Blog Post - Hugh Fletcher, Apr 13 2018

Same day delivery: Will it ever be profitable?

Same day delivery: Will it ever be profitable?

Delivery: Great Idea, Poor Model? Whilst the icons of Deliveroo and Uber are now ubiquitous in everyday life, there’s only one issue for the delivery providers themselves - delivery is largely yet to be a profitable model. With Deliveroo’s parent company having lost £129 million in 2016, is our growing need for insta-delivery possible to make profitable? (especially at the massive lengths of scale that many have now grown to, built on investors’ funds).

The Times Future of Retail report covers the issue in detail, and asks the experts what they predict about the current business model and the current barriers to profitability. Hugh Fletcher, Global Head of Consultancy and Innovation at Salmon, is featured in the report (p18), and Hugh presents his thoughts about achievable solutions and recommendations to make the model more sustainable for the future.

The Times Future of Retail Report

What can retailers learn from Amazon when it comes to great delivery - and being profitable?

If there’s one thing Amazon has nailed, it's their delivery service. Our research last year showed that 60% of all customers believed retailers should offer delivery in less than 24 hours. Just the year before, customers were prepared to wait an average of 2.6 days. This is called the ‘Prime Effect’ and has completely skewed customers’ views on price and time of delivery, and has enabled Amazon to position itself as the market leader.

In fact, its march to own delivery continues; just last month Amazon announced “Shipping with Amazon”, a DHL and FedEx equivalent, meaning that even goods you purchased away from Amazon may still be delivered by them.

With 25% of all eCommerce issues stemming from delivery, retailers need to wake up to the fact that the customer experience doesn’t end at the checkout. Today, customers are now judging their experience with companies right from first awareness, through purchase, delivery and ownership, right through to repurchase. Organisations that don’t properly invest in their delivery service will be unable to compete with the likes of Amazon, and will not turn a generous amount of profit; as consumer loyalty shifts towards quality of service over brand, delivery dare not be an afterthought.

What are the solutions or recommendations that would make the delivery model more sustainable for the future?

The lifeblood of organisations in the 21st century is data, and the future of delivery is no different. Most organisations are sitting on reams of customer data, but very few are using it to their advantage. One of the exceptions, of course, is Amazon, which is using this data to reduce the cost of delivery through anticipation and prediction. Anticipating what will be ordered, by whom, and when, allows for the logistical operations that underpin delivery to be more efficient. Amazon is, of course, leading the space in this regard, with significant spend and research already invested into its “anticipatory package shipping” which finds economies of scale by moving items to distribution centres closer to customers who are “likely” to buy them. And, for a long time, the next step on from this – the delivery of goods that you haven’t ordered – has been spoken about. This will see the true blossoming of “programmatic commerce” – where computers and machines will order on behalf of consenting consumers based on their data and usage habits.

Investing in logistics and partnering with the right logistics partner is also essential. Any eCommerce operation needs to consider every element of the customer experience and one of the most important elements is delivery. Manufacturers and brands must force their partners to offer solutions to customers that they want. The days of the “4-hour window of waiting” may not quite be over yet, but customers’ patience with it already is. With customers increasingly loyal to service, rather than brands, brands who want to survive can no longer sub-contract out delivery or the responsibility for the full customer experience.

Is it realistic for people to expect faster and cheaper delivery methods - where will it end?

Amazon has set the bar highest with its next-day delivery option (Prime) and, consequently, one-hour delivery (Prime Now). In essence, brand equity – that most sought-after currency – is in the process of a serious devaluation as consumers expect faster and cheaper delivery methods. It’s hard to see where it will end, but it’s unrealistic to expect every single retailer to adopt, say, a 20-minute delivery option. This would be a logistical, operational and practical nightmare which would be detrimental to any retailer. What’s more likely is other retailers will have to adopt a similar model to Amazon’s Prime and Prime Now service to realistically compete with the online giant. Alternatively, to survive, retailers may need to turn to Amazon for help. And wouldn’t that be a master-stroke by Amazon! Re-define customer expectations, provide the infrastructure, and force your competitors to become reliant on you!

Download the full report to read more about how some retailers are starting to see a trend in consumers demanding precision over speed to accommodate their lifestyles, why delivery companies need to review and optimise their supply chain and why infrastructure is key. Alternatively, find out more about our services that can help shape your future eCommerce strategy.

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