It’s been a big year for same-day delivery, as services pop up to fulfill every consumer wish. And with the recent announcement of Amazon Flex and rumblings about Uber expanding into delivery, all eyes are looking at the category, wondering who will win?

But suggesting that one company will dominate same-day service grossly simplifies a very complex reality. Different sectors have incompatible last-mile delivery needs and requirements. It would be virtually impossible for one company to be all things to all people.

Take social media as a parallel example. Social as a category is absolutely enormous but each of the major players serves a different purpose — Facebook and Instagram are used for personal connections, LinkedIn for business, and Twitter for microblogging and news sharing. They each own a niche (albeit a niche that serves hundreds of millions of people worldwide).

At the same time, the tech industry is full of instances where an industry leader in one category tries to get into a seemingly related business but fails. Google tried to get into social, but chalk that up to a failed experiment. Blockbuster tried to enter digital but Netflix won. Point being that while size and scale are relevant, they are far from sufficient to cover, in this case, the entire last-mile delivery category.

Instead, as I predicted a year ago, three distinct buckets have emerged. These segments demonstrate where same-day delivery makes the most sense and has had the greatest traction– restaurants, groceries, and online retail shopping.

Bring The Heat

While “30 minutes or less” wound up costing Domino’s Pizza a lot of money in legal fees, as well as traffic tickets, the company knew that when Americans ordered pizza, they wanted it fast and they wanted it hot. Food on-demand has obviously expanded well beyond pizza, but consumer expectations haven’t changed. Although 30 minutes may not be realistic in today’s traffic-laden cities, any delivery service better be sure that meals arrive in under an hour so that they remain edible. Otherwise consumers will seek out another option.

To make the business work, customer-initiated marketplaces fit the bill. These marketplaces connect dozens of restaurants with diners through a third party, armed with a fleet of local drivers seemingly waiting to bring your food to you as soon as it leaves the oven. For this convenience, consumers gladly pay the flat delivery charge + food markup + tip. These marketplaces are not exclusive, so it’s very likely you will find your favorite restaurants on GrubHub, Seamless, Postmates, DoorDash, UberEATS, and/or one of the many other services.

Marketplaces have driven this category by including menus from an assortment of restaurants, with or without permission, to make it easy for anyone to find exactly what they are craving or sample something from a new place all by visiting a single website. But, the marketplace, not the restaurant, owns the transaction as well as all of the valuable customer data.

Bag It

Groceries on-demand are another story. Your weekly shopping list is probably a whole lot longer and more specialized than ordering a salad, hold the capers and add grilled chicken. While the customer-initiated model still works well, this sector requires a different skillset in terms of picking and packing items to quickly and accurately complete an order. On the plus side, it is not a race. Companies don’t have to get five bags of groceries assembled and delivered in under an hour. In fact, customers generally don’t want them to. They may need olive oil by this evening, but they also don’t want their milk and cheese sitting on their front porch for hours on end in 90 degree weather (I don’t care how good the cooling package is). For this reason, a scheduling window is essential. A great customer-facing interface is also required so that the ordering process does not overwhelm them.

Grocers would love to be able to handle all of this themselves, to own the experience, but they are not there yet. There are costs associated with hiring additional staff and the difficulty of building an interface that makes life easier for the customer. Partnering with Instacart or Google Shopping Express is a great solution.

One side note worth mentioning about the grocery segment is in regards to its very thin margins. This has been a spark for innovation. E-commerce companies like Plated, Blue Apron, and ChopBox have figured out a way to make fresh ingredient delivery enticing to customers and profitable for themselves by limiting the ingredients involved in an order and supplying exactly the portions needed to make a week’s worth of designated recipes. No additional customization, the customer gets everything he or she needs to create a lovely meal, and it’s a convenient, great experience.

Using A Single Supplier

Online retail is an entirely different ballgame. 97% of all e-commerce sales come from just 500 retailers (the number of total ecommerce players ranges from tens of thousands to over a million, depending on the source and scale by which you measure). This means that in a $304 billion industry, the top 500 companies account for $295 billion in sales. Since that is such a massive percentage of the market, it is worth examining what these retailers require.

Yes, they want to deliver a great user experience, but unlike grocers and restaurants, the top e-commerce retailers demand to control that experience and retain the precious direct relationship with their customers.

While UPS, USPS, and FedEx have serviced retailers for years, top e-commerce retailers now want to work with a same-day delivery partner that can power logistics on the back-end. FedEx has responded, powering Neiman Marcus’ same-day delivery in select markets.

To further complicate matters, approximately 50% of these top retailers are pure-play e-commerce – only a select, innovative set of them have local inventory which is required to fulfill same-day delivery.

The other 50% are omni-channel retailers with a brick and mortar presence; they can power same-day delivery from their local stores if they can integrate systems to sync website orders with local store inventory — and then they need to find a partner that can handle the pickup and delivery within a scheduled window. Similar to groceries, consumers are particular about when and where they want items delivered.

Factor in that this market segment is also the most cost-sensitive in terms of delivery options. The reason pricing is such a sticking point is that consumers have grown accustomed to low or no-cost 2-day shipping, thanks to Amazon Prime. The online giant recognized that free 2-day shipping for Prime customers makes for a fabulous customer acquisition tool, therefore it considers shipping a marketing cost.

They’re ok with recouping only 50% of shipping fees. Amazon is now re-setting customer expectations with same-day delivery. To offer a compelling value proposition to consumers and meet their expectations, same-day delivery pricing can only go a few dollars above ground shipping (Macy’s, for example, does $5 over ground).

The real question is not which models represent sustainable businesses, but making sure that the right models are deployed in the right segments.

Featured Image: Paul Townsend/Flickr UNDER A CC BY-ND 2.0 LICENSE

Article source: TechCrunch.com

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