Why I think this 'Quick Commerce' stuff is generally a race to the bottom

I've been hearing a lot about 'Quick Commerce'

I'd read some brief news articles in the past about players like Gorillas and Jokr but hadn't really delved into understanding it very far.

And my past experiences in grocery & cloud kitchens led me to the general hypothesis that they were chasing a dead end (more on why that is later).

But then just recently I'd read about the $60m funding round of the Indonesian player, Astro, and it peaked my curiousity.

First, let me start by saying I have some grocery ecom experience

My grocery experiences include:

• I was helping Ozon (top 2 Russian ecom player) in 2018 and they had been doing grocery ecommerce from a fulfillment center for some years. And so i'd walked around the warehouse and was analyzing how to optimize some of the commercial and operational elements back then.
• I helped a friend in 2019 that was setting up the Philippine ecommerce arm of Landers.ph, which is now one of the leading ecommerce grocery players in that market. And I heard they are profitable and growing very well.

• I had done this e-Grocery analysis of the market in 2018 and had analyzed in-depth more than 10 different players with different models: https://www.endgameken.com/post/my-2018-analysis-of-egrocery-models-and-10-players
• I was a customer of Amazon Fresh when I lived in Boston in 2017-18, typically ordering from them weekly or so. And so I generally had a pretty good idea of how they were operating.

• I have worked with a number of ex-Redmart folks over the years, and so generally have a pretty good understanding of how they operate

My general conclusion from my experiences was that there are three main purchase occasions for grocery

The three purchase occasions (in the US) are:

1. A habitual purchase of a large basket, typically by a housewife. Ticket size in the US would often be $100+. (Players = Amazon Fresh, etc.)
2. A mid-week 'top-up' of fresh items and things that are running low. Ticket size in the US would run between $20 - $70. (Players = Instacart, etc.). Note that many folks in the US would just stop at a convenience store or small grocery on the way back from home for this one.
3. The 'I need it now' occasions. Ticket size would generally run <$50 in the US. (Players = Gorillas, Astro and these other Quick Commerce guys).

Now for #1 (habitual purchase) and #2 (mid-week topup) they are clearly habits.

Purchase occasion #3 (I need it now) is in my experience rarely a habit for families. Generally because the housewife will make a habit out of purchasing in bulk at cheaper prices in a planned purchase.

The only time it 'could' become a habit is for perhaps the working professional that likes to cook for themselves. But in places like SE Asia where Grab is so prevalent and ordering food is so cheap... I do not consider this a very interesting or large market.

The 'Quick Commerce' grocery biz is to me a lot like 'Cloud Kitchens'

I make this comparison because they both rely on micro-fulfillment centers that are local to the customer and carry a limited range of items.

Now let me also say that I know a thing or two about cloud kitchens from living in Russia and having several different friends there that were co-founders in various companies that became fairly large there.

And I'd had a number of discussions back then with those folks on what made them work.

I also ordered my breakfast on a daily basis from one of those players (LocalKitchen) in Moscow in 2019 so I know the customer mindset. I wanted something fast, of decent quality, and I didn't mind the limited selection.

It quickly became a habit. Which is why I believe in the cloud kitchen model.

It would have never become a habit for me to order grocery items.. as I would not make a habit out of ordering last minute items that I needed to cook.

Now if these Quick Commerce players were to get into a lot of 'ready to eat' meals.. than I think that is a potentially interesting angle.

Tesco in the UK is a good example of being great at ready-to-eat. And the culture in London has very much adapted to purchasing ready-to-eat meals from online grocers.

That culture has not really taken off in SE Asia in the same way. Probably in part because its so cheap to eat quality, freshly cooked meals outside.

I would add that I think 'Quick Commerce' grocery can work as an add-on to another model... but will not survive as stand alone

What do I mean? I mean that for example when I saw Landers I saw how housewives in the Philippines were making a habit out of large planned purchases.

And sometimes they will probably forget something and need to order it fast.

And so they would be willing to pay a higher delivery fee for an immediate delivery of whatever they are missing.

But it would be infrequent. And their natural preference would be to purchase it from the same player that they are making their regular large purchases from, ie. Landers.

So if Landers were to offer 'quick commerce' as an add-on then they would be covering both purchase occasion #1 & #3 above. And I could buy into that.

So do I think the VC's that are funding this stuff will get their asses handed to them?

For the most part, Yes.

I do not see how the economics will ever work for a stand alone Quick Commerce player. And all the news on the results of these players thus far very much supports this.

You see there are a few fundamental flaws in it:

• It will never become a habit for the vast majority of their customer base (and so CAC will not be recuperated)
• Without becoming a habit it will never have the scale to make the economics work. Because they cannot make their margin too high without scaring off many of the customers.

However, I do think there is a potential saviour for them... Private labels

When I read this article about Astro introducing its own private labels i was like.. "ahaaaaa! Perhaps these VC's have a card up their sleeves"

Why? Because private labels are extremely underdeveloped in SE Asia.

There are not really any large private label grocers here that I am aware of. And if there are, I doubt they are strong at ecommerce.

And for anyone that has lived in a city like Boston (like I have)... you will consistently hear the same thing.... YOU HAVE TO SHOP AT TRADER JOE'S!!

I mean the stuff they have is just awesomeeeeeeeee.... Delicious. And exclusive to them.

And sourced directly from farmers, etc. Which is kind of what I believe Astro is trying to do as well.

So my general advice to Astro is simple...

Focus on the private labels...

become the online Trader Joe's of SE Asia...

and pivot away from this Quick Commerce garbage...

It is just a mirage that will distract you.

Read it on my blog: https://www.endgameken.com/post/why-i-think-this-quick-commerce-stuff-is-generally-a-race-to-the-bottom