FunkFlow retail technology whitepaper: how to make Q-commerce irresistibly profitable
Most people in Q-commerce would agree that over the last several years the industry has been in a wild state of instability.
Things started off promisingly. The initial explosion of delivery demand in 2020 created excitement and encouraged $687 million of investment across Europe alone.
Q-commerce brands exploded. Grocery stores jumped at the opportunity and soon the Q-commerce experience was everywhere.
At the end of 2021 something surprising happened. Many of the businesses that enjoyed solid investment and publicity in a rapidly expanding market started to lose money.
Though several mid-level brands survived, by the spring of 2022 the majority of grocery and Q-commerce labels had either downsized, pivoted in the nature of the business, folded, or were bought out by another brand.
This created confusion about the reasons why businesses fail in an industry that is worth £1.4 billion in the UK alone.
Until a successful Q-commerce brand identified what was missing: fully digitalised platform that guarantees automated, optimised forecasting and operations while delivering an individualised customer experience.
Introduction
It was March 2020 and while the pandemic spread across the world, over the next few months, something interesting happened. Something that would have been impossible to forecast.
Customers lost the ability to go out and shop, everyone had to order in. Demand for delivered food skyrocketed. But this wasn’t the old industry model.
This was new. This was faster. It was quick commerce or Q-commerce, as it came to be known. And businesses leapt at the financial opportunities this brought.
Ordering in seemed like the one luxury, the one treat people could have.
On the surface a takeaway or emergency milk delivered to your door in 10-20 minutes looks trivial, but it meant a lot to individuals because the world was negotiating such severe restrictions and uncertainty about the future.
These deliveries were at least one constant that people could enjoy.
Over time customers became accustomed to the range, choice, and delivery times of Q-commerce. And the market paid attention. Venture capitalists paid attention. Investors poured money into around 20 brands across Europe and valuations soared into the billions.
The big grocers got in on the trend, partnering with companies like Uber Eats and Deliveroo. Suddenly Q-commerce was hailed as the industry that was as tempting as the food it delivers, and climbed to be worth $25 billion worldwide by 2021.
Mid-tier brands like Gorillas, Getir, and GoPuff exploded onto the scene. Further investment poured $14 billion into the Q-commerce pot. Gorillas tripled its revenue to $220 million. GoPuff and Getir tripled their revenues to $1 billion each.
But then, despite all this popularity, something very unexpected happened between 2021-2022.
Many of these Q-commerce giants began to fail, and fail hard. Some mid-tiers shrunk or were bought out. Zapp, Gopuff and Buyk were forced into closures and layoffs.
Jiffy decided to pivot from Q-commerce into software. Gorillas was bought for $1.2 billion by Getir - a steep discount from the $3 billion valuation in September 2021.
Though most Q-commerce businesses took a hit, several of the mid-tier brands like Getir and PandaFresh expanded. So what happened to the ones that failed?
It’s simply this - as these businesses scaled, they couldn’t serve Q-commerce customers in the way they wanted to be served.
● First, they didn’t optimise their inventory or operations. Whether by choice or circumstance, Q-commerce brands lacked the logistical data necessary for agile decision-making, reliable and cost-effective procurement, storage, and distribution.
Big grocery brands with Q-commerce delivery also tended to reject dark stores, preferring to use their enormous bricks-and-mortar establishments to “save money.” But this resulted in slower fulfillment and a more limited delivery scope because a grocer would be tied to the locations of their stores.
Big grocery brands with Q-commerce delivery also tended to reject dark stores, preferring to use their enormous bricks and mortar establishments to “save money.” But this resulted in slower fulfillment and a more limited delivery scope because a grocer would be tied to the locations of their stores.
● Second, most of the brands did not have access to the real-time digital information required for operations and forecasting. This meant they didn’t know the best places to keep their stock or locate their dark stores.
They didn’t have recommendations for the best, safest and most efficient forms of delivery for each customer. They suffered supply chain problems and without reliable recommendations to correct those problems, customers noticed. And they lacked the data needed to know best prices to charge at any given time.
● Third, grocery startups like Gorillas could not differentiate and so missed out on individualised customer experience.
But instability can be an opportunity. If the mistakes that have been made can be rectified, and grocers can get the technology they need, there is space for them to dominate the industry.
The Q-commerce market will grow to be worth $72 billion by 2025. That’s a lot of profit up for grabs.
However, businesses new to Q-commerce are likely to feel overwhelmed with fulfillment, logistics, inventory, and planning on their own. How can they get a piece of the pie if they’re new to the industry?
Businesses that want to thrive instead of just survive might think the Q-commerce odds are stacked against them.
What if there was a way to use cutting-edge AI digital technology to solve all those logistics headaches and costs, while creating customer loyalty, and making a profitable Q-commerce space for a food and grocery business?
What if there were immediate benefits with little if any effort on a grocer’s behalf?
The challenge
For a brand to have any shot at success, it must identify and solve pain points. Pain points keep everyone from the C-suite to management to workers on the floor up at night scrambling for solutions.
They’re let down by suppliers. They’re frustrated when they learn they could have upped their price points. They’re stuck in damage control with unhappy customers.
Q-commerce brings further unique pain points including:
● How can businesses profit from an industry that has high operational costs? How much does an analogue operational strategy bring high costs?
● Is it possible to reduce the costs of last-mile operations from 53% of the total cost to something more manageable and profitable?
● How can a business balance costs while meeting high customer expectations? Customer expectations are higher than ever - 52% of shoppers’ purchase decisions are influenced by delivery speed and choice expectation.
● How can a business foster customer loyalty in an industry notorious for fickle customers?
One way newer or mid-scale Q-commerce businesses handle these pain points is to ignore them or try to bypass them. They slap plasters on their processes and double down on the status quo way of doing business by:
● Pouring more resources into inventory management, which is virtually impossible to get perfect because of human error.
● They give out huge discounts to customers that they cannot afford.
● They pay more people to help, or pay for supply chain problems which can make them bleed operational costs.
● They spend more time sharing data between departments but can’t keep up with it in real time. And there’s never any guarantee that end-to-end is synched up. Ever.
● They spend more time on emails and the telephone which means less time to focus on what they want to do- development, customer relations, and future strategy.
The more a business scales, the worse these pain points get. But hoping for the best or experimenting does not drive profitability.
On the other hand, a business might ignore Q-commerce altogether, discouraged by these industry problems and how much effort joining the industry requires.
But this viewpoint is extremely problematic in the long run because of one inevitable truth: Q-commerce is an inevitability. Customers are hooked on rapid delivery and shops that put convenience at the forefront drive an estimated 67% growth in retail.
Q-commerce is the fastest growing segment of the global food and grocery market. And the businesses that jump on board with a successful Q-commerce formula can beat 80% of their competition.
Which begs the question - how do food and grocery businesses triumph over those industry pain points to capture the market and enjoy profitability?
The solution
FunkFlow has discovered the clear way through Q-commerce by bringing end-to-end AI software solutions to businesses to make them more profitable.
Since its beginning as one of the earliest Q-commerce startups it has developed a tested set of tools combining 1,000 years of code processing, 1,000,000 daily orders, and the expertise of 150 engineers, product managers and analysts. This expertise is what brings profits to its partners.
FunkFlow brought one Q-commerce partner these results:
● 15-minute grocery delivery operating in 49 cities
● Over 1,000 dark stores
● $1 billion in sales
● 28.5 million deliveries
● Profitably for dark stores over 12 months old
● 42% customer retention after the first order
FunkFlow’s years in the Q-commerce business also taught a valuable lesson: profitability boils down to three simple factors that both take industry pain points head-on and exceed customer expectations.
Factor 1: Automation
Automation does not cause disruption for a business. Automation ends disruption for a business.
Supply chain
A solid supply chain is the heart of effective Q-commerce practice. It must be agile, and the process that drives the chain must provide managers and decision-makers with access to real-time information.
Businesses without automation are forced to simultaneously keep up with customer orders, inventory management, purchase orders, and securing a supply chain flow while conducting the usual day-to-day business operations. This is an expensive and unnecessary drain on employee time and resources.
Given that a food & grocery business can have thousands, tens of thousands or even hundreds of thousands of points along a constantly shifting supply chain, it can be impossible for workers without automated tools to keep up at all.
The resulting problems are many. Suppliers fail. Incorrect inventory counts bring costly errors in ordering. Storage warehouses let down businesses trying to get stock to customers.
Any problems without the information to predict or rectify them forces employees into damage control mode. They must scramble to find supplies, keep operations going, and retain unhappy customers.
What’s worse, this leaves little or no time for employees to devote any time to driving the future-focused goals and growth of the company.
But it doesn’t have to be so difficult. In fact, the solution can be downright simple.
Using AI driven processes, FunkFlow solutions collects and interprets real-time data, syncs it up across the supply chain and logistics, accurately tracks inventory, reacts to and predicts the best ways to navigate the chain end-to-end.
Automation is excellent for profitability. FunkFlow’s solution brings these revenue-boosting benefits requiring no work from business employees:
● The best pricing at any minute through the entire procurement process
● Sourcing labour, hiring and personnel training and scheduling
● Adding and changing SKUs automatically
● Optimised inventory management in real-time
● Accurate and timely invoicing every time
● Updates that don’t affect the operations of the business
● Greater data security
Businesses don’t want to feel lost at sea. They need a secure end-to-end supply chain to anticipate and adjust to any disruption. FunkFlow turns an upside-down supply chain right side-up again.
This is D2C supply chain management at its best.
Last mile delivery management
“As a share of the total cost of shipping, last mile delivery costs are substantial - comprising 53% overall.” - Business Insider
That is a remarkable cost that doesn’t have to be so high.
For the quick delivery that Q-commerce customers expect, order fulfillment needs to be efficient and located nearby. This requires an accurate assortment that offers both customer satisfaction and cost-effectiveness.
But without automation, a good last-mile set-up is impossible because a business has to manually keep up with the constant fluctuation in storage, fulfillment, and delivery costs. Where does a business find the time to discover the best and safest delivery system?
How does it find an optimally-located dark store serving a particular neighbourhood? Is its fulfillment as efficient and cost-effective as possible? How does it know about better options at any given time
FunkFlow’s solution recommends the best fulfillment processes for just-in-time delivery. Dark store or kitchen, fulfillment centre, or in-house, an optimised location saves money.
The solution can even recommend transforming a bricks and mortar into a mini-fulfilment centre for others, thereby bringing in another strand of profitability.
FunkFlow solutions make fulfillment lightning fast without human error, provide recommendations, and assign deliveries to the optimum person on the best and safest route. Data driven incentives can benefit drivers/riders while valued customers are updated with accurate information.
And what’s more, FunkFlow’s AI syncs all automated data to the relevant departments so all communication across the entire organisation is timely and accurate. There is no new system for employees to continually relearn. This means that employees’ time and resources are freed up.
And when a business begins to grow, the solutions remain scalable because they’re individualised from the start.
Factor 2: Forecasting demand
“Demand forecasting is secondary to meeting customer expectations, and today’s customers (be they the end consumer or business customers that serve the end consumer) value flexibility and responsiveness to a remarkable degree.” - Hollingsworth
Forecasting is a must for the future.
With an agile supply chain in place, good forecasting will help a business meet customer expectations and steer them toward capitalising on both shopping patterns and opportunities for new patterns of conversion.
Forecasting demand is essential for Q-commerce businesses because they must react to customer needs that fluctuate constantly. Customers expect A LOT, and FAST. The greater the ability to predict, the greater the rate of customer satisfaction.
Forecasting is profitable, especially when it is automated. For example, purchase orders generated by demand forecasts and an auto-ordering model result in drastic profitability increase, averaging +21%.
FunkFlow’s solutions combine customer behaviour and external factors including seasonal information, trends, events and holidays, weather, etc. This is important because Q-commerce changes rapidly, even hourly.
For example, because rain increases delivery demand, it changes buying patterns for individual segmented customers and neighbourhoods. This demand decreases when the rain stops. With AI driven data, a business would automatically know how demand will fluctuate and can be prepared to meet it.
And FunkFlow brings a lot more to the forecasting table.
Competitive businesses are aware of how their rivals’ pricing and promotions perform. Unfortunately information gathering on multiple competitors is costly and drains resources.
It can be impossible when competitor numbers get into the tens, twenties, or more. Information can also be incorrect or quickly become obsolete.
All these factors lead to costly mistakes which can easily be avoided with FunkFlow. The solution provides valuable data on what the competition is or isn’t doing well, advising the optimum ways to out-perfrom competitors both in pricing and promotion.
A big issue influencing a Q-commerce grocer’s bottom line is supply pricing, so a deep knowledge of real-time industry pricing fluctuations is a distinct advantage. With FunkFlow, automated data enables procurement negotiation which guarantees a business secures the best prices possible for its assortment.
In Q-commerce, demographics can change from neighbourhood-to-neighbourhood and even street-to-street. However, most brands don’t have the knowledge they need to fully capitalise on this.
FunkFlow solution will provide a brand with the most segmented data possible to maximise every square metre of a particular location.
Inventory management is one of the biggest headaches for managers, but FunkFlow eliminates the challenges of keeping an optimised inventory. Automated supplier reordering adjusts to forecast changes which minimises shelf cost and potential lost sales by re-ordering as quickly as possible.
Transfers between dark stores when demand changes minimises waste on perishable items and enables product selection specific to the area and dark store.
Sub-optimised operations mean profit forecasts will be unreliable which causes decisions made on margin expectations to become disastrous.
FunkFlow provides a clearer and safer margin forecast based on real-time data which means accurate expectations are met. This protects a company’s pre-emptive decisions including labour, reach, product offering, promotions, etc.
And finally, all of these abilities can only take a business so far without scalability. The Q-commerce industry is ripe for explosive growth, and so a Q-commerce grocer should be able to scale as time goes on.
The solution enables scaling up and growth by providing the data necessary for both expanding into new areas and opening new dark stores in a current area.
FunkFlow forecasting brings:
● Customer behaviour and demand predictions
● Competitor pricing and promo data
● Street-by-street geographic segmentation
● Automated supplier reordering
● Dark store inventory management
● Strategies for growth and scaling
● Clear margin forecasts
● Comprehensive data for procurement negotiation
Demand forecasts equip a business with all the predictive information needed to make better choices on inventory, investment, sales projections, spending, strategy, and product development. It’s another way of driving profitability.
Factor 3: Personalised customer experience
One of the most powerful things a Q-commerce business can do to bring profitability is inspire brand loyalty. Brand loyalty is the Holy Grail of the industry- it’s invaluable, rare and hard to find.
The traditional way to compete in commodity-like markets is to burn through marketing budgets and promotions in an attempt to lure customers away from competition.
Q-commerce is no exception. In fact, a visit on Q-commerce apps shows a variety of faceless, nameless discounts thrown at all users. This practice can crush any profit margin.
But the future focused way to win out over competitors is to deliver a personalised customer experience. Customer experience is exceptionally important:
73% of customers consider customer experience as an important factor in purchasing decisions.
One in three consumers walk away from a brand they love after just one bad experience.
A great customer experience leads to up to a 16% increase in price premium
82% of top performing companies pay close attention to the digital customer experience.
FunkFlow optimises customer experience without frustrating both employees and customers. FunkFlow’s digitised processes use AI to transform valuable data into the UX that Q-commerce customers demand.
Accurate, real-time personalised data allows a Q-commerce business to learn about their customers so that they can serve them better. FunkFlow solutions bring this information and combined with the automation and forecasting capabilities, solves customer problems including:
● Preferences: What does this customer like to buy, when do they buy, and how often? What factors change this and how do the changes manifest?
What type of tech offering does this customer want? FunkFlow keeps track of habits, notices changes, and spots patterns that help anticipate what the customer will soon need or might need and how they like to communicate. It also anticipates holidays and the weather.
This means inventory can constantly be adjusted so that there’s no more supply challenges. This solves a customer problem like, “Why are they always out of skim milk when I need it?”
● Pricing: Where does the customer live, what are the logistics of getting there, and what are the inventory costs? How much do they want to pay for the item?
What does the competition charge right now? FunkFlow tracks pricing in real-time while taking into account financial trends and customer behaviour and preferences. This way the customer always gets the best price for them. This solves a customer problem like, “Why is there such a difference in price for this wine?”
● Loyalty: What inspires loyalty? When does the customer expect a reward for loyalty and what should that be? With FunkFlow, businesses are free to create automated loyalty schemes that meet the needs of each individual customer.
This brings customers the rewards that best suit their needs at the best time. This solves a customer problem like,“Why should I order from them again?”
This means that a customer can be offered a basket of their usual groceries. But on top of that, they’re offered anticipated recommendations based on forecasts, habits and preferences, based on a price-point that works specifically for them at any given time of the day.
A Q-commerce business will never have to undercut themselves again. They won’t have to give away money for fleeting attention. Instead customers will open their app and enjoy a one on one experience with the brand that they can’t get anywhere else every single time. And they’ll come back for more.
Customers WANT to feel brand loyalty. They CRAVE it. They’re loyal to multiple brands outside the Q-commerce field and there’s no reason why customer loyalty can’t be secured in this industry too. All that is required is that a grocer knows what to do to give it.
FunkFlow knows what to do, and sets it up with no effort on the grocer’s part.
It brings all the processes and decisions together - whether to use dark stores and which one to use, flexible procurement, logistics and best methods for delivery to the customer, the current prices for your products - it’s all done automatically. FunkFlow brings significant profitability with no effort from the grocer.
FunkFlow costs just 1-3% and brings plus 15% in EBITDA.
Conclusion
The potential for grocers to make money in Q-commerce has never been so clear.
Though the industry has shown there are challenges to brand establishment and growth, the good news is that there are simple solutions to these challenges that require little or no effort because everything that works is done automatically.
FunkFlow optimises a Q-commerce business by seamlessly combining automation, forecasting, customer experience and brand loyalty to address the pain points in the industry. It gives a grocer a solid, real-time, data driven foundation on which it can build an irresistibly profitable operation.
The difference that automation and AI will make to a business is extraordinary. And as the business scales and enjoys even more profitability, its managers and employees will finally be free to lead, innovate, and focus on the future of the company.
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To find out more about how your business can benefit from automation and last mile optimisation, forecasting, and brand loyalty, book a no strings attached free demo and see how FunkFlow’s solutions will work for you.
It’s your future - let’s make it a solid, profitable, stress free future together.
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