The Key Last Mile Markets
Last mile deliveries continue to be costly and headache-inducing for retailers. A lot of this is due to consumers constantly evolving and tough to meet demands of fast, reliable, and cheap (or free) service. Many retailers have turned to crowdsourced delivery options to alleviate the stress of last mile deliveries, and in turn, have turned their stores into mini-warehouses.
However, the problems associated with last mile deliveries are not just felt by traditional retailers. Now, as consumers continue to look to the web as their shopping channel of choice, this has changed the way non-traditional online segments within the retail market offer their goods and services. Grocery stores and convenience stores, for example, have had to shift their operations to handle the desire for buy online, pick up in store. But, as home delivery becomes more of the norm, these stores are making the change to offer home delivery via crowdsourced drivers as well.
On top of these two markets for home delivery, restaurants are now a major player. While pizza shops and some other formats have typically offered delivery, the majority of restaurants have not. However, the rise of crowdsourced delivery options now allow restaurants that historically did not want to enter the delivery market to offer home delivery. In fact, it is no longer a differentiator for many restaurants; instead, it is a necessary component of their strategy to remain competitive.
Last Mile Market Size
So just how big is the crowdsourced delivery market? Steve Banker and I have written about the digital freight matching market quite a bit over the last 18 months. The market essentially has two sides – freight and home delivery. The home delivery market is significantly larger. In fact, the top seven global startups, which include Deliveroo, Instacart, New Dada, Postmates, DoorDash, Fetchr, and Deliv, have raised over $2.5 billion in funding since 2011. Each of these companies has its own unique market opportunity and differentiator, from how they make deliveries to their pricing model. However, the one constant for each of these has been the ability to raise money.
Considering the amount of money pouring into these startups, it is not surprising to see a shift in the crowdsourced delivery market. According to my latest omni-channel research survey, nearly 10 percent of retailers surveyed indicated they are already use the crowdsourced delivery model, and an additional 26 percent plan to use one in the next 12 months. These numbers directly reflect a drop in the number of retailers that continue to use private store fleets or have plans to use these fleets.
For traditional retailers, the need to compete with Amazon has made fast and cost-efficient delivery more important than ever. To that end, Target is buying home-delivery start-up Shipt for $550 million. As part of the deal, Shipt will become a wholly-owned Target subsidiary, but will still solicit business from other retailers. As a result of the acquisition, Target plans to offer same-day delivery at about half of its 1,800 stores by summer. Following the initial roll-out, Target plans to have all stores on board for next year’s holiday season. This also means that Target is phasing out its relationship with Instacart to focus on its internal same-day delivery business.
A great example of how the crowdsourced food delivery market is especially growing is Uber. Uber’s disruptive ride-hailing app was incredibly disruptive to the taxi market in most cities. However, regulatory issues regarding how drivers are classified (along with sexual harassment claims) have slowed down Uber’s growth in this market. But, Uber’s secondary app, UberEats, has been growing by leaps and bounds due to customer demand. As I mentioned in last week’s news round-up, in 19 European cities, including Milan, Madrid, and Grenoble, UberEats is bigger than Uber’s transportation app. Even though it is only three years old, UberEats is poised to generate more than $3 billion in sales by the end of 2018.
The Main Players
- Deliveroo has raised nearly $860 million in funding. The core business is restaurant delivery by bike. Customers can pay a fee for individual orders or pay a monthly subscription fee.
- Instacart has raised $675 million in funding. The company focuses mainly on grocery delivery, with key partnerships with Whole Foods, Albertsons, Supervalu, and Wegman’s. Instacart also makes deliveries for CVS and PetCo, and customers can pay an individual order fee or a monthly subscription fee.
- New Dada has raised $450 million in funding, including a large investment from JD.com and Walmart. The core business is groceries and convenience items delivered throughout China.
- Postmates has raised nearly $280 million in funding. The company’s motto is “get anything delivered in minutes.” This includes restaurants, groceries, and alcohol for those consumers above the legal drinking age.
- DoorDash has raised over $180 million in funding. The company focuses on the restaurant delivery market, with over 54,000 restaurants in their network.
- Fetchr has raised over $50 in funding. The company is an international express, mail delivery and logistics services company, operating an app-based on-demand delivery service model based in Dubai.
- Deliv has raised $40m in funding. The company’s offering spans multiple retail segments to connect drivers with consumers to deliver merchandise.
- UBerEats is an offshoot of Uber’s ride-hailing app. The company deliveries restaurants meals via car, bike, scooter, or on foot.
The crowdsourced last mile delivery market is still in the relatively early stages of development. However, retailers and restaurants have seen the need to expand how they make home deliveries, and start-ups have seized the opportunity. With billions of dollars of funding pouring in, the market is poised to continue to grow. However, as the market continues to mature, there will certainly be continued growing pains, and most likely, a thinning of the heard. For every Uber, Instacart, and Deliveroo out there, there is also a Sidecar (remember them?). It is certainly a market that is worth watching.