Store-as-hub weakens grocery margins
Former head of strategy at a global on-demand giant on the economics of grocery delivery
Using stores as mini hubs let on demand apps enter grocery fast, but it also locked them into the weakest part of the economics. The app brought demand and riders, the grocer supplied inventory and store labor, and the courier handled the final trip. That setup was cheap to launch because no warehouse was needed, but it gave the delivery app little control over picking speed, assortment, availability, or basket building, which are the levers that make grocery margins work.
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In practice, the store acted like a relay point. Orders were assembled out of an existing Tesco or Waitrose location, then handed to a courier from Uber, Deliveroo, or Glovo. This was basically a bolt on use of an existing food delivery fleet, not a purpose built grocery supply chain.
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That model struggled because grocery profit is shaped less by having riders available and more by controlling what goes into the basket. Research on online grocery shows delivery and pick costs stay roughly fixed per order, so low and unpredictable basket sizes leave little gross profit to cover the trip.
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The contrast is Instacart and later dark store operators. Instacart used store infrastructure too, but built a stronger grocery specific marketplace and retailer software layer around it. Dark store players moved further upstream, using neighborhood warehouses to raise drops per hour and gain tighter control over inventory and speed.
The market keeps moving toward models with more control over fulfillment and merchandising. Grocery delivery winners are likely to look less like restaurant apps adding another tab, and more like operators that either own the digital shelf and retailer workflow, or own the local inventory node that makes the last mile efficient.