The launch of the new Hop grocery delivery service from Deliveroo PLC (LSE:ROO) adds another potential 'step change' to the company's already "massive" first-mover advantage, say analysts at broker Jefferies.
Deliveroo Hop will operate from delivery-only grocery stores offering consumers grocery in as little as 10 minutes, the company said, with the service benefiting from the "deep integration" between its newly developed grocery management technology and the company's logistics algorithms and network of over 50,000 delivery riders across the UK.
The first Hop site went live last week in Central London alongside a £10-off first order promotion.
"In essence, this is Deliveroo replicating its success with the 'dark' model in restaurants," the analysts said, as these have been "the leading edge" of Deliveroo's growth investment programme.
Although its dark kitchens have been strongly criticised for stealing customers from independent restaurants the dark model in restaurants "works", says Jefferies as it allows Deliveroo to "increase the utility of its marketplace to both restaurants and consumers by bringing new cuisine to a neighbourhood on a scalable low operating and capital cost".
In July, Deliveroo first said it will use its advantage in grocery to bring the "dark" model to its supermarket partners.
"Deliveroo has matched word with deed by founding a model that addresses their long held views on the risks / rewards of working with a supermarket partner (better supply chain; better inbound logistics; better brand awareness) vs operating a proprietary dark store (quicker; real-time inventory; better economics)," the analysts said.
As with its dark restaurants, Hop is an actual physical space that Deliveroo will source, rent, fit-out and operate with a view to hosting partners, in this case, supermarkets.
Supermarket partners will wholesale the grocery items for sale - under their own brands - in the Deliveroo marketplace.
"It's a model that extracts the best of both the partnership model and the dark store model while negating their weaknesses," the Jefferies team said.
"In our view, the dark store model is the recipe for the long-overdue digitalisation of convenience grocery, while also a business model with scope for attractive returns (especially for platforms that have several structural advantages over a pure-play). For us, Deliveroo was every inch the operator for a premium rating except for its lack of exposure to dark stores. With Hop, that gap has now closed."
After that you won't be surprised to hear that Jefferies rates Deliveroo a 'buy', a rating that was reiterated along with a share price target of 435p.