The new dynamics of rapid delivery

At the peak of the pandemic, supermarkets scrambled to establish a presence on the aggregator apps. The unlikely alliance worked both ways. Supermarkets were able to reach customers who were unable to secure an online delivery slot and wary of visiting stores in person. Aggregators welcomed the chance to replace lost business from hot food takeaways, many of which were temporarily shuttered.

That symbiotic relationship has blossomed in the years since. The apps have given supermarkets access to huge, younger-leaning user bases with the offer of deliveries in less than an hour. The supermarkets have gifted the apps huge volumes of sales – from which they take a commission – and reliable growth.

Most supermarkets are now available on all the major food delivery apps. But something’s changed. Despite supermarkets starting the love-in, their eye is wandering towards their own, retailer-run and branded rapid delivery services, which aren’t reliant on aggregators.

So can they make it on their own? What are the pros and pitfalls of retailers running their own rapid services? And where does that leave the aggregators who have pinned their hopes for growth on grocery?

In the two hours before The Celebrity Traitors finale last month, sales on Co-op’s on-demand grocery channels jumped by more than 30%, compared with the same period the week before. “It was the TV event of the year so far, and viewers clearly didn’t want to leave their sofas,” explains Chris Conway, Co-op e-commerce director and MD of quick commerce.

Unmissable TV is just one of the many reasons why grocery rapid delivery – even with the average 20% overall cost premium, according to October Which? analysis – is booming.

“Customer behaviours and habits are always changing, with many customers using various ‘need it want it now’ services in their day to day,” says Charlotte Exell, Morrisons group online director. The “immediacy market is in huge growth” she adds. Customers “want a way to receive those last-minute essentials much quicker”.

At Co-op, on-demand already makes up more than 10% of total food sales on certain days.

“Based on market projections, I’d expect the market to double by 2030, and on-demand could make up over 15% of our food sales,” Conway says.

Grocery also makes up a large part of aggregator income. supermarket and convenience store sales represented 18% of Deliveroo’s gross transaction value (GTV) in the first half of this year. That’s up from around 16% in 2024, and it continues to grow.

Uber Eats’ grocery and retail business is “already approaching a $12bn gross bookings run-rate”, Uber CEO Dara Khosrowshahi told investors earlier this month, “and is growing significantly faster than food delivery”. Just Eat, which arrived later to the grocery game than its rivals, says its global on-demand grocery GTV has increased by more than 150% over the past two years. Its grocery customer base has expanded by 40% in the past 12 months.

As grocery grows, supermarkets are starting to question why they are giving so many gains away to the aggregators. “For a lot of retailers – the Deliveroo and Uber Eats model is a good ‘entry drug’ into omnichannel,” a high street retailer executive source says. “But why am I giving away 35% of a sale to them? There’s clearly growth from the younger generation – so how do I take the next step?”

And so supermarkets have begun focusing on their own rapid delivery services. The movement is summed up by Toby Pickard, retail futures senior partner at IGD: “Retailers are increasingly building their own rapid-delivery apps rather than relying solely on third party aggregators because the economics, data control and customer-relationship dynamics of last-mile delivery are becoming too strategically important to outsource.”

£2bn-plus opportunity

That strategic importance is highlighted by market figures. The sub one-hour grocery market “could already be worth more than £2bn”, calculates Morgan Stanley – and it’s growing at two-and-a-half times the rate of wider online grocery.

By 2030, the investment bank forecasts the total addressable market for rapidly delivered groceries will hit £5bn – a fifth of the overall online grocery market.

It’s enough to justify in-house investment. In the past, “building everything in-house for the 1% [of sales] – it felt a bit overwhelming” says Cornelia Raportaru, CEO of last-mile firm Stuart, which works with Tesco, Iceland, Asda and others on their on-demand services.

Initially, the retailer/aggregator relationship was a case of “OK, someone comes and wants to solve my problem – it’s a bit of a extra increase of revenue, that’s fine” she explains.

But now, “the marketplaces’ fees are so high that the only way grocers can make the unit economics work is to really increase the prices of the items”. It’s not a great look when “everyone wants to really win on the lowest basket value”, she says. Supermarkets are also less comfortable with the idea of the aggregators swallowing up all the data on their customers.

“And then when you go in these [aggregator] apps, the experience is very similar. Those marketplaces don’t allow retailers to differentiate on almost anything,” Raportaru adds.

Staging their own service is also not a massive leap for supermarkets, which already have well-used, well-designed shopping apps. Most recent among supermarket-run rapid services is Morrisons Now, accessed via the supermarket’s online shopping app and website. Promising delivery within an hour, it was launched to 420 stores last month.

“Morrisons Now is important to us because it’s important to our customers,” Exell says. “Life gets busy for everyone and it is not just young people using on-demand services, Morrisons Now is a convenient way to shop for everyone.”

And, of course, “really simply, our customers are not on several of the aggregators”, she adds. “We are a customer-first business and we want to make our multichannel service as seamless as possible for our customers. Customers may choose to use any of the partners we work with directly or may choose to shop through Morrisons.com.”

Sainsbury’s launched its own rapid service, Chop Chop, in 2020. It expanded the service to new regions this year, pushing up orders on its on-demand platforms by 80%.

Co-op has gone a step further with a service that can be used by other retailers. In February, it launched rapid delivery grocery app Peckish, designed for independent c-stores seeking to tap the market.

Tesco is a shining example of what can be achieved independently. The UK’s biggest supermarket has resisted the draw of the aggregator apps – instead focusing on its Whoosh service, launched in 2021.

“Over the past four years, Tesco has prioritised building a robust rapid delivery arm as part of its broader omnichannel strategy,” says Francesca Jones, head of Whoosh, who joined Tesco from Deliveroo in January. “This focus has enabled us to seamlessly integrate convenience into our offering.”

Whoosh is available in over 1,500 stores – among them around 180 larger format stores – and is “now a really meaningful business” Tesco CEO Ken Murphy told analysts in an October results call.

Whoosh orders are up nearly 60% year on year, fuelled by an increase in active customers and basket sizes. Tesco has been upgrading the service to offer full-basket shops with no upper weight limit.

And there is plenty more headroom for growth. “We think we’re about, say, 25% into the opportunity for Whoosh,” Murphy said on the call.

White label services

Still, even services like Tesco’s Whoosh have some reliance on the aggregators. In response to the changing relationship, the apps have launched white label delivery services that allow supermarkets to sell product through their own-branded website and app, but leverage a network of couriers to deliver baskets.

Uber came first with white label service Uber Direct – launched for restaurants in 2020, but more recently adopted by supermarkets. Stuart – a rapid delivery provider without a consumer-facing app – has a similar history. They now have stiff competition. Deliveroo launched Deliveroo Express into grocery in April this year, beginning with three Tesco Whoosh stores across Ireland, and later Co-op. Just Eat Go, Just Eat’s delivery-as-a-service offering, launched in June, and is used by Whoosh and Morrisons Now.

“Crucially, as an on-demand delivery company, it is important that we diversify our offering to meet different needs,” a Just Eat spokeswoman says.

“A key motivation for brands to develop their own on-demand apps is to gain an even deeper understanding of their customers and maintain closer, more direct connections with them. However, the costs for set-up, continuous development and maintenance are high. Increasingly, even when operating their own app, more and more grocers choose to leverage our logistics network for last-mile delivery,” she adds.

The aggregator white-label services compete for retailer partnerships on ease of integration, product features and coverage.

“We’re innovating to make it as seamless as possible. The easier you can make the handover, the easier you can make the integration. It’s critical,” says Katie Hunter, general manager Uber grocery and retail UK. “It’s not necessarily sexy, but it drives just these marginal gains, which is what makes us a really compelling partner,” she adds.

She isn’t concerned by Tesco using Uber Direct to fulfil a huge proportion of Whoosh orders, without appearing on the Uber Eats app. “We support them, we’re growing their business. They’ve got their own strategy that we’re executing,” Hunter says.

At the same time, the apps have worked to make staying on their marketplaces more appealing for retailers and consumers. Over the course of this year, they have been integrating more supermarket loyalty schemes on to their apps. Last month, Deliveroo became the first of the aggregators to integrate with Nectar, meaning members can now collect points when they shop with Sainsbury’s through the app. In-app access to Co-op’s Member Prices arrived on Uber Eats last year.

That’s been a necessity for many. “As competition intensifies, existing apps will be forced to innovate or risk becoming less relevant,” IGD’s Pickard says.

Crucially, the white label strategy is no panacea for the growing supermarket focus on their own apps and online channels. Most supermarkets offering in-house rapid delivery are polygamous when it comes to their white label partners. The overall cut of the order value received by the platforms is also far smaller than the commission on items sold via their marketplaces.

“We still experience some volatility between different partners, based on events like weather, and they can also vary by what distance they operate effectively,” says Conway. “Therefore a multi-courier strategy remains the best way for us to ensure we give the best service, choice and reach.”

How the dynamic between retailers and aggregators will play out remains to be seen. The role of apps is undoubtedly diminishing, from shop front and marketplace to back-end last-mile provider. But given the size of the prize – a potential £5bn grocery quick commerce – they aren’t likely to give up without a fight.

As Whoosh’s Jones puts it: “While shoppers from different backgrounds can have different shopping habits, convenience is a universal need. Rapid delivery is becoming a mainstream expectation, not a generational trend.”