Rapid grocery delivery will keep investors waiting

For consumers, speed comes at a premium. A typical order includes a 2 pound delivery fee plus a 5% markup on retail supermarket prices for basic items like bread or milk. Thus, the bigger the order, the more profitable it is. Sourcing their food at wholesale prices, delivery firms can cream off around 7 pounds from the average 20 pound order, based on a 35% markup.

The problem is labour. To complete an order, companies need a warehouse picker and delivery driver. Together, they will cost around 20 pounds per hour. Thus, to break even on the above scenario, they need to complete an order every 20 minutes. For startups, the cost of attracting new customers or holding onto existing ones by, say, handing out free delivery coupons worsens the odds of getting into the black.

Economies of scale should eventually address that. If the driver and the picker complete four orders an hour, their cost per order comes down to 5 pounds. Persuading punters to opt for premium items like booze or fillet steak can also bring fatter markups. That said, Bain reckons the average 35 pound order will achieve, at best, a measly 7% operating profit, from which investors still have to pay interest and tax.

So why are they handing over so much cash for such little reward? One probable answer lies in more robots, either in the form of warehouse automation or delivery drones. If fast-delivery firms can leave expensive human beings on the shelves, investors may finally get something worth having.

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