Last weekend it was Deliveroo and Cazoo’s turn to be given kicking in the Sunday Times for the scale of their flotations, the headline highlighting the Floperoo Float and a following article suggesting competitors are questioning whether Cazoo, a business founded two years ago and losing £88 million, could possibly be valued at £5 billion.
I think the journalists are missing a far bigger trend, the seemingly unstoppable growth of direct to home as a channel, and how visionary brands are trying to seize the opportunity. Both these brands represent part of the seismic shift in how consumers want to shop. Neither Deliveroo and Cazoo add any intrinsic value apart from delivering an amazing convenience proposition, but analysts and investors think the future potential is massive because they both open a new way that consumers will interact with brands in the future.
No doubt both flotations are aggressively priced, but they are also building in a massive premium for a fundamental shift in consumer behaviour. There is huge interest in the direct to home sector; the on demand, ultra-fast grocery delivery sector in London has recently seen brands like Getir, Weezy, Dija, Zapp appear with aggressive, well-funded launch plans. There must be significant consumer interest to generate this level of investment and it will inevitably be a marketing arms race.
The direct to home opportunity is huge. UK’s online sales were £76 billion in 2019, about 19% of retail sales. This is forecast to nearly double in four years to 34.5%. We’ve been talking to retail clients who have seen direct sales rocket from 15% to over 60% in lockdown. This isn’t a niche trend but the biggest structural change to the retail economy in a generation, driven by a shift in consumer behaviour.
The marketing and media industry has been slow to react. People have fundamentally changed, and we need to think differently. We must understand how to influence people who may not have any physical interaction with a retail brand. This shift may well move brands from broadcast to more targeted communication, which may well be hyper-local. Also messaging may change, how traditional retail brands manage in a world where they are one click away from a negative review is complex, possibly traditional advertising that over promises may be replaced with more functional and benefit-based communication.
Point of sale has always been critical, especially in grocery. Its efficacy was dependent on a people going to fixture and switching their initial brand choice for something new or cheaper. How will brands survive in a world without this? I suspect the solution will be driven by data and trying to reach high potential consumers directly.