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Will On-Demand Delivery Soon Run Out Of Gas?

by PYMNTS  /  With some in the industry predicting that on-demand delivery is unsustainable for many retailers, companies might still be assuming that they can neither afford to keep pace with the likes of Amazon nor stop trying. But a look into why, exactly, on-demand delivery might crumble under its own weight shows that the situation may not be that dire.

Thanks to Amazon (with that gratitude being doused in sarcasm by many — if not all — of its would-be competitors), the option for on-demand delivery has all but become intrinsic with consumers’ expectations regarding eCommerce.

But while the online retail giant has the means and the methodology to deliver, quite literally, on the very expectation it sowed into present-day culture, that is far from the case for many other merchants.

Faced with a veritable sink-or-swim proposition, however, retailers of all shapes and sizes have poured resources into attempts to build out logistics operations that are all about speed. And in the case of merchants that simply didn’t have the ability to create such offerings entirely in-house, the disconnect gave rise to a number of delivery startups that presented themselves as being able to meet the needs of now-now-now commerce.

While everyone was rushing (pun intended) to compete with each other to get products to customers as fast as possible, very few stopped to ask if such a race across the retail industry, in the long term, was sustainable.

According to some industry experts, the answer to that question is beginning to emerge unsolicited … and it might be a very firm “no.”

In his company’s recently released “State of Shiptech” predictions for 2016, Dick Metzler, chief marketing officer at online shipping marketplace uShip, remarked: “As [venture capital] funding dries up for tech, so too will on-demand delivery funding.

“In recent times,” he continued, “we have seen numerous delivery startups shutter their doors following the realization that VC funding could not prop up unsustainable business practices and lack of a true value [proposition] forever. That trend will continue and likely accelerate in the year ahead.”

What’s making so many on-demand delivery offerings unsustainable, Metzler elsewhere opined to Chain Store Age, is the lack of “route density” in many areas: i.e., if a region doesn’t contain enough consumers that are requesting (effectively) immediate delivery on a regular enough basis, it doesn’t make financial sense for a retailer — and/or a third-party delivery service if it contracts one — to offer it.

With the average cost to the retailer of $20 to $30 per on-demand delivery — an estimate that uShip CEO Matt Chasen shared with the outlet — having already driven a lot of quick-delivery startups out of business, there do remain some options for merchants to find their fulfillment needs met by companies that have previously established a foothold (or, perhaps more accurately, wheel-hold) in the transportation space. Uber, which this year has expanded its UberRUSH delivery service, is certainly a prime candidate in that regard.

Even if an online retailer can consistently scrape together the means necessary to stay afloat with — if not exactly run neck-and-neck alongside — the likes of Amazon in the area of expedited delivery, another question lingers: Does it have to?

In his “State of Shiptech” predictions, Metzler pointed to a survey from Forrester Research to illustrate that “just 29 percent of U.S. online shoppers said they’re interested in guaranteed same-day delivery — and that number is likely much smaller when you consider who is willing to pay for that same-day delivery.”

“In the long run,” he attests, “when given the decision to pay the premium or opt for free or cheap [second or next day delivery], the former will likely trump need for speed.”

A consumer’s capability for (relative) patience regarding delivery time might even be further enhanced if he is getting value not only for his delivery dollar but also for the actual goods that he is purchasing.

The eCommerce company that is arguably, at present, in the best position to compete with mighty Amazon, (although, mind you, the divide between the two remains substantial), has found success by applying that very philosophy. While putting its focus more on incentivizing consumers to save money by buying more items per order and less on getting those items to them in the same day (or even overnight), the online marketplace crossed the $1 billion revenue mark in its first year of business.

If the current trend continues and on-demand delivery becomes too much to bear for a majority portion of retailers, many of those companies might find that they can voluntarily step out of the rat race, as it were, and still turn a tidy profit.

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