“They’re the reason the new discretionary services test market is in higher-earning areas like the eastern suburbs,” he said.
According to Woollahra City Council Mayor Susan Wynne, COVID-19 was a major tipping point for many residents in the area who were willing to become “early adopters” of contactless services.
“That flexibility of just being able to say ‘I need something now, in 30 minutes’ probably suits our electorate very well,” she said.
Local residents, many of whom work from home, also see fast delivery services as a way to both support local businesses and reduce food waste, she added.
Even elderly Australians aged 60 and over, who make up about 25 percent of the population of the Eastern Suburbs according to Wynne, have embraced online solutions for staying at home and avoiding the risk of exposure to COVID or the flu.
“This is really a fantastic service for them,” she said.
‘Not necessarily a scalable model’: Battle of David and Goliath
Retail experts noted that the offer is highly geared to the wealthy demographic and questioned whether demand for services such as fast grocery delivery is high enough to expand viable beyond Sydney’s eastern suburbs.
Brian Walker, CEO of consultancy Retail Doctor, reiterated the view that the offer was attractive to high net worth individuals in densely populated urban areas.
“It is unlikely that they [their services] in areas where they are frankly expansive suburbs, mid to low socio-economically, and people shop there anyway at the local supermarket. There is cannibalization there,” he said.
The proportion of high-income couples with no children is also higher in these suburbs, Walker added. These factors ensure that deliverers can pick up various jobs at a relatively short distance without coming into contact with traffic.
“This is how they reduce the risk,” Walker said. “Eastern suburbs are easy to get started with.”
But fast grocery delivery startups are now having a “bit of a David and Goliath battle” on their hands, Walker says, noting that “latest” entrant Woolworths — a $43.5 billion juggernaut — is the size and scale. has to swallow all the sunk costs.
“It’s not necessarily a scalable model per se for the smaller players,” he said, noting that the further the distance to travel, the more margins get smaller. “Goliath, Woolworths, have stores everywhere, have a huge brand name. And frankly, if they lose a few bucks… they’ll pick it up.
“Now if Milkrun makes five deliveries in the same time and space and they also bought the product, they will probably make a marginal return on it. But if they’re in urban areas… it’s clearly unprofitable.”
Prosperous markets would yield ‘too optimistic’ insights
dr. Frank Mathmann, a senior lecturer at Queensland University whose research centers focus on customer psychology, notes that these fast delivery services are coming under pressure from another increasingly pressing factor: the rising cost of living.
“As a result, some of these newly developed habits that they may have started during COVID, for example getting groceries delivered, may not be something they’re willing to pay for in the long run,” he said.
Woolworths doesn’t charge delivery on a customer’s first three orders through the Metro60 app, then charges a $5 flat fee on orders with a $20 minimum spend. But these extra dollars are counted more carefully now that the price of supplies such as fuel and the groceries themselves express the household budgets†
“I don’t know if this is a value proposition that would somehow make sense to a single mother, or to other parts of the Australian population who are really feeling the pressure with rising interest rates and inflation,” said Mathmann, wondering how these services can be profitable in a bleak macroeconomic environment.
And even if these services may find some success in Sydney’s inner city or eastern suburbs, they’re not indicative of the rest of the nation, he added.
“There’s a fair chance that the insights they’re getting from these affluent markets are too optimistic about the viability of those services,” he said.
“Just because something works in an environment where you [earn] half a million dollars a year and households having their own homes doesn’t mean it would work everywhere,” he said.
Higher interest rates also often create a more risk-averse investment environment, meaning companies like Milkrun may struggle to get more financing, Mathmann added.
“I think in the long run it’s very likely that the price is just not sustainable.”
The Business Briefing newsletter delivers key stories, exclusive coverage and expert advice. Sign up to get it every weekday morning†
#Eastern #Suburbs #Experiment #Test #Market #Supermarket #Innovation