May 6, 2020
Your favourite retailer can’t give you same-day delivery, at least not soon
Your favourite online store sends you an email that they’re now offering free same-day delivery, so you get excited and go to purchase a new conditioner. You’re at the checkout page and notice the delivery option says “Order before 12noon for same-day” — it’s now 12:26PM… darn, looks like you’re actually getting next-day delivery.
In the last-mile world, there are two dominating operating models, the carrier & courier model. Let’s dive into each and see how they work, and what that means for you as a consumer.
The Carrier Model
Operating like a FedEx, these last-mile startups (i.e. Axlehire, Envoi, Veho & more) operate physical warehouses & sort-hubs to manage last-mile deliveries in order to prioritize drop density. Carriers are great at offering rock-bottom prices to the store for their services at the cost of scalability (opening warehouses is expensive!). The economics of a last-mile carrier are pretty simple, their profit equation works like this:
(# of deliveries per hour * revenue per delivery) / hourly wage of the driver
ex. (15 deliveries *$5 per delivery) / $20 per hour = 3.75
All carriers are in the business of optimizing the above equation, and, they do this by ways of sorting individual orders into highly dense routes with hubs (basically mini-warehouses where orders are consolidated):
Because carriers need to consolidate orders into a hub, they need time to sort and they prefer to dispatch drivers earlier in the day (to beat traffic), because as we all know, traffic increases time to deliver — and lowers their drop density (profit equation).
So why can’t you get same-day delivery if you order past noon?
It isn’t profitable for same-day carriers to arrange a pickup from the store at, for example, 3PM. A 3PM pickup means traffic on the way to the store, on the way back & they need time to sort through orders before it can be dispatched. Now you’re probably wondering… “this doesn’t seem like a true same-day service”… that’s because it isn’t and was never meant to be.
If it isn’t ‘true’ same-day, why did my store partner with a carrier?
Price! Carriers are able to offer retailers rock-bottom prices (as low as $5.00) for their services. So if you want ‘true’ same-day, your retailer will have to turn to the services of a courier.
The Courier Model
In contrast to carriers, couriers (i.e. Uber, Instacart, BoxKnight & more) don’t operate physical hubs, and instead work on point-to-point (P2P) delivery models. P2P models are super scalable (require no investments in fixed assets) and are the model of choice for grocery & food already. Seems like a dream right? Well… not really, here’s why:
1. Working with couriers is a nightmare for a large retailer
Suppose a large retailer does a flash-sale and has 350 orders to be dispatched for same-day delivery, what happens if the retailer is working with a courier? If a single driver can carry 20 packages in a vehicle, that’s a minimum of 17 drivers that need to show up! Imagine having to co-ordinate 17 strangers
2. Unless your Uber, a courier’s tech-stack probably sucks
Orchestrating just-in-time (JIT) delivery at scale is a monumental task. Supposing again the retailer in the above example had 350 orders to be dispatched, that would require the courier to ingest orders and optimize orders into ‘routes’ in near real-time. Next, the courier has to send the order manifest (how orders are to be grouped for pickup by drivers) to the retailer, and this puts a heavy strain on the retailer to pick/pack orders in a short window. Unfortunately, off the shelf software just wasn’t made for high volume, JIT deliveries.
3. Courier prices on a per parcel basis… are ridiculously high
Retailers don’t want to pay exorbitant prices for same-day delivery because, well, most of the time they know that you (as a shopper) won’t pay significantly more! The single-most drawback of courier models is that, because everything has to happen “on-the-fly”, they need to charge upwards of $8 for a single delivery.
So how do we get ‘true’ same-day delivery at a price that most shoppers are willing to pay?
The three areas where I think the most opportunity exists are:
Flexible micro-hubs
Micro-hubs (i.e. FLEXE, Darkstore & more) offer eCommerce brands and traditional retailers the ability to store inventory throughout a city. Acting as mini-FCs for a plethora of stores, these companies shorten the distance a package needs to travel to your door — and hopefully, the cost of delivery. If configured right, couriers
Using stores as mini-fulfillment centres
Large retailers have an awesome opportunity to convert massive physical stores into mini-FCs where they can fulfill orders from, without needing to pass through a sort hub.
Reinventing the tech fabric for JIT deliveries
Delivery service platforms (i.e. ShipSwyft, Bringg & more) prioritize building technology to power an entire, or a segment of a supply chain. Speed, accuracy & data optimization can be extremely powerful in fixing many (if not all) of the problems couriers face.
