For the past several years, we have been assaulted by the notion of “instant gratification”. Need a tube of toothpaste, get it within the hour. A refrigerator? Is a couple of days delivery time OK? Think and it will appear!
A lot of this was driven by Amazon and then copied by others. In fact, Amazon made it explicit that their eventual goal is “a shirt delivered as fast as a pizza” : https://www.youtube.com/watch?v=ncwsr1Of6Cw maybe eventually using teleportation (this may sound funny, but no one imagined Star Trek style talking devices in our homes a decade ago).
Today’s announcement that Amazon will no longer honor their Prime delivery commitments should be a watershed moment: https://bit.ly/2xraSBi
But we do have to understand this in a larger context, specifically the pre and post Covid19 world.
Pre-Covid19
In pre-Covid19 world, Amazon led the way in making delivery fast (and cheap) for consumers, primarily for non-grocery items. Grocery and meals were soon to follow with many delivering at your doorstep within the hour. However, the unit economics of this was unclear. It has long been argued that Amazon loses money on Prime but makes up for it through AWS. In meal and grocery delivery, startup companies like DoorDash and Instacart were blowing through VC-funded cash reserves to rapidly grow as well as maintain market share. The logic was that high volumes will eventually make the unit economics work and/or we will move to autonomous vehicles. This prompted an immense race to the bottom as retailers of all kinds were fighting to offer the fastest delivery service “for free”. For better or for worse, we are unlikely see the eventual denouement of that scenario anymore, primarily due to Covid19
Post-Covid19
Public health professionals and the lay public are arguing heatedly about how long the current lockdown will last, if we will see new surges of the pandemic and whether we need to be in a permanent state of preparedness? The last point deserves scrutiny. Whether this preparation is planned or not, current generations are scarred for life. We will no longer look at physical proximity interaction with other human beings the same way again. This will have a permanent impact on retail and last mile delivery. We are already seeing early signs. Grocery delivery has gone through the roof: https://bit.ly/2WKPa6e and almost everyone is offering drive-thru grocery, including an amazing pivot story by ChoiceLunch https://bit.ly/3dEwpay
And Amazon is unable to keep up. Yes, Amazon! The relentless stress on the delivery network is the primary driver of delays and their inability to honor Prime delivery commitments.
As non-essential retailers open up after the pandemic, it is doubtful that shoppers are going into their stores in large numbers any time soon. As with grocery, retailers will have to think hard about drive-thru options, limiting people who walk into their stores and also significantly ramp up their delivery offerings. E-commerce is going to skyrocket (if it was not happening already). But what about unit economics? I have a prediction on where things will move, in particular, 3 main trends:
Trend 1: Reliability and visibility will be more important than speed
For all product categories other than meal delivery, shoppers will be more concerned whether they are going to get the order and if the promise date was reliable. Today, retailers are cancelling orders at higher rates than earlier. What if a retailer could reduce cancellations by promising a reliable delivery at a later point in time? Shoppers would like that. Further, they would expect to be continually informed of where the shipment is and whether any unanticipated delays have occurred. This will have a positive impact on unit economics. Delivery will now happen at larger volumes but with less severe speed requirements, ensuring better unit economics. There might be some additional cost of investing in a visibility infrastructure for the shopper (beyond carrier updates) but this would be a small price to pay for more business. They were on course to doing this in any case given Amazon’s lead
Trend 2: Crowsourced last mile carriers will grow in volume and breadth
Speed will still be an issue for meal delivery. But food is fundamental to human beings. Therefore, meal delivery is a great loss-leader to build brand value. Almost every meal delivery service will branch out into hyperlocal delivery of grocery and other products (some are already there: such as Postmates and Deliv; this will grow). Sometimes from nearby stores, but a lot more through intermediate last mile stocking points. That breadth will again improve the unit economics.
Trend 3: Rapid growth of platform intermediaries for retail
If we live in a world where a retailer can have only 10 people in the store, 10 cars in line at the drive-thru and a limited number of stocking points, how can this retailer figure out the customer value of each option (in-store, drive-thru and delivery) in real time and execute accordingly? This will be an immense challenge, in addition to the reliability and visibility challenges mentioned earlier. I predict the rapid growth of technology intermediaries that can help retailers manage this problem using a wide range of data: not just retailer demand and inventory information, but also traffic trends, congestion analysis and supply chain economics.
We live in harrowing times, where the logistics challenge of the moment is to mobilize medical supplies and food for the people who need it the most. We all must contribute to this effort. However, as with every crisis, human ingenuity will shine and enable us to move to a safer yet prosperous future.
Up next: How did parcel and last mile delivery networks perform after Covid19?
