Can grocery delivery services in Sydney’s eastern suburbs work elsewhere?

“They are the reason the new test market for discretionary services is in higher income areas like the eastern suburbs,” he said.

According to Woollahra City Council Mayor Susan Wynne, COVID-19 has been a key tipping point for many locals who have become “early adopters” of contactless services.

“That flexibility of just being able to say ‘I need something now, within 30 minutes’ probably suits our electorate quite well,” she said.

Local residents, many of whom work from home, also see fast grocery delivery services as a way to both support local businesses and reduce food waste, she added.

Even Australians aged 60 and over, who make up around 25% of the eastern suburbs population, according to Wynne, have embraced online solutions to stay home and avoid risking exposure to COVID or the flu.

“It’s a really fantastic service for them,” she said.

“Not necessarily an evolutionary model”: Battle of David and Goliath

Retail experts have noted that the offers are very well suited to the affluent population and question whether the demand for services such as fast grocery delivery is high enough to viably expand beyond the suburbs. east of Sydney.

Brian Walker, CEO of consultancy firm Retail Doctor, echoed the idea that the deals appealed to high net worth individuals in dense urban areas.

“They are unlikely to put [their services] in areas where, frankly, they are sprawling suburbs, mid-to-low socioeconomics, and people shop with them anyway in the local supermarket. There is cannibalization there,” he said.

Grocery delivery start-up Milkrun serves Sydney’s inner city and eastern suburbs.Credit:Louie Douvis

The proportion of high-income, childless couples is also higher in these suburbs, Walker added. These factors mean that delivery people can complete multiple jobs over a relatively short distance without encountering traffic.

“That’s how they mitigate the risk,” Walker said. “The eastern suburbs are easy to start with.”

But fast grocery delivery start-ups now have a “bit of a David vs. Goliath battle” on their hands, says Walker, noting that the “newest” entrant Woolworths – a $43.5 billion juggernaut – has the size and scale to absorb all sunk costs.

“It’s not necessarily in itself a scalable model for smaller players,” he said, pointing out that the greater the distance to travel, the smaller the margins. “Goliath, Woolworths, has stores everywhere, has a huge brand. And frankly, if they lose a few dollars… they’ll get them back.

“Now if Milkrun makes five deliveries in the same time and space and they also bought the product, they will probably get a marginal return. But if they’re in urban areas…it’s clearly not profitable.

Artist's impression of the supermarket proposed by Woolworths

Artist’s impression of Woolworths’ proposed ‘straight from the start’ supermarket in Rose Bay, which would not provide in-store service to customers.Credit:Woolworth

Affluent markets would provide ‘overly optimistic’ information

Dr Frank Mathmann, a senior lecturer at the University of Queensland whose research focuses on customer psychology, notes that these fast delivery services are under pressure from another increasingly pressing factor: the rising cost of life.

“So 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. he declared.

Woolworths does not charge delivery on a customer’s first three orders through the Metro60 app, then charges a flat $5 on orders with a minimum spend of $20. But those extra dollars are being counted more carefully now that the price of basic necessities like fuel and groceries themselves are squeezing household budgets.

“I don’t know if this is a value proposition that would make sense for a single mother, or other parts of the Australian population who are really feeling the pressure with interest rates and inflation. on the rise,” said Mathmann, who wonders how these services can be profitable in a lackluster macro environment.

And while these services may find some success in Sydney’s inner city or eastern suburbs, they are not indicative of the rest of the nation, he added.

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“There’s a reasonable likelihood that the information they’re getting from these affluent markets is overly optimistic about the viability of these services,” he said.

“Just because something works in an environment where you [earn] half a million dollars a year and households being absolute owners, that doesn’t mean it would work everywhere,” he said.

Higher interest rates also tend to create a more risk-averse investment environment, meaning companies like Milkrun may struggle to secure more funding, Mathmann added.

“I think in the long term, it’s very likely that the price just won’t be sustainable.”

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