partial return to restaurants, the office and stores consumer’s insatiable demand for speed and convenience endures. What I find intriguing is LMDI is often catering to new shopper missions for eCommerce. It used to be the case that eCommerce was often replenishment or the “weekly shop”, LMDI opens online missions for top-up, distress and impulse. Indeed, a trip to a dark store very much resembles a convenience store.?

LMDI is just one of the latest technologies that continue to shift the face of retail. The question is how fast? Let's have a look at the forces that will determine the growth rate of this business model.?

Tailwinds?

New routes to market - The varied routes to market have different strengths and weaknesses for LMDI’s. Marketplaces offer range but controlling stock and margins is harder. Dark stores offer greater control and speed but tie-up cash in assets and infrastructure. By running a blend at different stages of maturity, LMDI can expand to new locations providing greater reach to consumers.?

Scale - The size of leading LMDIs is quite impressive. Unicorns have become decacorns and local business have become global players. Integration of technology and marketing efforts should bring efficiency and centralisation of expertise. Despite this competition remains fierce driving innovation in this space.?

Investment - Despite the increasingly tough economic environment there is heavy investment in the value chain. To improve speed and picking costs there is a move towards more Dark stores. Further investments are made in technology, infrastructure and autonomation.?

Brand partnerships – Scale and growth attracts brands and brands bring more shoppers. They are emerging as data partners and marketing channels. Working more closely with Brands will bring range, traffic and investment, injecting energy into the flywheel.?

?Headwinds?

Profitability – The elephant in the room. LMDI's are increasingly being asked to defend their profitability and share a path to profit. Questions are intensifying with each?release of quarterly results. The macroeconomic environment demands more of the players and those posting softening growth and profit challenges have been punished in recent times. This focus will not go away and those that prosper in the medium term will be those that deliver on their ambitions.?This is?challenging but can be improved by building higher revenue?baskets, increasing shopper loyalty whilst simultaneously reducing operational costs.

Corporate social responsibility – As with any emerging business model there is a lag between innovation and the rules that govern it. Questions remain about workers rights,? safety concerns, impact on cities and communities. Furthermore, because the route to market is both varied and fragmented it is very difficult to understand the environmental impact. On a local basis growth will likely be halted,?curbed or both as new rules come into place.?

Organic Consumer demand – Whilst consumer demand is a tail-wind it is unclear how much is inflated by heavy marketing on customer acquisition. It is impossible to track but the leading LMDI’s are sponsoring everything from social media to physical media and football teams. In an inflationary environment?marketing funds will no doubt be harder to come by and this could set a lower growth baseline.

Whilst valid questions remain about the channel, I have déjà vu. Conversations feel like eCommerce circa 2010-2015. Will it ever be profitable? Is growth sustainable? How incremental is it? These questions need to be asked but a better question is what are you going to do about it? Sit on the sidelines and ask more questions or understand how this will change retail and how you can help shape it.