February 29, 2016
UPS is studying same-day delivery
The United Parcel Service (UPS) last week led an investment round of $28 million into Deliv, the delivery start-up, in part to learn more about the same-day model.
UPS will take a minority stake and gain a board seat in Deliv. The delivery giant was joined by existing investors including Upfront Ventures, RPM Ventures and mall operators General Growth Properties and Simon Property Group.
Deliv picks up items at retailers’ doors and delivers them to nearby customers for a fee of around $5.00. The charge is typically passed on to consumers. Operating in 100 U.S. cities on behalf of 4,000 partners, including Macy’s, Best Buy, Kohl’s and Walgreens, Deliv grew delivery volume by 10 times in 2015 and “demonstrated repeatable profitability.” This latest investment round brought the four-year-old company’s total funding to $40.5 million.
In a statement, Daphne Carmeli, Deliv’s CEO, called UPS’s investment a “strong vote of confidence” that will help the company “rapidly scale and further advance our position in the fast growing, multibillion dollar same-day delivery market.”
Amazon, the U.S. Postal Service and dozens of other startups are also marketing same-day delivery.
The investment was made by UPS Strategic Enterprise Fund, UPS’s venture arm that has invested in other ancillary industries in the past to learn about them. UPS intends to explore the on-demand economy and Deliv’s business model, which uses contract drivers to keep insurance, health care and other costs in check. The practice of bundling orders, delivering at set times and high volume are also seen as critical to profitability. Deliv’s software, which is integrated into the retailer’s online checkout system, will be of particular interest to UPS.
UPS also hopes to see how much consumers are willing to pay for same-day and whether the opportunity is limited to dense cities.
- Deliv Raises $28 Million in Series B Funding – Deliv/UPS
- Why UPS Invested In A Same-Day Delivery Startup – Fortune
- Same-Day Delivery Startup Deliv Gets Funding Boost From UPS – Wall Street Journal
- With Deliv investment, UPS hopes to study same-day delivery market – Reuters
Photo: Deliv
Discussion Questions
DISCUSSION QUESTIONS: Does it make sense for UPS as well as FedEx to get into same-day delivery? How widespread is the opportunity to serve customers in this way?
Poll
BrainTrust
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Recent Discussions
More Discussions
Has Kroger Discovered the Limits of Automated Warehouses?
Kroger is winding down its relationship with Ocado, citing cost overruns and a reorganization of its…What Can Ross Do To Cement its Recent Success Story?
Ross has seen strong sales and projects this trend to continue. How can it best cement…Is Cyber Week Set To Smash Sales Records This Year, as Salesforce Suggests?
Salesforce suggests that Cyber Week will set records in terms of sales this year. Is this…
Given the number of vehicles they have on the road everyday, it makes all the sense in the world for UPS and FedEx to grow their companies with same-day delivery. I would think they could start in major cities first and then see how that works for them. I do not think they could do it for $5 so it may be only for the must-have items.
In what seems like a millennium ago, I would be satisfied if I ordered something online and got it in a week. Then three or four days become the norm and expectation. Now, if it isn’t two days, there must be something wrong with the company and overnight becomes my expectation.
The last threshold for going to a retail store is the “I want it now” mindset. The natural response to that customers desire is simple — give it to them now without making them leave their home or office. At least in cities, more than same-day being the norm, it will be the expectation. Five bucks and I can have it now. That is a no brainier.
It is is interesting how today’s disruptors are now disrupting the original disruptors like FedEx and even UPS.
Whether it is Instacart, Deliv, DropIt or some form of Uber, there is a race to complete the last mile and see who can be the quickest. The established players will have no choice but to develop some local same-day delivery options as they become the “standard.”
The most important race beginning right now will be to see who can be profitable.
In a rapidly-changing retail environment with an ever-increasing demand for immediacy, this latest move and investment by UPS is indeed prudent. Same-day delivery will likely become a consumer expectation in the not-too-distant future and this affords UPS the ability to learn about the process with this investment and consider broader-scale deployment. Although the opportunity to serve customers in this way is in its infancy, it is growing up very quickly.
It makes sense for UPS to gain information without making a full commitment to same-day delivery. With so many companies experimenting with same-day delivery, at least one will come out on top, and UPS wants to take a relatively inexpensive seat at the table.
Baby Boomers with expanding mobility limits and working urban dwellers with limited free time will push the demand to levels lifting the same-day delivery service to profitable. UPS and FedEx have the challenge of getting vendors to share the expense in terms of limiting the surcharges or Amazon will run away with the lion’s share of the business. Someone should look into buying Uber and expanding that business for the same-day delivery business opportunities.
Same-day delivery points towards tighter integration into the fulfillment channel. This seems like the natural next step as e-commerce keeps trying to chip away at the product presence advantage of brick-and-mortar.
A bird in hand is worth 10 failed delivery attempts.
Whether this is going to be widespread remains to be seen. Changing the ingrained patterns of consumers who are conditioned to “run to the store for some sugar” into “let me order that online and it will be here within X hours” is a very heavy lift.
Having control over your destiny is a huge piece of the puzzle and may be the crucial flaw that kills off interest in same-day delivery. Even if it takes me two hours to get in the car, go to the store, get the sugar, pay and drive home, at the end of that two hours I have sugar in hand.
Does it makes sense for delivery companies to explore ways to learn about and/or get into the same-day delivery business? The simple answer is yes.
My question is, what happens if it is decided that these forms of contractors are determined to be employees? If that occurs then much, if not all, of the cost savings associated with this business model goes away.
Yes, UPS and FedEx will jump into this with all four wheels. But this seems like a natural partnership for Uber. They have the vehicles on the road already.
The opportunity is niche at best and targeted in dense urban environments. The investment is basically market research for UPS.
If consumers want the service and are willing to pay for it UPS and FedEx need to protect their brand and their position in the marketplace by understanding the competition and seeing how they can play in the marketplace.
My own belief — gloriously unsupported except by my own biases and pre-conceptions — is that “same-day” is a fad. Really, does anyone truly need something from Kohl’s so badly that they can’t wait a day or two? Or at the very least there is a limited market for this. And the cryptic way they described its profitability (“demonstrated repeatable”) makes me question that too. At any rate, $28 million seems steep for tuition to “learn about” something.
There is an opportunity for same-day delivery. The real question is, how big is this market and can it profitably support anything more than a limited exposure in just large cities? This appears to be a limited market, however exploring the systems and processes which are used to improve rapid response would benefit any carrier, which is why it makes sense for UPS and FedEx to explore it more.
I know I would personally love same-day delivery on everything I purchase online. There are some logistics involved to get this right, but if UPS can pull this off they could dominate the space.