From Gorillas to GoPuff: Fridge No More

Fresh On-demand grocers models

The Wall Street Journal had an interesting article last week on new models of online grocery. 

“Two companies based in the city, 1520 and Fridge No More, have set up shop in recent months with just that promise. They are positioning themselves as alternatives to traditional delivery providers, such as FreshDirect or Whole Foods Market (through its parent company, [Amazon](https://www.wsj.com/market-data/quotes/AMZN). com Inc.), by virtue of their speed, saying that New Yorkers can’t always wait the hours that it takes for established companies to bring items to the doorstep.”

This article adds to an uptick in publicity and funding to new models of grocery delivery. While we tend to see many of these innovations starting either in the US or Asia, in this case, a lot of activity is actually happening in Europe.  On the US side, the most well-discussed firm is GoPuff that more than tripled revenue last year to $340 million and is expected to nearly triple revenue again this year to about $1 billion. On the European side, the two leading players are Flink and Gorillas.

One unique feature that distinguishes these firms from the existing models, of, say, Instacart and Amazon, is that they all compete on speed.  GoPuff offers delivery in 30 minutes, while both Flink and Gorillas do so in 10 minutes. 

Ten minutes from order to delivery.  

This gives a whole new meaning to "on-demand.”

I am sure you are probably thinking, “why would anyone need groceries on-demand.”  

When is fast, too fast?

My main argument:  it is not about speed.  It’s about reducing friction.

Why is e-grocery lagging compared to e-commerce?

Until Covid, online grocery had a meager penetration rate.  Depending on who you asked and how you measured it, it was between 2% and 5%. If we try to explain the low penetration, there might be multiple reasons for it.  Some are cultural reasons: many don't trust others to pick groceries for them (in particular produce). Some are Econo-cultural: customers were unwilling to pay for convenience when it comes to things they perceived as part of their duties as parents.

But the reality is that even though more than 30% of the population tried online grocery, most people didn't persist with it. And the main reason is that it was just never very convenient. While the shopping experience got better over time, you ultimately always had to wait for the delivery person. While it may look like a minor thing, it is not. You always needed to plan things around it. And you had to plan ahead of time.

During Covid, we did see initially an increase in the penetration of online grocery, with the penetration rate reaching almost 10%.  The two main reasons for this are not unrelated to my argument above. First, we all spent more time at home, both working from home and with our kids who were in online school. So scheduling was much easier. It was much less of an inconvenience. The second reason is that during Covid, it felt truly risky to go to the supermarket. While we are unwilling to trade-off cost and convenience, we don’t mind having someone else take the risk for us, for pay.  

The issue with both of these is that they will disappear once everything is going back to normal: we will have no health concerns, and it will be again too inconvenient to wait for the delivery person. 

This is precisely where on-demand grocers arrive. You don't have to wait. They are there within 10 minutes, which means that we can stop thinking about groceries as a task. We can order them when we truly need them:

“We believe that the weekly grocery run is outdated because people’s lives are increasingly spontaneous and shopping habits change accordingly,” says Sümer, noting that while access to supermarkets has increased, the space we have to store goods has decreased as people in cities are living in smaller spaces.”

How do they do it? 

First, these firms carry their own inventory and manage their own warehouses:

“Unlike companies such as DoorDash and Uber Eats, who mostly serve as middlemen, GoPuff buys products from food and beverage companies and stores the items in hundreds of warehouses across the country. One of its selling points is that it promises to get orders to customers within 30 minutes. 

Furthermore, while I tend to write about the gig economy quite a bit, if you want to compete on speed, you need to have tight control on scheduling and staffing:

“In contrast to established gig economy models, we employ more than a thousand riders directly,” says Sümer. “Therefore, we invest in a strong career development program, rider security, and a healthy working environment.”

The end-to-end control from holding inventory to picking and delivering orders allows these firms to offer an expanded set of products at an almost inconceivable speed. 

I am sure some of you are still doubting the need for such speed. In fact, you are worried about the ever commoditization of our life and the need to get everything on demand. That’s where Mlkmn comes. 

Before I describe Mlkmn, I will add an acknowledgment. Alex, one of the founders, is a former student, and I advise the firm regularly. But let me be clear. I do it because I absolutely love what they do and the founding team. 

The back-end operations of Mlkmn are not all that different from the firms described above: carrying its own inventory and employing its own people. But Mlkmn is different in multiple ways:  It sells its own private label brand of products you usually shop.  It delivers your product while you are not at home, by leaving them in a basket near your door, reducing the inconvenience of attended delivery. Finally, Mlkmn also collects the bottles and packages of the products it replenished and refills them. 

The essence of their model is quite different from these firms, though. It is more of a Consumer-Packaged-Good (CPG) as a service than a grocer. It manages your home inventory, end-to-end including the reverse logistics aspect, reducing the need to even get rid of packages and waste.  As cities would like to move to zero waste and for those who care about sustainability and would like to go away from the Amazon life, Mlkmn offers an interesting solution. 

How easy is it for the existing firms to replicate these models?

“Schultz also argues that existing supermarket infrastructure can’t deliver on express grocery shopping and that large incumbents don’t have the skillset or agility to build on-demand grocery. “Instant delivery requires the build-out of new infrastructure (micro-warehouses, hub & spoke) as well as a fully vertically integrated approach,” she adds.”

As a final thought, you may ask yourself, when is it too convenient? 

When it’s so fast that I don’t have to think about it. When apartments are built such that the smart-fridge can be replenished without anyone entering the apartment. Think about a combination of Mlkmn and Bottomless coffee. Just for everything.   

Are there downsides to this demand for speed? Sure. The working environment can be quite demanding in order to achieve such performance.  Also, there is some value in having the ability to delay gratification. 

Having said this, I predict that in a few years, going to the supermarket or waiting for delivery will be a relic of the past. Just like hunting for food. Some people do it.  Just not me.