The chief executive of Snappy Shopper has warned that Scotland's local shops could be at risk of going out of business due to the threat of so-called 'dark stores' which fulfil orders for the major rapid-delivery platforms.
The Scottish scale-up recently completed its five millionth order after growing quickly during the pandemic, something Mike Callachan reckons is in stark contrast to the delivery giants, which appear to be pivoting as they look to curb spending and cut jobs.
Snappy Shopper’s continued growth has been achieved on the back of last August's £19.4m Series A funding round, while he pointed out that German on-demand groceries app Gorillas - one of the largest dark store operators in Europe, and currently expanding into the UK - has raised more than £1bn investment, but reportedly burned through around £77m per month at the end of 2021.
Snappy Shopper is of course nowhere near the scale of Gorillas, or the likes of Deliveroo and UberEats for that matter, but Callachan says 2022 has been another record year, with retailers using the app consistently reporting up to 160% increased basket spend, compared to in-store.
Launched in 2018, the Dundee-based company's model lets small grocery shops gain new customers, and better serve existing ones, by using its technology - and the retailer's own people - to deliver products direct from stores to their local area.
A brief history
Callachan has been helping to build e-commerce sites since they first became a thing, working with the likes of JD Sports and Moneysupermarket to name a few. A career of consultancy work wasn't going to cut it though, so eventually he decided to make his own.
His initial focus was on hot food, with the hungrrr app launching in 2017, offering offers the hospitality sector affordable web and app solutions to take online orders.
This first venture came at the same time that JustEat was moving into the UK market and he admits that "they’d basically won" by the time his platform got going. "But commission had gone up significantly and so many restaurants were complaining about not making any money on these platforms," Callachan states.
One of his first major clients was the DRG Group, behind the likes of Di Maggio’s, Café Andaluz and Amarone. "We built an app for them which allowed people to order food direct and put seven figures back on their bottom line, with the vast majority of their customers sticking with them - then we spun that out to white label it for others."
Soon after that, business acquaintance Scott Campbell - then the owner of property solicitor The Chamber Practise - met with him and explained that he’d put convenience stores into several buildings he owned, but they weren't making much money, so he wanted to use the app to boost trade.
"This top-up shopping trend, it appealed to me, as I’d become a dad for the second time and I was always having to pick up bits on the way from home.
"Scott owned a few Spar franchises, so we created the app and did some small-scale promotion via Facebook targeting Dundee," Callachan explained. "The orders came flying in that first weekend and shop sales doubled, immediately making Scott's shops profitable, while gaining him a new customer base of those who found it harder to pop in."
The app expanded into the demographically different Arbroath and Carnoustie - and got approached by a retailer in Canterbury - with roughly the same positive results across all three areas.
Callachan and co-founder Campbell were able to raise £1m of seed capital from a group of high net-worth individuals, which enabled an initial team to be built and the product scaled.
At that stage Callachan stepped back and Mark Steven led the company alongside chief technology officer Alan Reid, with the proviso that he would come in as chief executive if things continued to expand.
Lo and behold, he did then move into the top job during January 2020, with another £1m raised from the same group of investors.
Then a couple of months later the pandemic hit and March's first lockdown saw the country stuck at home, but still needing all their usual groceries.
"It was a terrible time, but the perfect product," says Callachan.
In the five weeks following 23 March, Snappy Shopper reported a 534% increase in platform sales, in comparison to the preceding five weeks, with customer numbers rising 360% over the same period and average basket spend up by 51%, from £21.52 to £32.49.
The company went from nine shops, doing around £100,000 in turnover, to 650 shops, turning over £3m per month, by the end of that year.
The move from start-up to scale-up was confirmed in 2021, when the Series A round was put together with £6.6m direct from PayPoint, alongside investment from Kelvin Capital, Scottish Enterprise, Highland Tech, Maven Capital Partners and Justin King.
The latter - a former chief executive of Sainsbury's and director of food at Marks & Spencer - was also convinced to join the board, alongside former Skyscanner chief commercial officer Frank Skivington.
At that stage, the company had 90 employees, but the funding allowed that figure to almost triple, with a new head office set up in Dundee city centre. Snappy Shopper also signed partnership agreements with several regional branches of Co-op, Nisa and Spar.
Callachan says the popularity of the platform during the coronavirus crisis spawned several imitators, but having spent the previous two years developing the software, he was confident in pitching against rival apps.
"Crucially we've got a tech terminal in stores, rather than Shoply for instance, which sends people an email when an order comes in," he explained. "We did get worried when Deliveroo and UberEats started doing convenience stores, but they tried to reverse-engineer their model into the sector, charging 25% like they did for restaurants.
Callachan said margins in convenience stores are usually only about 20%, so many rejected this model, while others were put off by the argument that this take could be softened by raising product prices to pass the cost on.
"We could have grown quicker if we had used that model, but fundamentally we don’t agree with the gig economy - the way we do it continues the personal touch that those local shops have.
"Being able to say we’re the only app to sell the on-the-shelf-price is a good message right now, and we're still make money while the customer gets a fair price."
He reiterates a distaste for dark stores, with Amazon being arguably the original and largest culprit.
"I don’t like the instinct, but I'm guilty of it too - where I would have usually went to the local shop to get new batteries, now I'll just order them on Amazon, so its more missed revenue for the retailers.
"People still want the convenience of deliver now, but want to support the high street shop," Callachan continues. "If they [dark stores] win, there’s a significant threat to convenience stores' existence.
"If we don’t get there quick enough - as many owners and operators just aren’t savvy with tech - then they can certainly fall over; if it can happen to big high street names, then it can definitely happen to your corner shop," he warns.
"It's about democratising the tech - if you’re with Deliveroo or UberEats and finding it's the fastest growing bit of your business, but you’re not making any money, or you’re having a quiet day and seeing the Gorillas driver zooming by - why not try a hybrid method, rather than being taken down by the dark stores."
Callachan says he's still looking to fill gaps across Scotland and Wales in terms of shops that haven't already started up, but the "massive greenfield" lies in England. There are around 50,000 independent convenience stores across the UK, with Snappy Shopper counting about 1,300 as customers already.
"There's still huge amounts to go after, scaling up in unserved areas, but I expect our growth to continue."
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