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The Future of On-Demand Commerce: Key Innovation Drivers

Get ready to say “Alexa, open the skylight for a drone delivery” one day soon

A delivery drone flying through a skylight | Generated by DALL-E

In today’s omnichannel age, purchase is rarely the end of the consumer journey. As the discovery-to-purchase funnel continues to collapse in the face of near-ubiquitous shoppable units and content marketing, the post-purchase phase is now unquestionably a heightened part of the shopping experience. This means that owning (or having access to) robust logistics operations is more important than ever for brands.

Last week, we examined the key players in driving the innovations in the U.S. logistics market and the new entrants joining in the competition. This week, we will turn our attention to the key innovation territories that many brands and retailers are exploring to push the envelope of the post-purchase consumer experience.

From mobile wallet integration to automated delivery bot, to the micro-fulfilment centers that are powering ultra-fast local grocery delivery services, the innovations in on-demand delivery is key to meeting consumer expectations and future-proofing the brand experience you offer.

Delivery as Post-Purchase Touchpoint

First up, delivery is now a crucial component of the ecommerce experience. A recent UPS study showed that delivery time is by far the most important factor for online shoppers: 63% of those surveyed say delivery speed is an important consideration when shopping online, and 77% of them are willing to pay for expedited shipping.

Yet, most brands still struggle to bring together disparate logistics solutions across providers, resulting in siloed data, costly software implementations, and complex integrations that hinders offering customers real-time updates on their delivery. For the most part, delivery tracking is a feature usually embedded in whatever shopping site or app that one used to male a purchase, or worse yet, intermittently dotted out via email alerts with a tracking number. For the modern shoppers, it can be quite a hassle to keep track of all the packages on their way, especially if you don’t have a doorman to take in the packages when they arrive.

To solve this problem, Apple has started to incorporate package shipping updates into Apple Wallet, starting with purchases made with Apple Pay, which is now used by 75% of all iPhone users. Starting with the newly released iOS 16, there is an Orders section within the Apple Wallet app. This section lists a detailed breakdown of Apple Pay orders placed every month, along with orders placed over the course of the year. This allows users to revisit those orders in the event that they may want to place the same order again.

Moreover, this order tracking feature extends to BOPIS orders as well, with Apple adding the ability to interact with orders placed for local pick-up at retailers that opted in for this function. For example, placing an order at the local bakery for pickup will provide a notification once it’s ready. Then, users can tap the Barcode button to display the barcode that needs to be scanned when they arrive for pick up.

Retailers are also recognizing that the consumer expectation for delivery speed is not one-size-fits-all. Yes, the fast two-day shipping championed by Amazon has become the industry standard, but for some customers, or for some non-essential orders, consumers are willing to wait a bit longer in exchange for savings on delivery fees, or a more convenient arrival time.

To accommodate the varying needs for delivery, some retailers are offering a range of options to appeal to as many customers as possible. Retailers like Amazon and Target are embracing no-rush delivery, especially for busy holiday seasons where the supply chains are overwhelmed, and incentivizing consumers to shop earlier by offering discounts or rewards. Footwear retailer Schuh offers seven different options for shoppers, including free delivery, collect in store, and delivery to local pick up points.

In response, more brands are seeking visibility in their supply chain and logistics operations. Startups like Stord and parcelLab are taking a “logistics-as-a-service” (LaaS) approach to help brands modernize their supply chain and improve delivery efficiency, helping brands with everything from order management and fulfillment to inventory management and planning. Stord recently launched their own ecommerce platform called Stord One Commerce, which offers cloud-based solutions designed to help retailers and brands connect and optimize their supply chains.

Meanwhile, many logistics startups are developing platforms that connect various nodes along the supply chain and helping shippers more effectively communicate with carriers and third-party logistics services. Whether it’s digital freight matching solutions (e.g., Convoy and Zuum) that more effectively match supply with demand, or warehouse management systems (e.g., 3PL Central) that bring all warehouse tasks onto a single platform, all of those LaaS solutions that aim to help retailers and brands to upgrade their logistics operations and optimize the flow of goods across operations.

Looking ahead, we expect to see more software-led upgrades to the supply chain operations driven by a deep integration of delivery and inventory management into the consumer-facing front-end of shopping platforms to facilitate the best post-purchase experience.

The Rise & Fall of Ultra-Fast Delivery Services

Over the course of the pandemic, more people have started using online grocery services, which, in turn, spurred a huge sprout of the so-called “ultra-fast delivery services” such as goPuff, Getir, and Gorillas, all promising to bring common grocery and convenience stores items to your doorstep in under 30 minutes, if not less. Among the dozen companies that received an influx of VC funding as part of the at-home economy craze, many of which have since shut down or pivoted due to fierce competitions, rising costs, and regulatory scrutiny. By May 2022, it became clear that the industry had failed to sustain the momentum it appeared to have just a few months prior. Even goPuff, an apparent front-runner in the space, began scaling back its warehouse operations at the end of May, closing or pausing operations at 22 of its 600 warehouses, all of which were reportedly experiencing low order volumes.

The “boom-and-bust” cycle seems to have played out a lot faster than usual for these services, but their impacts on both consumer expectations and the business model still linger. Ultra-fast delivery services operate differently from conventional grocery delivery services like Instacart or FreshDirect that usually operate by fulfilling orders from local stores operated by legacy retail partners. In contrast, ultra-fast delivery services often deployed the “dark store” model to skirt zoning laws in urban centers and bring their logistical operations closer to the end consumers. When some landlords pushed back on dark stores for their lack of appeal in residential neighborhoods, as they don’t generate foot traffic but bring the noise of delivery vehicles, they turned to highly automated micro-fulfillment centers (MFCs) to increase efficiencies and cut down delivery time. As a result of their hype, more major players in the local delivery space are adopting similar tactics and expanding their business models.

Take Doordash for example. In December 2021, when the ultra-fast delivery services were at the peak of their hype cycle, DoorDash launched its own ‘ultra-fast’ grocery delivery service in New York City to stay competitive. The service promised delivery in 15 minutes or less, on par with what the new entrants like goPuff and BuyK were offering at the time. Similar to its competitors utilizing dark stores that functioned as logistics nodes, Doordash opened a “DashMart” location in Manhattan’s Chelsea neighborhood to facilitate fast deliveries. And unlike its flagship food delivery service, Doordash hired full-time and part-time employees, rather than relying on independent contractors, to handle the deliveries. Meanwhile, Uber Eats expanded its household essentials delivery service in nearly 100 U.S. cities in June through a partnership with goPuff, but stopped short of promising ultra-fast delivery under 15 minutes.

Even though the hype for ultra-fast delivery services may have passed its peak, it has inspired many non-grocery retailers to experiment with similar offers to entice orders. For example, Sephora recently launched its own same-day delivery subscription program by partnering with Shipt, which is owned by Target, joining Ulta Beauty and Abercrombie & Fitch as the latest retailers to offer shoppers ultra-fast delivery through partnerships with courier companies. The subscription, which costs $49 per year, offers unlimited same-day delivery through the site or app. Earlier this year, Sephora collaborated with Shipt to bring beauty and wellness products to shoppers in as little as one hour. The partnership also offers customers the chance to earn Beauty Insider rewards from their purchases on the Shipt marketplace at checkout.

Looking ahead, goPuff seems to have its sights set on more vertical integrations to improve profitability. The company has reportedly been telling prospective investors that “its model is more Amazon than Uber,” according to confidential materials viewed by Axios. In January, in an effort to differentiate itself from other grocery delivery services, goPuff began introducing its own private label products, starting with its own line of bottled water and was soon followed by other household items like cleaning products, batteries, and paper products — proving once again that the future of on-demand commerce is built upon logistics.

Automation Comes to Last-Mile Delivery

The automated delivery era is dawning, with delivery robots roaming along city sidewalks and delivery drones flying through the sky in several states. This summer, Unilever teamed up with drone delivery service Flytrex to deliver ice cream to shoppers living in select cities in North Carolina and Texas. Meanwhile, Chicago’s City Council approved a pilot program last week that will allow restaurants and grocery stores to make deliveries via “personal delivery devices (PDDs),” aka, delivery robots from companies like Nuro or Starship. Similar programs have rolled out in cities such as Los Angeles, Pittsburgh, and Washington, D.C., as well as various college campuses across the country.

Earlier this month, Uber recently announced a 10-year partnership with Nuro to deliver UberEats orders in Silicon Valley, CA, and Houston, TX with Nuro’s street-legal delivery robots this year. Last year, Uber spun out the delivery robot operation it acquired from Postmates as a separate startup to improve profitability. The spin off company, Serve Robotics, recently completed the first-ever routine delivery without human intervention in designated areas around Los Angeles.

Although most of the automated delivery has been focused on delivering food and grocery, its usage has expanded into other categories in 2022. For example, in April, Walgreens began testing drone delivery of medicines in the suburbs of Dallas in collaboration with Alphabet’s Wing, which already hit the 100,000 deliveries milestone in August 2021. A month later, Walmart started testing a driverless delivery service in three U.S. cities. The driverless Ford vehicles powered by self-driving tech from Argo AI started with ferrying grocery items, but the company said it would start carrying other items that Walmart sells later. Impressively, this was only one out of the five autonomous delivery pilots that Walmart was testing.

Needless to say, automation is a big innovation driver in the future of logistics. Beyond the drones and delivery bots, other parts of the supply chain operations are also undergoing a wave of automation. Some robotics companies, such as Geek+, are automating repetitive tasks in warehouses (e.g. picking and packing). Amazon’s latest warehouse robots are reportedly able to handle 1,000 items per hour, as it itches ever closer to replacing human workers. Self-driving trucks have been tested on roads since 2019 with the hope to replace long-haul drivers one day soon. Most of the newly built micro-fulfillment centers (MFCs) are also designed to be highly automated. Interact Analysis forecasts over 7,300 automated micro-fulfilment centers (MFCs) to be installed globally by 2020, with almost half being within the States.

Labor shortages, port congestion, and the ongoing pandemic have made supply chain management a challenge for many retailers. At a time when Amazon has no choice to increase the average starting pay for warehouse and delivery workers as it prepares for the holiday shopping season, it seems safe to say that the pursuit of automation in the logistics industry at least partially stems from a desire to offset rising labor costs, along with the need to meet the demand for faster fulfillment.

Smart Home Integrations

Most online orders eventually land in our homes, and smart home integrations opens the door for automatically receiving packages without human interference. As smart video doorbells and home security systems continue to be adopted by homeowners, the opportunity is ripe for logistics brands to figure out how to go the extra mile and safely put the packages into the homes to avoid porch pirates.

Utilizing smart home devices to enable in-home delivery is not a new concept. Amazon has been testing and expanding its Amazon Key in-home delivery service since 2017, which allows delivery persons to open the garage door or front gate to leave the packages inside the home. In 2019, Walmart introduced a “InHome” delivery service, which enables workers to put grocery orders straight into a home or garage refrigerator. For obvious safety reasons, Walmart said employees will be equipped with a wearable camera that shoppers can watch live or accessed at a later time. In January, Walmart announced it is expanding the availability of InHome delivery service to 30 million U.S. households. Earlier this summer, Walmart included this feature to its Walmart+ subscription bundle as an optional add-on for an extra $7 a month.

Looking ahead, as automated deliveries via robots or drones become increasingly common, there is an obvious growing market for smart home manufacturers to accommodate receiving automated deliveries as part of the smart home ecosystem. Voice assistants, widely used at home, should be able to unlock the front door to let in a Nuro bot ferrying takeout orders, or open the skylight to allow delivery drones to drop in the packages. Better yet, perhaps no human interference is needed at all. With IoT sensors programmed to communicate with the delivery robots and drones, the automated home security system in the near future should be able to discern whose delivery is at the door, let them in and out of the house automatically, and notify the household member to retrieve it.

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Richard Yao

Richard Yao

Manager of Strategy & Content, IPG Media Lab