‘This is a permanent phenomenon’

Opposite the racks of crisps and popcorn in the Gorillas warehouse on Koningin Wilhelminaplein in Amsterdam are a handful of delivery drivers, spread over two rows of chairs. One has earphones in and is scrolling on his phone. Another stares ahead. We have to wait for the next orders, but they don’t seem to be in abundance this Monday afternoon, just after the kick-off of the rush hour. The eleven almost identical bicycles in front of the gray building stand untouched on the sidewalk.

More than a year ago, loud pop music was blasting out of the speakers in this place. Gorillas had established itself as the first flash delivery service in the Netherlands a few months earlier. With this youthful ‘clubhouse’ as one of the first so-called dark stores, from which delivery drivers on electric two-wheelers provided students and young families with quick groceries. The atmosphere was cheerful, delivery guys played a game of football with each other inside, colleagues chatted outside. The bells for new orders followed each other in rapid succession.

Gorillas’ peloton had the wind at their backs. Just like competitors Flink, Getir and Zapp, who entered the market not much later. In July 2022 the (flash) world will look different. Municipalities are turning against the fast delivery services after complaints from local residents about nuisance. Dark stores are banned from the center and new locations are no longer allowed to be opened in the major cities.

In addition, the number of orders is stagnating now that the lockdowns are over and consumers can go back on the road themselves, according to transaction data from ABN Amro. To make matters worse, the poor macroeconomic outlook, rising interest rates and the faltering image of the speed cameras are making investors a lot less eager. Enough reason for flash delivery company Zapp to consider the revenue model no longer ‘viable’. Last week it was announced that the British company is withdrawing from the Dutch flash market barely a year after it started, although the four branches will remain open for a while.

It has been clear for some time that the business model is under pressure. At the end of June, Zapp already announced a possible departure after the mandatory closure of two dark stores in Amsterdam. A month earlier, the company laid off about 250 employees – 10 percent of the workforce – to cut costs. Speed ​​camera delivery companies Getir and Gorillas also discharged quite a few employees that month in order to become profitable. The ‘tipping point’ in the flash delivery industry seemed to have been reached and the flash companies would not stand it for a long time.

1.1 million users

But that remains to be seen, says Martijn Arets. Last year, the platform specialist, like many economists, predicted that ultimately only one or two major players will remain. But according to him, the departure of the first flash delivery person does not mean that the rest will soon go under. ‘Meal deliverer Foodora also left in 2018, but the competitors are still active.’

With Zapp’s departure, three names remain in the Netherlands: the German flash deliverers Flink and Gorillas and the Turkish Getir. Together they account for almost 120 distribution centers in 39 Dutch cities. Those left behind will actually benefit from the departure of a competitor, expects transport and logistics sector economist Albert Jan Swart of ABN Amro. ‘They will soon receive more orders in their existing delivery area.’ Although transaction data from ABN Amro shows that fewer orders have been received since the end of the lockdown in January, the demand for quick groceries is still there. ‘Especially among young city dwellers’, says Swart.

Research by Kantar also shows that the number of users is still increasing, albeit less quickly. With the necessary publicity, a huge amount of venture capital and aggressive marketing campaigns, the speed cameras managed to persuade some 1.1 million consumers to order groceries in a year and a half. Last year, when only 700,000 consumers made use of the fast service, this resulted in a combined turnover of more than 184 million euros for the flash deliverers, according to the Food Service Institute Netherlands (FSIN). This year, that amount will rise to about 500 million, estimates market research agency Gfk.

‘We can no longer ignore flash delivery’, concludes Dirk Mulder of ING. It is clear, according to the retail sector economist, that it is an enduring phenomenon. Due to the popularity, existing parties will also step in. Supermarket chains Albert Heijn and Marqt are already experimenting in Amsterdam and The Hague with flash delivery via the meal delivery service Thuisbezorgd and Gall & Gall is also testing the fast service.

Collaboration between those established supermarkets and the flash deliverers is the next lucrative step, thinks Swart of ABN Amro. For example, the Van Eerd family of supermarket chain Jumbo has already invested in Gorillas. The supermarket supplies private labels to the flash delivery person and soon wants to offer the fast delivery service through its own channels. ‘By using their delivery network for existing stores, the flash companies can significantly reduce costs.’

Higher prices, fuller shopping bags

There may be no shortage of interest from customers and supermarkets, but that does not mean that all the dark clouds have disappeared. ‘Investors’ sentiment around the start-ups has changed. Due to rising interest rates, high inflation and uncertain macroeconomic prospects, they are more cautious’, explains Mulder. These capital providers are desperately needed to keep up, because although the companies themselves have full confidence in the revenue model, none of the flash deliverers is yet making a profit. ‘They will soon have to write black numbers’, says Mulder, who does not rule out the possibility that the flash deliverers raise their prices for this. The question is, however, how interesting the service will remain for the young clientele.

A fuller shopping basket is also essential for higher profit margins. For example, customers do not shy away from sending the flash deliverers out for a banana or jar of pesto, journalist Jeroen van Bergeijk noted when he started working as a delivery man himself. Since then, minimum order amounts have been set. On average, customers now order groceries for just under 17 euros, ABN Amro reports.

Flink says he does not recognize himself in this order amount, although the company does not want to share the actual amount. The flash delivery company says it is still growing, just like Gorillas, which says it has ‘taken a clear path to profitability’ in the Netherlands. The company is now targeting the most profitable countries and hubs. ‘In addition, we will continue to work on our prices and logistics.’ Getir does not want to answer questions about the revenue model.

Charm offensive

The flash market is now going to mature, thinks platform specialist Arets. ‘Last year they came stomping into the china shop like some sort of elephant. They quickly opened dozens of hubs without really taking the environment into account.’ There is also room for improvement at the flash companies in terms of working conditions. In May, the Labor Inspectorate ruled that their quest for ‘market dominance’ leads to excessive work pressure, heavy physical strain and illegal employment.

‘They realize that something has to change,’ says Arets. A real charm offensive has already started. In May, the flash deliverers presented a code of conduct to get local residents and city authorities back on their side.

Also at the Gorillas hub in New West. Bicycles are still there, but not on the sidewalk. Inside, on the spot where a ball was kicked last year, they are now lined up in rows. The black jackets of the bicycle couriers have been replaced by their own clothing and the recognizable square backpacks have been exchanged for bins on the front of the bicycle. Loud music only sounds from the ears of the couriers. Changes that, according to Gorillas, are the result of ‘months of constructive consultation’ with neighbors, fellow entrepreneurs and the municipality.

With success, because the municipality of Amsterdam reports that the number of complaints about speed camera delivery has decreased. Not least because a number of nuisance dark stores are completely closed. The municipality is now working on a special zoning plan for the speed camera delivery companies, so that they will only settle in ‘suitable’ locations in the future. In principle, residential areas do not fall under this, says alderman Reinier van Dantzig of spatial planning.

Scapegoat

Other major cities are working on similar plans, much to the chagrin of the speed cameras. Both Gorillas and Flink argue that their revenue model will not work if all distribution centers are located on the outskirts of the city. If the bicycle couriers are on the road for 45 minutes, the delivery costs become much too high, according to Flink. Moreover, they say that speed cameras can now function well in a residential or shopping area.

Platform specialist Arets also thinks that some municipalities act too abruptly. The biggest problem, he says, is that the speed cameras are seen as an isolated problem. “While speed cameras have clearly played a major role in driving the on-demand market, they are only one part of the fast delivery industry.” Now that consumers are getting used to fast delivery, the problem is much broader. ‘You can ban all dark stores from the center, but you can also start flash deliveries to existing physical shops and restaurants.’ Bicycle couriers who claim public space as a waiting room and race track will no longer disappear.

For the survival of the ‘original’ flash deliverers, cooperation with those physical stores seems essential. Although (mandatory) moving to remote industrial areas can also work, according to Arets. ‘If the delivery area per hub increases, fewer branches are needed.’ For that it is necessary to let go of the ten minutes delivery time, which was once promised. According to Arets, this is already happening en masse. Especially during rush hours, the groceries are sometimes only delivered after half an hour. “But that’s still fast, of course.”