Planet Money - Grocery delivery wars

Episode Date: March 11, 2022

Behind the scenes at a new kind of grocery store that promises delivery in minutes. | Subscribe to our weekly newsletter here.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This is Planet Money from NPR. For the last few months, our boss Alex Goldmark has been inundated with advertising. He lives in Lower Manhattan, and any time he leaves his house, he spots stickers and billboards. He gets flyers in the mail and promo codes in his Instagram feed. The ads are from a bunch of different companies, all pushing him to try ultra-fast grocery delivery. And ultra-fast means really fast. Like, get your groceries 10 or 20 minutes after you place your order fast. And so on a cold and slushy February night, Alex did something he had never done before.

All right, let's get some groceries. Let's see how fast they can come. He downloaded an app, uploaded his info, and started tapping little pictures of the things he wanted. Broccoli. Tomato. Linguini. Red grapes. Couple bagels. Black seed smoked salmon. Black seed smoked salmon. Okay. Chickpeas. Chocolate. Bubbly water. Philadelphia cream cheese. I think that was everything, right? He's almost finished. And then? I'm going to click on alcohol. I can get one beer for $1.29. He thinks, eh, might as well go for a six-pack. And I'm done.

So let's do checkout. $95.73. Delivery note. Buzz 9F. Okay. And now we wait. From the moment Alex places his order, a race is on to get him his chickpeas and chocolate

and smoked salmon in minutes. With a tap on his screen, he kicks off a super speedy, hyper local logistics challenge. Hello and welcome to Planet Money. I'm Waylon Wong. And I'm Erica Barris. We spend a lot of money on groceries, more than we spend on clothes, more than we spend on furniture, more than we spend on furniture, more than we spend on electronics. It's a trillion dollar market. And now a whole bunch of startups are buying for a piece of it. The companies are trying to build a completely new kind of grocery store where there are no checkout lines, no conveyor belts, no shoppers. They're called dark stores, micro-fulfillment centers hidden behind darkened city storefronts. Normally, you can't just pop in and walk around a dark store, but we did.

Today on the show, behind the scenes in the competitive world of ultra-fast grocery delivery. These new grocery delivery companies have names like Gorillas. That's the one Alex ordered from. There's also GoPuff, Joker, Gatier. A lot of them got started in cities in Europe. And venture capital firms have poured billions of dollars into them over the last two years. These grocery delivery startups are all promising speed. two years. These grocery delivery startups are all promising speed. And a big way they achieve that is by positioning little distribution centers in the middle of dense urban neighborhoods. So when Alex placed his order, it came to this glassy storefront less than a mile away. The

windows are covered with ads for the company, so you can't see in. I arrived a little ahead of the evening rush. Adam Wasensky runs operations at Gorillas. Where we are is where we sort of fulfilled orders and send them out to your home. When I walk in, the first thing I notice are the harsh, almost overwhelming lights. I walked in and I was just like, whoa, like I've never walked into a grocery store and it is this bright. What do you mean? Adam says it has to be bright to help the workers who rush around the small warehouse grabbing groceries off the shelves. Got to be able to see what you're picking, right? So, you know, like especially with produce, you don't want to you don't want it to be too dark because, you know, there may be that one imperfection on the lettuce that you don't want to send to a customer, right? And it's got to be bright in order for you to see that.

If you're going to pick, pack, and deliver an order in minutes, then every single step in the process has to work together and work fast. That's why this store throws just about everything we know about grocery store design out the window. Think about what it's like when you enter a typical grocery store. You walk through the sliding glass doors and into an open area. The color palette is calming. You see displays of things you may not need but maybe want, like fresh flowers or pumpkins or little gingerbread house kits. Retail architects call those first few feet of a store the decompression zone. It's all about relaxing you, putting you in the mindset to stay

a while and buy a lot of groceries. Stores spend money on all kinds of things to put customers at ease. Some drop hundreds of thousands of dollars just on accent lighting. Here at the dark store, it's not just lighting that's different. For example, the aisles here are all one way, marked with arrows, so the grocery pickers know which way to go. Because of that, the aisles here are all one way, marked with arrows, so the grocery pickers know which way to go. Because of that, the aisles can be super narrow, about three feet wide. That saves space. It's something you'd never see in a regular grocery store because of what some retail architects call the butt brush effect. The butt brush effect?

The butt brush effect. Basically, you want to give customers lots of space because the last thing anyone wants when they're shopping is to brush up against someone else's butt. That would make them uncomfortable and uncomfortable people don't want to stay and spend money. And then there are the shelves. Grocery stores live and die by something called a planogram. A planogram is like the blueprint of a store. Produce goes in the front because color-blocked fruits and vegetables have a relaxing effect. The pasta is near the sauce because customers look for those things together. Baking stuff is all in one spot.

And there are lots of other things grocery stores do that you probably wouldn't notice. Like they place items for kids on lower shelves. Fish is not near coffee. Too many competing strong smells. The planogram in a dark store has a totally different logic. Like similar things are separated, not grouped together. It helps in our picking accuracy. And so in the grocery store, when you're looking at the shelves, you want to see all of the seltzer water together. Whereas here, we actually don't want to see that because it can lead to mistakes in picking. So we separate those things.

The whole store is laid out with that in mind. Pickers quickly grabbing the right thing. Here, the spaghetti is never next to the linguine because they're so easy to confuse. next to the linguine because they're so easy to confuse. The salt is on a different shelf from the pepper. And very different-seeming items can wind up on the same shelf. There's garbage bags, there's batteries, there's shot glasses, there's a tea towel, there's a gift bag, Reynolds wrap, and foil pans.

You know, all of the sort of things that you might need for a party are on this shelf. The party shelf exists because people order these things together, and the store constantly updates its shelves based on data from the app. That means things are moving around in the store all the time, and that can get confusing. So pickers also rely on a numbering system for the aisles and shelves to guide them around. Every time an order comes in, a bell sound rings from a computer up at the front of the store. And like a Pavlovian response, everyone calls out, order. So remember that order Alex made? This bell is the one I was waiting for. From the moment Alex hit place order, the app told him he would get his delivery in 23 minutes. So all those adjustments we just saw, the narrow aisles and super bright lights,

the seemingly illogical grocery shelves. Now it's time to see how they work in practice. Tyler White, the store manager, is the person picking this order. OK. First thing Tyler does is grab a cart preloaded with empty grocery bags and he starts rolling down a one way aisle. As he moves, he consults a screen that shows him everything Alex ordered, organized by weight and fragility. So we have LaCroix lemon here.

So I'm going to go ahead and scan it. Excuse me, Ray. I'm coming through, good sir. The bubbly water that Alex added at the end of his order comes first because it's heaviest and belongs at the bottom of the bag. Tyler whips through the store, grabbing and scanning, grabbing and scanning, grabbing and scanning. And I notice another difference between this store and the ones I'm used to. Do these shopping carts have any brakes? You know, like they're going really fast.

No, they don't have any brakes on them. They're like all-wheel drive carts. Yeah, pretty much, especially with how we like to drive them around here. Most regular grocery store carts have two fixed wheels, so you'll move a little slower through the aisles. Take your time and shop. Pretty soon, Tyler's pulled 17 items off the shelves. It's only taken him three minutes from start to finish. Alex's order, or as everyone at the store knows it, order 162, is picked and packed. Yep, 162, and that's the one that has beer in it. There are two pickers working tonight, plus a couple of people who clean and stock shelves.

Then there are five people delivering groceries. They're called riders because they're all on bikes. And up front, where you'd normally have checkout lines, there's the store's supervisor, Kenneth Bigsby. People are always telling him he looks like someone. Killmonger. It's because of the hair. You know, like from Black Panther. Kenneth is sort of like the triage guy,

distributing orders to pickers, figuring out delivery routes, taking customer complaints. When I received yogurt that was liquid. But right now, the task at hand is the beer that our boss Alex ordered. Because beer is one thing that this whole operation is not set up to handle. They don't have a liquor license, so they have this clunky workaround.

When an order for beer comes in, it gets redirected to a convenience store a few blocks away. This one's got a six-pack of Heineken with it. And when Kenneth loads up Alex's delivery guy, he tells him, you got to make a beer stop. That means the rider, a guy named General Washington, is going to have to stop, get off his bike, get the beer, and then load everything up again. It's the total opposite of all the efficiencies they're going for inside the store. It's the total opposite of all the efficiencies they're going for inside the store. And it's not the only problem I saw.

More on that after the break. In the business world, groceries are what's called a red ocean industry because it's so cutthroat. Think of what the ocean would look like after a few bloody battles where not everyone survives. Most of the ultra-fast delivery companies that are battling it out right now aren't making money. For every order they send out the door, they've spent even more on advertising, rent, discount codes, and the labor it takes to pick and deliver the orders. Is this profitable now? No, because we are, you know, we're still growing and still new to the market and ramping up. Adam, the head of operations, used to work for another startup you may have heard of, WeWork. So he's used to the kind of upside-down logic of venture-backed companies.

For these new grocery startups, the whole name of the game is to change people's habits, get them hooked on getting their groceries super quickly and easily. But right now, this company is still figuring out a lot of stuff. And the more time I spent in the store, the more I saw problems. Like one of the couriers, his phone died, so they had to make time to charge it instead of sending him out with an order.

Then someone managed to order mozzarella cheese sticks through the app, but those actually weren't in stock. And at one point, Kenneth, the store supervisor, found himself with 12 orders bagged, more coming in, and not a single delivery person in sight. The next person that comes in will take order one. The next person will take order two, three, four, five, and so on. Sorry, it's kind of hard to think because I have other orders coming through. And then I started to wonder how they'd ever make a buck at this.

Because a lot of the orders that were coming in weren't for a couple of days of groceries like Alex's was. They were small. So the store was putting all this energy into delivering like four cans of coconut milk or two pints of ice cream plus some chips and candy. I'm thinking they just have some late night munchies. Adam told me the biggest challenge has been lining up distributors for this new kind of store. The only storage space they have is on their shelves, so they need smaller deliveries coming more frequently. Distributors don't always prioritize them, and sometimes they can't get everything they need.

Was there the great strawberry incident of October, you know, like when you're all just scrambling? I mean, there's tons of what seem like the great strawberry incidents of October. You know, like when you're all just scrambling. I mean, there's tons of what seemed like the great strawberry incidents of October. At one point, they couldn't get Gatorade. Another time, it was eggs. Lucky for our boss Alex, when he put in his order, he snagged the last sesame seed bagel. And when his groceries went out the door, there were 13 minutes left in his promised delivery time. He tracked the order on his phone. There were 13 minutes left in his promised delivery time. He tracked the order on his phone. Okay, it's 543. Now I can see a little bike guy. Look at him.

As he watched the little bike icon, he noticed the beer stop. The little bike man is not moving. Still at Delancey Street. But General Washington manages to pull up right on time. Do you do a bunch of people's orders all at once? Yeah, we're getting so much orders that we have to start stacking. All right, well, I mean, you said 23 minutes, and you showed up at exactly 23 minutes. Really? Oh, okay, cool. Oh, is that not normal? Yeah, it's like I try my best to keep it, but I don't know the exact time that they give you for me to arrive.

I only know to get there as soon as possible. Is it really stressful? Oh, it's stress. It can be. It can be, yeah. It can be. General Washington has been working for Gorillas for a few months. He used to do gig work for Postmates and Uber Eats. But in this new job, he's a full-time employee. For him, that means a reliable paycheck, health insurance, a regular schedule, and Gorillas provides his delivery bike.

But it's hard to know how long it will last. Because all of the analysts and experts who are watching these new grocery delivery companies, they say they've seen this before. Venture capital investors get interested in a new kind of business, and they make huge gambles on it. What that usually means for customers is subsidies. Think meal kit companies giving a week of free meals, or Uber getting you all the way across town for $10.

But then competition thins out. Some companies go under, others get acquired, maybe a couple go public. And the startups left standing start behaving more like real businesses that have to turn a profit. So they start raising prices, service times get longer, and other cracks in the system maybe start to appear. In fact, right now, Gorillaz is facing allegations from workers in Berlin, where the company is based. Employees there have been staging walkouts because of missed paychecks, broken delivery bikes, and heavy

orders that they say have led to back injuries. The company says they've been trying to work with the protesters and make improvements. The thing I kept wondering, watching orders go out the door, was, do we really need this? Like, do any of us need groceries delivered in 20 minutes? But maybe it's not about need. Sometimes companies manufacture demand. They create a convenience that we get used to and we don't want to live without. Like with Alex. Less than a week after he placed that first order, it was another cold, dreary day.

He needed groceries. So he ordered again. Just a note, Gorillaz is a financial supporter of NPR. After we finished taping this episode, two ultra-fast delivery companies, Bridge No More and Bike, shut down operations. Not because they ran out of money, but because they were financed by Russian investors. There's a lot going on right now. And you probably have a lot of questions. We know we do. There's a lot going on right now. And you probably have a lot of questions.

We know we do. About the economics of a geopolitical war. About sanctions and what they mean. And questions we may not have even thought of. Send us those questions. It helps us plan what we're going to cover next. We're at planetmoneyatnpr.org. And look for us on social media.

Our TikTok is especially delightful. We're at planetm Money. This episode was edited by Molly Messick and produced by Dave Blanchard. It was mastered by Isaac Rodriguez. Alex Goldmark is our executive producer. Thank you to Sucharita Kadali, Paco Underhill, Daniel Folkman, Christopher Rader, Alex Frederick, Sylvain Charlebois, Yong Kan, Diego Donemiller, and Joseph Wollstonecraft. I'm Erika Barris. And I'm Waylon Wong. This is NPR. Thanks for listening. And a special thanks to our funder, the Alfred P. Sloan Foundation, for helping to support this podcast.