Fast and Free (or cheap) delivery is being positioned to retailers and restaurants by a growing group of companies as a key strategic asset that helps them compete with Amazon. Google has entered the marketplace with Google Express. It competes against such companies as Postmates, InstaCart, DoorDash, Deliv and Uber.
There are doubters out there – especially about same day/same hour delivery. Bonobos CEO Andy Dunn, for instance, estimates that just 5 percent of his men’s wear sales would be impacted by fast delivery. The economics and logistics of the business also put off observers like ShopRunner CEO Scott Thomson, who thinks that it will be impossible to compete against Amazon for same day delivery, much less one hour delivery. “Amazon is building warehouses in every city,” he emphasizes.
But others are taking a more strategic outlook, emphasizing how delivery will aid store loyalty, and can ultimately be supported via multiple revenue models, including annual membership programs paid by consumers, akin to Amazon Prime/Amazon Now.
At the ShopTalk show in Las Vegas May 16-18, Google Express GM Brian Elliot said it’s all about sharing delivery resources across lots of local merchants. “We can build an app that lets you shop across multiple retailers and connect locally,” he said, suggesting it is like being an anchor tenant at a mall. “We can build an awesome network infrastructure of stores,” added Elliot. “We are delivering loyalty.” He also suggested that it “removes friction” from merchants since payments are processed by Google.
Elliot is also bullish on the impact of deliveries on merchants. “Studies are showing they’ve seen more volume coming through. Consumers are shopping more often,” he said. Merchants that add their inventory into the system are also more likely to be shopped by consumers searching for products. “It’s not just about delivery. The more we can leverage inventory, the more we can drive foot traffic,” he said.
The economics of a delivery network, however, depend on shared resources and working with a relatively low volume. “Staging (delivery) of 200,000 units from the back of a store….Uber is not prepared to do that,” says Elliot.
PostMates CEO Bastian Lehmann, also at ShopTalk, said that delivery is a retailer’s best friend. “It gives you something that larger companies can’t compete with” and “new customers,” he said. Since deliveries are made for one price and aren’t distance sensitive, many stores are seeing new customers coming from locations more than two miles away.
Postmates actually delivers for a combination of SMBs and multi-location stores, including Apple Store, Starbucks, Chipotle, 7-11, McDonalds and WalGreens. A consumer can search among 1.5 Million SKUs, and 50,000 stores. It also touches 50,000 merchants a month.
Lehmann notes that the company’s business model relies on a combination of merchant fees, consumer fees and/or unlimited delivery club fees. Its ability to deliver goods from any merchant drives a local “long tail.” says Lehmann. The economics, however, vary based on whether the store is in or out of network. Forty percent of its delivered orders come from out of network.