“I do think the combination of ads and fast last mile has real possibilities – imagine being served an ad when sat in London Fields and you are offered 15 minute delivery on a six pack of your favourite beer. Or a box of magnums.But these initiatives come from close partnerships with brands rather than a self serve platform.”
Simon Andrews sums up the challenges and opportunities for the quick commerce delivery networks in his Fix/Insidernewsletter. Quick commerce business is a poor business model due to the cost of servicing customers and the low average order value.
This is another reason why the quick commerce businesses are now going to rely on advertising even more.
Gopuff is now building out its own AdTech in-house using custom-built AI and machine learning models to crunch its first-party customer data and ditching its relationship with Publicis’ Citrus. Their SVP of Business, Daniel Folkman, has said that the only way GoPuff can be different in the market is by owning its own advertising capabilities.
This is the familiar trajectory of retailers who are building a long-term strategy – they need to own the ‘stack’.
Another example of a quick delivery business that has realised that advertising is one of the few ways to make itself profitable is, look at Delivery Hero.
Delivery Hero, headquartered in Berlin, Germany has a surprising 47,000 employees globally, a presence in 70 countries and claims to be the “world’s leading local delivery platform operating marketplace, own-delivery and dark store businesses”. It did an IPO in Frankfurt in 2017 – and does about $45bn GMV in delivery from brands like Talabat, Food Panda, Glovo and Food Panda.
The business does not make money at present and has a really low average order value and a low gross margin.
What is their answer? Advertising. It expects to generate high margin advertising revenues of more than €2bn by FY 2024/25. It believes that long-term ad revenues should account for 3-5% of Group GMV.
It believes that “advertising provides a new earnings opportunity”. Interestingly, in the light of the Perplexity announcement, its ad units include Cost-per-click (CPC) for listings, automatic renewal of monthly ad booking. They will also have pop-up banner with discounted offers displayed to customers for restaurants to pay per order, as well as featured products highlight particular dishes in a restaurant’s portfolio.
Advertising might be a lifeline for Delivery Hero, but the number and quality of ad units is not up to scratch with other retail media networks. Delivery Hero also claim that their centralisation of tech and capabilities is a USP. However, given that media is ALWAYS sold locally and not across markets, the benefits of being in 70 countries are marginal from an advertiser’s perspective. In addition, there are few benefits to scale as you still have to hire advertising people who know each market.
Delivery Hero will need its advertising network to fire on all cylinders to make it work if it wishes to compete against Uber Ads which has a well-oiled advertising machine for Uber Eats, and recently hit the $1bn per year run rate.
Retail Media will be discussed at length this October during RetailX Events’ Autumn Festival.
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