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  1. The Business Interview
8 November 2021

“Dark stores won’t conquer grocery delivery”: Beelivery’s Paul Gott on the future of shopping

The delivery service’s chief operating officer reveals the future of supermarkets and the battle for the UK’s delivery slots.

By Eleanor Peake

In the space of five months in summer 2021, as the nightclubs reopened and the European Championship dominated the news, six new businesses began offering grocery deliveries in the UK. Paul Gott, chief operating officer at Beelivery, was taking notes.

Beelivery, founded in 2015, was one of the first apps to offer rapid, 24-hour grocery delivery in the UK, but it soon had company.

“Right now, grocery delivery is very in vogue,” said Gott. “There’s a lot of money being thrown around and a lot of the new people, most of them are actually overseas businesses investing in the UK because they’ve proven a business model in their home markets.” 

Their perky names are probably now familiar: Weezy, Gorillas, Jiffy, Zapp, Getir and Dija. Each has millions of dollars in backing; each competing for the same tiny supermarket margins. 

While the others all launched in London – and even there, some confine themselves to affluent areas – Beelivery is most familiar north of Stoke-on-Trent. It mainly operates in Manchester and Yorkshire, where, last year, 15,000 drivers delivered £8m in groceries, nappies, alcohol, tobacco and Dairylea slices.

Gott, 57, is a proud Yorkshireman; “born and bred in Bradford”. His 20s were spent as a mechanical engineer until he decided to change course, completing his MBA at Bradford Management Centre midway through his career. Since then, he has gone on to run companies from South America to Siberia, but says he has “always been interested in how the internet might change the grocery market”.

He is sceptical about the new guys on the block, however. “They are constrained by being asset-heavy models,” he said. The likes of Weezy, Jiffy and Zapp promise to deliver in less than 30 minutes, relying on hyper-localised warehouses dotted around small but densely populated areas. This means they pay not only for delivery drivers, but also for a hidden infrastructure of supply and storage.

Gott has a different approach. Beelivery avoids dark stores altogether, using existing supermarkets as infrastructure. “We connect people who need groceries, delivering a network of people who will go and do that shopping for them, and deliver it for them within the hour. We are an asset-light business model, and it’s much cheaper to run. We were the only grocery delivery business that actually made a profit last year.

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“Most of these new apps have dark stores but are dark stores going to be the business model that is going to conquer grocery delivery? I don’t think so.”  

Investors disagree. In its pre-seed funding, Weezy raised £1m. A year on it has over £14m in backing. After just a year of trading, the Berlin-based start-up Gorillas has already been valued at over $2bn. “It’s a great valuation if you’re a shareholder in Gorillas,” conceded Gott, “but these very high valuations are investors putting money into what is effectively a land grab. It’s just about who can take customers the fastest.”

The lessons of the past make Gott suspicious of this latest boom in his sector. In 2016 Amazon launched Prime Air, the world’s first drone delivery service for small purchases. Services were set to begin in 2019, but five years on, its staff have been drastically reduced

Explanations for the failure of Prime Air range from complicated air regulations to safety checks, but Gott wonders whether it has more to do with the cost of the technology. “Amazon has tried for a very, very long time to make instant grocery delivery work. They’re still trying. It’s an extremely difficult problem to crack,” Gott told me.

“Tesco is also throwing enormous resources at instant delivery, and they still haven’t found a way to do it,” Gott said. In 2017, Tesco trialled its first attempt at an instant delivery service – Tesco Now – to zero fanfare. The trial came with no minimum basket value but a £7.99 charge for delivery. A year later, at the end of 2018, the experiment was quietly pulled

The problem with spending money on delivery is that supermarkets are already low-margin businesses. “Look at the annual report of the main [grocery delivery] retailers, they barely make 2 or 3 per cent. So there isn’t really a margin there to be able to spend a lot in terms of the delivery. At the minute, even Tesco, the biggest player in the UK sector, with half a million delivery slots a week can’t even send their service to 50 per cent of the population because it costs too much in vans. The sector is miles away from supply catching up with demand,” said Gott.

Even Ocado has fallen victim to the delivery revenue gap. “They don’t actually make money from food delivery, they make money from advertising revenue, and selling the licence fees for their technology. That makes it profitable. Just as a pure delivery service; with a standard warehouse, and lots of vans, Ocado doesn’t work. Spending on delivery just doesn’t work.

“The analogy I often use is actually the airline industry, and [Beelivery] is Ryanair, you know? Ryanair started a long time ago with one aeroplane and it just kept focused on that lowest operating cost model. It’s now the biggest in Europe and the biggest airline. That’s what Beelivery is.”

Gott remains adamant that the correct business model will transform the future of grocery shopping. “In the next few years we might see a lot of supermarkets being smaller in the future than they are at the moment. Delivery apps might contribute to a reduction in the number of smaller convenience stores. If they are not adding value to people’s lives they won’t survive, and I’m not in favour of protecting institutions just because they have been around for a long time.” 

At the same time, Gott admitted supermarkets as they are will never go away completely. “Instant grocery delivery is a niche, and I think it will always be a niche.” But he warned that asset-heavy businesses, rich on speculative investment, face a fight for survival. “Most of them are going to fail,” he said with confidence. In the meantime, the battle for Britain’s delivery slots rages on.

[See also: What does the sale of Debenhams tell us about the future of retail?]

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