James is raising donations through its app. Photo: James
Business

Online grocery: the next frontier for delivery apps

Survey by Brazilian Supermarkets Association from the state of São Paulo found that 15% of consumers shop online for groceries. Fast-growing sector fosters competition among delivery players

As the digital economy fills an ever-growing space in consumers’ day to day, it is natural that even those sectors that didn’t seem to be leaving the brick-and-mortar model anytime soon, are also affected by the so-called digital transformation. This is the case with supermarkets.

In 2017, Nielsen and the FMI (The Food Industry Association) predicted that sales of online groceries would reach $100 billion by 2025. In 2018, the two research entities updated their numbers, pointing out that the milestone must be reached much earlier than they imagined: this kind of online purchase is expected to reach $100 billion between 2022 and 2024.

But even in more mature economies like the United States, the sector has a long way ahead. With the overall grocery market accounting for a share of $632 billion in 2018, the behavior adoption is still low: about 10% of American consumers say they make this kind of online purchases on a regular basis. But that share is growing: in 2018, the value of the online grocery market reached $ 26 billion – more than doubled, when compared to 2016: $ 12 billion. Data are from Online Grocery Shopping Report 2020, from Business Insider.

Among those responsible for this accelerated growth are some old acquaintances. Amazon has been relying on its e-commerce expertise and customer service to offer a variety of online grcery services. Walmart, on the other hand, benefits from its strong physical presence, added to efforts such as the use of AI – while other local players, such as Kroger and Aldi, have been working with third parties, like Instacart, to provide their services.

In Brazil, although to a lesser extent, the outline is quite alike. A survey commissioned by the Supermarkets Association from the state of São Paulo (Associação Paulista de Supermercados) with 1200 people in 2019, pointed out that 15% of consumers said they shop online in supermarkets. Although this doesn’t mean a recurring behavior, the data confirms the sector’s potential: “That was the first time it was possible to measure who is really shopping online for groceries,” said Thiago Berka, economist, and Coordinator in the Office of Management, Processes, and Projects of the Association, to LABS.

Consumers’ criteria when choosing also reinforce the potential of this sector in Brazil: along with the presence of a healthy section, the delivery option appears in the survey as a crucial factor in the choice of the grocer.

In duopoly land, whoever has data is king

“Data from grocers are going to Rappi and iFood. Who is this consumer, what does he buy, where does he buy from, the average ticket,” Berka points out.

Data are gold mines: they allow customized promotions, targeted offers and a series of big data analyses to further leverage sales

Thiago Berka, economist in the Supermarkets Association from the state of São Paulo

The two largest players in the sector in Brazil have, indeed, leveraged their operations thanks to grocery purchases. Launched in June 2019, iFood Mercado – the name of the delivery app platform – went from 100 partner grocers to more than 400, and from 20 cities to more than 80. Currently, the service has been growing 100% per month. “The service is available for express purchases, where it is possible to receive up to 16 day-to-day items, with delivery scheduled for the most convenient time, and payment made via the iFood app. Deliveries are made by partner couriers and all logistics are managed by iFood itself and available on the app for real-time user monitoring ” the company said in a statement to LABS.

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And the plans for the first half of 2020 remain at a fast pace: iFood intends to expand its presence to around one thousand grocers. “The goal is for the platform to bring together major players in the market and local grocers, achieving a sustainable evolution for the business”. 

The entry of iFood in this segment is part of the strategy of the leading foodtech in Latin America to invest more and more in a broader food chain that goes beyond food delivery

Delivery app iFood, in a statement to LABS

According to information from the media outlet InfoMoney, Rappi operates with two types of contracts: one that provides the retailer with access to consumers’ purchase data and another where this is not allowed. The Colombian superapp has a contract with the leading French supermarket chain in the Brazilian grocery sector, Carrefour, for about a year. “I have access to who bought and what they bought,” said Paula Cardoso, president of Carrefour e-Business, to the media outlet.

For Berka, the strategy carried out by iFood and Rappi is, in fact, the one that will grow the most, since the scaling efficiency for retailers, mainly small and medium, is prompt. “It’s the speed of already having your e-commerce platform available.” Other players such as SiteMercado and Supermercado Now, are also very worthwhile for these small and medium grocers, as they discharge their operations, since these marketplaces take on costs with e-commerce. “[the grocery sector] It is the last sector to enter the Industry 4.0. So [the players] will experiment more with partnerships.”

Keeping an eye on this potential, Brazilian retailer B2W announced in January the total acquisition of shares in the Supermercado Now platform, which has more than 30 partner supermarket chains and customers with a high recurrence purchase profile. “The acquisition is in line with B2W’s strategy of better serving the customer, offering: Everything. Anytime. Anywhere. Through the platform, the customer chooses their preferred supermarket and can create a fully customizable shopping cart. The customer can also choose to pick up items at the store or to receive at the desired address within 2 hours or at a scheduled time,” said the retailer in a press release.

James Delivery was acquired by GPA in late 2018. Photo: James Delivery

But not everyone agrees on the best strategy to benefit from this market’s potential. In order to combine the rich base of its loyalty programs (20 million registered consumers), with the app James Delivery’s database, and further enhancing its delivery operations with a last-mile solution – deliveries within one hour – the retail giant that controls the chains Extra and Pão de Açúcar, GPA, acquired the startup from the Southern city of Curitiba in late 2018. Two months after expanding the operation to São Paulo, James Delivery app already accounted for 40% of the online orders from the 14 partner stores in the city until then.

In an interview with LABS, the app’s co-founder, Lucas Ceschin, says that two were the main factors that drew the retail giant’s attention to the acquisition: a company that had been working with delivery for some time and the committed team, with major technical know-how. For James, the acquisition was seen as an opportunity to be closer to the customer.

Retail is eye to eye: it is how you approach the customer. The GPA audience wants direct communication, and this is the biggest asset that James has, total control of the end customer

Lucas Ceschin, cofounder at James Delivery

“In 2019, James grew 15x overall and 50x in the grocery business – leveraged by GPA,” he says. Without disclosing investment figures, the executive reveals that, in 2020, the grocery sector remains the vertical of greatest growth for the startup. “James’ mission is to be the best and the fastest for a few items. By crossing data from James and GPA we are able to transform our operation into the best service and product experience, understanding the behavior of this consumer from end to end”.

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Unlike the strategy chosen by iFood and Rappi, James, with the acquisition by the retail group, believes it has another card up its sleeve. “With GPA, we have access to inventory, operations, the entire chain. And this control gives us a competitive edge over other players.” For Lucas, the sum of a company that was born 100% digital with a traditional market leader generates a unique combination.

“The online grocery sector has the greatest potential, even greater than the one of restaurants. The entry of new players confirms this.”

The challenges at the border

In order for these apps to succeed in crossing the next frontier of e-commerce, however, some barriers still prevent further adoption of the habit. For James’ co-founder, the biggest issues are logistics and fresh produce. “Among the 85% of consumers who answered the survey saying that they do not buy online: 51% admitted that shipping is the obstacle. The Brazilian consumer, being more sensitive to price, will think twice, and sometimes even give up if he has to pay BRL 11, BRL 15.00 for delivery, for instance”, confirms Berka.

As for fresh products, less than 20% of respondents to the survey commissioned by the Association stated that they shop online perishable products, such as meats, produce, and bakery, while cleaning products (87%) and beverages are the purchase champions.

In the race among apps with better partnerships and retailers with stronger operations, seeking to solve cultural and cost factors, as well as last-mile delivery, which remains a barrier for all e-commerce in Brazil, the customer is the winner. “Consumer distrust has been decreasing,” adds Berka.