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Dawn delivery keeping retailers awake at night

Aug 05,2019
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Left: Workers wearing warm clothing and masks pack and move baskets at the Market Kurly delivery center located in Songpa District, southern Seoul. Right: At the delivery center of Emart located in Gimpo, Gyeonggi, machines sort and pack products without relying on human labor. [RAH HYUN-CHEOL, SSG.COM]
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While the city sleeps, delivery companies are wide awake.

Their employees work through the night to prepare items ordered for dawn delivery. When customers rise from their slumber, fresh food is sitting on their doorsteps.

Market Kurly, a fresh produce e-commerce company, was the pioneer of this “dawn delivery.” Now every major retailer is jumping on the bandwagon.

At 30 minutes past midnight on July 26, Market Kurly’s delivery center, located within the Seoul Integrated Freight Terminal in Songpa District, southern Seoul, was brightly lit.

The 10,000-square-meter (107,639-square-foot) area was chilled to 5 degrees Celsius (41 degrees Fahrenheit), which made the air crisp and cold in the middle of summer.

Several employees dressed in heavy winter coats, even ski suits, were busy packing items, from vegetables to fruit and meat, in a set of 200 baskets.

These orders had been made by customers just an hour earlier.

Once the items were put in the right baskets, they were then sent to the first floor, boxed and put on delivery trucks waiting and ready to go.

On another floor, the temperature was set higher, as that’s where they package processed or household goods.

At around 2 a.m., some 500 trucks at the loading docks started their engines and headed out.

Each truck delivers 50 to 60 orders before 7 a.m. In total, Market Kurly delivers 30,000 to 40,000 orders in a single day.

The “dawn delivery” started at Market Kurly in 2015.

Sophie Kim, Market Kurly CEO, built her career at places like Goldman Sachs and Temasek. The idea came from noticing that many moms, including herself, couldn’t shop for groceries early in the morning.

So she came up with the concept: Customers order online by 11 p.m. and have the items at the front door early in the morning.

Although there have been many delivery companies, Market Kurly was the first to test the concept. Even globally, few get close. FreshDirect just started Same-Day Service in New York. Orders placed by 10 a.m. arrive that evening.

The products are picked entirely based on quality, the company operating under the theme of selling only goods they would serve to their own families, and the entire process, including delivery, stays within a “full” cold-chain system to maintain the freshness of the foods.

The company works on building a win-win relationship with the producers and suppliers. While the selection process is rigorous, once a product is chosen, it is Market Kurly’s business policy to immediately pay for products supplied.

In its first year, Market Kurly reported 2.9 billion won ($2.45 million) revenue. That surged to 17.3 billion won the following year and more than doubled to 36.5 billion won in 2017. Last year, the company’s revenue grew to 157 billion won. Market Kurly now has a 40-percent market share in dawn delivery.

“Market Kurly’s history started by pioneering the dawn delivery market, which the industry has been doubtful on whether there’s even a market for it,” said Lee Hyeon-gyeong, the Market Kurly PR director.

“Instead of riding on the industry [trend], we have created [our own] new consumer trends like mandarin juice.”

According to the Rural Development Administration, the dawn delivery market, which was estimated to be worth around 10 billion won in 2015, exploded to a 400-billion-won market in 2018. And this year, it is expected to double to 800 billion won.

Market Kurly is already facing new competition, as Coupang has launched its Rocket Fresh service and BGF, known for its CU convenience stores, has started Hello Nature.

The customer base, which was mostly people in their 40s at the beginning, now includes many in their 20s and 30s. This is largely due to the growing number of people living alone.

Even conglomerates like Shinsegae and Lotte are jumping in, particularly given traditional retail is doing so poorly.

The operating profit of Emart, the discount retailer of Shinsegae, fell 51.6 percent in the first quarter from a year earlier to 74.3 billion won. Lotte Mart’s operating profit during the same period fell 79 percent year on year to 8.4 billion won.

The arms race was evident at 1 a.m. on July 29 at the five-story Emart delivery center in Gimpo, Gyeonggi, near the international airport.

Emart’s SSG.com delivers orders made by midnight to the doorsteps before 6 a.m.

Yellow trucks frequently came and left while SSG.com employees were busy classifying products at the dried food center on the fourth floor.

Almost all of the processes at SSG.com are automated. Employees put the products on top of a machine according to an order list that appears on monitors.

The machines then automatically put those items in baskets, which are then moved to delivery truck.

The only time the employees put the items in the basket themselves was when the products weren’t properly registered beforehand.

The biggest advantage of automation is that it reduced the delivery times.

SSG.com dawn delivery service started at the end of June. The service was delivering 3,000 orders a day to 11 districts along the Han River in Seoul. But as orders have exploded, the company since July 30 has started to deliver to 17 districts in Seoul. It is now delivering an additional 5,000 orders a day.

It wasn’t expecting to add those extra 5,000 orders until the end of the year.

“In actually starting the dawn delivery service, we realized the huge demand and decided to move up the service expansion,” said Ahn Chang-hyun, an official at SSG.com.

Despite its rapid growth, the dawn delivery service has one major problem: It is not generating profit. It is losing a lot of money, and companies are hesitant to raise prices for fear of losing customers.

Since the products delivered at dawn are mostly fresh produce, the packaging can be expensive.

Additionally, the labor costs for dawn delivery are 150-percent higher for employees working during the day.

Market Kurly, the No. 1 in the industry, reported a deficit of 33.6 billion won last year, and the losses have been increasing every year.

In 2015, the company’s deficit was at 5.4 billion won, which grew to 8.8 billion won in 2016 and to 12.3 billion won in 2017.

The deficit is considerably burdensome, even when accounting for start-up costs.

“Although we have expanded to the necessary size needed to manage our business, we haven’t reached the point where we generate profits,” said Market Kurly’s PR director Lee. “Once our initial market and delivery system development ends and we expand our customers, it will become an economically meaningful business model.”

BY RAH HYUN-CHEOL [kim.heyu@joongang.co.kr]