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Which same-day service will deliver the goods for retailers?

January 28, 2014

Last year saw a number of same-day and even same-hour shipping experiments kicking off with online giants as well as traditional retailers. While most of these services are very much in their formative stages, it appears that very fast delivery could soon become a competitive advantage for retailers.

Below is a look at a number of these services. While not comprehensive, it provides an overview of the levels of service and a range of business models.

EBay Now is testing local "delivery in about an hour" in a number of cities using couriers to deliver products from local retailers. The current trial carries a $5 delivery charge, but the longer-term business model isn't yet clear and may include commissions for participating stores.

Google Shopping Express launched last spring for deliveries within three to five hours. It's available in San Francisco and Silicon Valley. Participating retailers include American Eagle, Staples, Walgreens, Target and Whole Foods Market. Currently, there is a six-month free trial membership — ongoing pricing is not clear. Non-members pay $4.99 per store stop.

Grocers are increasingly getting into the game. PeaPod delivers for some of Ahold USA's chains and FreshDirect delivers for itself in the New York metro area. AmazonFresh — which is now available in Seattle, Los Angeles and San Francisco — also carries over 100,000 "traditional" Amazon.com items and is thought to be a foundational step toward same-day delivery for even more offerings. Pricing models include a mix of free, per-delivery fees, minimum purchase levels, and annual memberships.

Amazon also offers Local Express Delivery in a number of cities. Placing orders on Amazon.com as late as mid-morning or noon (depending on the city) gets same-day delivery.

Standalone service Instacart charges $3.99 for a personal shopper to pick and deliver groceries in less than two hours. Postmates has created a platform that connects orders with couriers who can fulfill in less than an hour.

Walmart To Go is testing with groceries in the Bay Area and Denver and costs $5-10 for delivery. Walmart management has discussed broader use of its stores as ecommerce distribution centers and has also raised the idea of using in-store customers to deliver orders to other customers in the area.

The specifics of these programs — prices, delivery times, etc. — will change. But retailers will have to carefully manage these new processes. For example, each store's local inventory and pricing will need to be readily available for customers to make purchase decisions and set expectations. Also, systems will be needed to manage the timeliness and quality of the deliveries by third parties.

While there are valid arguments that same day delivery is a limited market, customer expectations are rising quickly. In our connected world, all it takes is one retailer to raise the bar.

Discussion Questions:

Which of the current online delivery services do you think is most likely to gain a leadership position in the marketplace? What course would you recommend for traditional retail chains?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Which of the following online delivery services do you think is most likely to gain a leadership position in the marketplace?

Comments:

There's no way to predict the winners and losers of same-day delivery other than to go with Amazon and Google because of their deep pockets and need to be at the forefront. There's a cost to delivery that these current charges don't cover, let alone going free. Somewhere, someday, something has to give.

Mom and pops are going to be at a big disadvantage if these services become the standard, which may play well for marketplaces like eBay. However, mid-sized retailers are really going to be squeezed, not being big enough to sustain free delivery, not small enough to justify joining a marketplace.

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Ken Lonyai, Digital Innovation Strategist, co-founder, ScreenPlay InterActive

Of course this will all shake out over the next year or more. With the advent of faster delivery come the changes in consumer expectations. As a parallel, consider how frustrated we are when it takes more than a minute or so for our computers to boot up. No one tempers how they feel by recalling the time when over a minute was standard or when there was no personal computer, laptop or mini pad to boot up.

People had to adapt their behaviors to embrace microwave ovens. Now I'm not suggesting that quick delivery is comparable to quick cooking capabilities. However, we still don't know how the dynamics of customer and delivery service interaction will unfold.

But I do know this: retail chains must pay attention to how their shoppers' expectations change. At the end of the day, it will still be about generating satisfaction. It's just that what influences satisfaction will be different.

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Joan Treistman, President, The Treistman Group LLC

Too early to predict and for traditional retailers, they should let their customers drive this as a priority.

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Bill Davis, Director, MB&G Consulting

I know I've used this analogy before for last mile delivery, but it's appropriate to repeat for this question. Many of us born in the '60s or before remember getting milk delivered to our homes once or twice a week. Even my family, owners of a small group of supermarkets, used this service. Gradually, however, shoppers began buying their milk and other dairy products from supermarkets and convenience stores and the milkman was delivering to fewer and fewer homes. At some point, perhaps when only 40 percent of a neighborhood was buying from the milkman, it was no longer economically feasible for the dairy to continue the service. Now think of this analogy in reverse. As more and more people in neighborhoods start routinely buying from a single home delivery services, the economics of the model start to become feasible. This is especially true in urban and suburban areas. All of this is a long way to suggest that these delivery services may now be more than just a solution looking for a problem.

As to which service grabs the lion's share, I would not bet against Amazon or Google. I do have a feeling that both will align themselves with a logistics provider - maybe Amazon with USPS and Google with FedEx and/or UPS - to make same day delivery possible.

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Ron Margulis, Managing Director, RAM Communications

The question is not which online delivery service will gain leadership, it's how will brick and mortar retailers compete if they don't offer same day delivery? Retailers who don't have a robust e-commerce presence, with omni-channel pricing and inventory, will soon find themselves falling behind their enabled competitors.

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Max Goldberg, President, Max Goldberg & Associates

Same day delivery only makes financial sense in areas of dense population - major cities. Then it works like the old bicycle messenger services did. Because all of the recipients are so close, several deliveries can be made in an hour, driving costs per delivery down.

But costs are still a factor - especially in more geographically expansive places. Recipients must pay for this somehow, whether through a "membership" fee or per delivery. This is one of the key factors that contributed to the demise of 1990s Grocer, Webvan.

My favorite solution to the cost/speed delivery issue is Amazon's new "Octocopter" Drone Delivery vehicle. Delivery Drones help to alleviate problems of ground traffic, population sparcity and competitive speed to doorstep. Hey, great idea.

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Liz Crawford, VP, Strategy & Insights, Match Drive

Given their ability and history to make huge investments in what customers want and value, Google and Amazon have to be clear favorites. Google's strategy has been consistent. Design and develop solutions that customers (and shoppers) value and use AND THEN figure out how to make money at it. The delivery challenge will be no different for Google.

There seems to be an opportunity for local trucking or delivery services to leverage their capabilities in local markets with retailers as this service becomes a shopper expectation. Monitoring the acceptance and success (or failure) that Google or Walmart have in developing a cost-effective solution would be prudent.

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Adrian Weidmann, Principal, StoreStream Metrics, LLC

$4.99 will not cover the real expense of home delivery, and unless you're using robots, and vans run on windmills, profits will not happen, as it takes more money to run home delivery, especially in perishables. I know Amazon is getting heavily into this, which just makes it even harder for a start up to compete, but after all, it is a service that must be paid for somehow, someway, and the numbers being talked about just don't add up.

Here is a novel idea (maybe not), but how about a high-end concierge home delivery service, with all the bells and whistles, such as a person in a tuxedo bringing the product into your home, and putting everything away for the customer. When they leave, they can drop off the kids at swimming lessons, and pick up your mail...oh wait a minute...that service already exists. Sorry, my bad.

I have too much time on my hands today, but seriously, home delivery will continue to grow if someone can make a profit at it.

And I can't wait for NGA in Vegas, as it was -8 degrees here this morning.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

The two companies which will be able to quickly deliver based on their current logistics will be Amazon and eBay. They have each already begun experimenting with programs such as Amazon Fresh, Amazon Tote, eBay Now, etc. These companies are already exploring how to enhance the customer experience and reduce the pain point of online shopping (waiting for delivery). The infrastructure that is already built up with these companies' capabilities will surely place them at the forefront. I would guess that Walmart may get there, but not for 3-5 years (if at all).

Traditional retail chains should begin to partner with these companies in order to have their products and services meet the needs of their customers. Even if they don't do same day shipping directly, by partnering with services like Google Express shopping, they will be able to deliver the service in a similar way, meet the needs of customers, and not fall behind the modern players.

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Jesse Karp, Omnichannel Consulting Manager & Loyalty Practice Lead, Cognizant Business Consulting

New processes need to be cost-effective and repeatable in order to succeed. The profit potential of some of these services may need to be enhanced to help ensure long-term viability. The other key piece is being able to replicate the service in multiple markets easily. Every component of the process needs to have costs extracted so it is a win-win for the merchant and the customer.

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Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM

We did a study last year that showed that a huge competitive advantage still remains with bricks and mortar retail in that customers listed "instant ownership" as a number one driver of purchase.

My guess is that Amazon has and knows this type of data and has been targeting same-day delivery for some time. To me, they're way ahead of just about every game and will continue to be on this front. It's a HUGE solve for them and online shopping in general (can you say, "Drone Delivery in 30 Minutes"?).

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Lee Peterson, EVP Creative Services, WD Partners

If delivery of a product happens one hour or so sooner than a competitor's system, will that create an overall leadership for the fastest process? And if so, how will the public use that extra hour? Is tomorrow's life both printed on the clock and on dollar bills? All the current services have the potential to be fastest, but how will that translate in the charging marketplace?

My suggestion for traditional chains is to determine, to their satisfaction, if super speed should be their key objective. If so, get into the speed game.

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Gene Hoffman, President/CEO, Corporate Strategies International

I feel a little rushed, last week we wondered if this is "THE" year for online grocery delivery and a week later we are choosing the leader. Who is most likely to gain a leadership position will for now and probably the next 36 months be determined by headlines.

I agree with Ken, and his second paragraph is spot on in identifying a need by local mom and pop retailers to find a way to level the playing field.

We will skip the poll as our favorite company is not listed (lol) and add that this is a timely article and a call to action for local brick and mortar stores.

Gary Chatman, Business Development, estorerunner, Inc

I'd say it is the retailer/service that picks the best-fit delivery areas. Practical requirements would seem to be areas of dense population, limited or inconvenient transportation, and a high cost of living. This might give them a potential customer base with high enough volume to justify the high capital equipment and labor costs of enhanced delivery.

The course of action I would recommend is for the retailer to create a shopping experience that brings shoppers to the store. If same-day delivery is an aspiration, utilize a third-party to prove out the model's potential profit/cost before jumping in.

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Larry Negrich, Vice President, Marketing, nGage Labs

And of course implied in all this talk of "leadership position" is the belief that there is a real demand for QTO (quicker than overnight) delivery. But are people who need something "right away" because they waited until the last minute really a reliable market? Though I've been wrong before - it happened in 1971 and twice in 1986 - I have my doubts.

'notcom'

I hesitate to bet against Amazon, but another key point will be "expectation management." Living in metro DC, traffic varies dramatically, with mid-day "rush-hour" occurring on a more regular basis (especially in outlying suburbs). If the model is to use stores as warehouses and have runners like pizza drivers, this could work. However, when I want my TV from Best Buy in 60 minutes...remember the flack Dominos took for 30 minutes or free promos back in the day?

'Stanaggie'

We all have to watch Amazon.com. They are the "disrupters" of the industry. I'd also watch eBay. Same-day delivery service is already a reality. The question is how scalable it is. It is obvious that certain cities will struggle to have enough volume to support it at a reasonable cost.

Traditional retail chains that may not be quite big enough to support their own same day delivery network will have at least two choices; first is to sub out to a delivery company. Second will be to form a deliver co-op.

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Shep Hyken, Chief Amazement Officer, Shepard Presentations, LLC

I could not choose any of them. None of them have the depth of logistics FedEx or UPS will provide and when all is said and done, FedEx or UPS will acquire the best contender - which is why I could not go with Google or Amazon.

Not only the price of fuel is a problem, but the price of "dry ice" which is ignored in this conversation. Refrigeration or dry ice is not cheap and adds an extra layer of costs with no discussed strategy on how to absorb these costs.

I'm biased towards the order online, pickup at store approach as a disclaimer.

Ed Dunn, Founder, (Stealth Operation)

Having trialed all but one of these services (don't worry, Postmates, I'm signing up as soon as I post this), it's clear every one is looking for the "secret sauce" that will resonate with consumers most effectively. Each of the same-day services offers a slightly different take on the service offering, whether it's breadth of stores, speed of delivery, ability to select a very specific time-window, low-cost/no-cost delivery, fresh perishables, etc.

Many friends and colleagues in the densely-populated San Francisco Bay Area are raving about their favorite same-day service(s) and there doesn't seem to be a hands-on favorite among my very informal research sample.

Predictions:

* Same-day will likely take hold in densely populated areas over the next few years, and I don't believe it's something that needs to be available in low-density areas.

* Delivery of goods from locally-owned businesses would align nicely with current consumption trends this would be an easy fit with eBay Now and Google Shopping Express.

* Options for both perishable and non-perishable delivery would be a big advantage for the convenience-minded consumer. Lack of perishables delivery is the biggest complaint I've heard about Google Shopping Express.

* The demand for same-day will only continue to rise, and given the variation among the services, there is probably space for more than one provider as long as they can differentiate from one another on characteristics consumers desire (speed, breadth, perishables, etc.).

* This could be another opportunity for a resource-sharing service (a la car-sharing or ride-sharing). Perhaps a peer-sourced same-day delivery could emerge to fill this need (another job for TaskRabbit?), and may be better suited to medium density population centers, too.

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Oh, and I just have to say this: has the name "WebVan" popped into any else's head when reading/discussing this latest same-day delivery phenomenon? Were Louis Borders and George Shaheen 15 years ahead of their time? (I know they had other problems, but I'm just saying...).

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Lance Thornswood, VP/Managing Director, inRetail

Amazon is clearly the leader. This plays to their strengths and pushes their limits into new arenas. Walmart is another that is moving into these directions. However, the real question is, do consumers truly want this?

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Kai Clarke, CEO, American Retail Consultants

Although I agree that Google and Amazon are obvious choices as leaders in retail and delivery innovation, chain stores with significant nationwide coverage such as Walmart and Best Buy have significant advantages of their own. As we all know, Amazon and Google have the geographic limitations of their warehouse/shipping locations, whereas stores that already have a presence in most geographic markets will have the clear physical advantage to be able to get products to consumers faster. That said, the larger retail chains will have significant logistical, inventory and technology issues to address, which will be no small challenge.

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Alexander Rink, CEO, 360pi

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