Same day delivery

Copyright © 2014, Business Insider, Inc. All rights reserved. [email protected]



Same-Day Delivery And The Last
Mile: Penetration And Revenue
Growth Forecasts, Key Markets,
And Major Barriers

Cooper Smith | September 18, 2014

BII E-Commerce




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Copyright © 2014, Business Insider, Inc. All rights reserved. [email protected]


Same-Day Delivery And The Last
Mile: Penetration And Revenue
Growth Forecasts, Key Markets,
And Major Barriers

Cooper Smith | September 18, 2014

Key Points
 Same-day delivery is a likely source of e-commerce sales and
revenue growth: Offering shoppers quick gratification means
capturing online sales that might otherwise go to local offline stores. The
potential is there: Four in 10 US shoppers said they would use same-day
delivery if they didn't have time to go to the store.
 Consumers are beginning to use same-day delivery and expect
it as an option. We estimate that 2% of shoppers living in cities where
same-day delivery is offered have used such services, which equates to
roughly 800,000 consumers. In dollar terms, we estimate that roughly
$1oo million worth of merchandise will be delivered via same-day
fulfillment this year in 20 US cities. This figure will grow at a five-year
compound annual growth rate (CAGR) of 154%, surpassing $4 billion in
2018.
In a survey, one in four shoppers said they would consider
abandoning an online shopping cart if same-day delivery was not an
option.



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 Deep-pocketed tech companies and startups — including
Amazon, Google, eBay, and Uber — are competing fiercely over
same-day delivery with prices wars and super-fast
fulfillment. Traditional retailers such as Wal-Mart are also launching
similar services. Consolidation is inevitable. In New York City, for
example, there are at least five same-day delivery services to choose from.
 Millennials (those aged 18-36) are the core demographic for
same-day delivery services. Consumers of same-day delivery
services tend to be men, live in urban areas, and earn above-
average incomes. Based on these characteristics, we've identified
Washington D.C., San Francisco, San Jose, and New York City as the
markets with the largest demand for same-day delivery services.
 Same-day delivery services address very specific shopping
needs that can't be offered easily by offline shops. The most
common purchases that people make using same-day delivery are gifts
and heavy or bulky products. People are also willing to pay more of a
premium to have those products delivered the same day. For many goods,
same-day delivery isn't going to be attractive: 92% of consumers say they
are willing to wait four days or longer for their e-commerce packages to
arrive.



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Click here to download all the charts and data associated with this report in
Excel >>




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Sizing The Same-Day Delivery Market
Until now, one of the biggest advantages that brick-and-mortar retailers still had
over e-commerce companies was immediacy. Historically, if consumers wanted
to purchase something and have it right away, they had to go to a store. But now
that advantage is crumbling. Companies like Google, Amazon, eBay, and
Uber are operating and expanding services that allow shoppers to order
something online and have it that same day without ever needing to leave home.
If they manage it, despite the expense and complexities involved in delivering
over the "last mile," they will connect more deeply with their
customers, and grow e-commerce's customer base (as well as its share of retail
dollars).
 USER BASE: We estimate that 2% of shoppers living in cities where
same-day delivery is available will use such these services this year, which
equates to roughly 800,000 same-day delivery users in the US.
 MARKET SIZE: In dollar terms, we estimate that roughly $100 million
worth of merchandise will be delivered same-day this year, but that this
will grow at a five-year compound annual growth rate (CAGR) of 154%,
surpassing $4 billion in 2018. (See chart above.)
We calculated these numbers and the forecast using population and age data
from the US Census, and then identifying the cities where same-day delivery
services are most likely to succeed. We factored in assumptions such as the
average number of same-day orders per year, the average order value of those
purchases, and the average delivery fee.
Until now, the cost and complexity of same-day delivery has largely protected
brick-and-mortar retailers from companies that attempt to offer such services,
but the world has changed since the days of notable e-commerce delivery
failures Kozmo and Webvan from the 1990s. The ubiquity of smartphones,
tablets, and PCs has conditioned consumers to expect instant gratification with



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the touch of a finger. For those who regularly shop online, going into a store to
make a purchase is starting to seem more and more antiquated.
Every month, e-commerce increases its share of total retail spending, and this
trend is showing no sign of slowing down. By offering same-day delivery on
purchases, e-commerce is offering a different kind of service and picking off
another type of retail purchase from in-store retailers — products that people
need immediately.
In this report, we size the same-day delivery market in the US by gauging
consumer interest in such services as well as by analyzing the types of things that
people order to have delivered the same day. We take a close look at who the
customer for same-day delivery is, and identify the markets where that
consumer demographic is most prevalent. Finally, we'll outline the key players
offering same-day delivery and breakdown their services by cost, delivery time,
service, and selection.




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Why People Use Same-Day Delivery
Same-day delivery services address specific shopping needs. Same-day delivery
orders are more about necessity than convenience — although for some types of
purchases that's important too.

 The top reason people select same-day delivery is time
constraint. More than 50% of US consumers said it's because they need
a last-minute gift, and more than 40% said it's because they don't have
time to go to the store, according to Boston Consulting Group.
 Same-day delivery is important to gift shoppers: More than 40%
of consumers said they would abandon an online shopping cart if they
couldn't have gifts or flowers delivered the same day, according to a 2013
Bizrate survey.
 Convenience is still a significant reason people use same-day
delivery. Thirty percent of consumers said they would select the option



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if they didn't want to go to a store. Additionally, 25% say they'd use it
because they are excited about a newly released product.
 Bulky products not easily carried home from a store are
popular for same-day: As for what are products consumers are most
likely to be willing to have delivered the same day, nearly 60% of US
consumers said they would be willing to pay more than $10 to have
furniture delivered the same day. Large appliances came in a close
second. These results indicate there are certain types of orders where
convenience outweighs the added cost of quick delivery.





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On the flip side, consumers said they would pay the least amount of money to
have small items like books, beauty products, and office supplies delivered the
same day.






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The Top Demographics And Markets For
Same-Day Delivery
Without a doubt, the market for those willing to pay for same-day delivery —
those for whom the convenience merits the price — is relatively narrow. There is
a direct correlation between a consumer's age and whether they would use same-
day delivery services.

Younger people are more likely to take advantage of this shopping perk, and that
bodes well for the future outlook for these services.
 One in four millennials (people aged 18-36) said they would
pay a premium for same-day delivery. Considering how delivery
fees are the most logical way for same-day services to stay in business
over the long term, retailers offering same-day delivery services should
focus on targeting customers willing to front the cost.



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 E-commerce retailers would do especially well offering same-
day delivery to millennials earning a high income. Affluent
millennials — those who earn $150,000 or more a year — are 10
percentage points more likely to use these services than the average
American consumer, according to Boston Consulting Group.
 Only 13% of Gen Xers (aged 37-48) would pay a premium, while
fewer than 10% of baby boomers (49-67), and only 1% of matures (68 and
older) say they would.
 Men are also more likely to use same-day delivery than
women, 17% versus 11%, according to a Harris Interactive survey.
 And one in five urban dwellers said they'd pay a premium for
such services, which is a greater share than for suburban and rural
areas.

Based on who is a top same-day delivery consumer, we can determine those
cities that are the best markets for same-day delivery.



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Washington, D.C., and San Francisco have the highest concentration of
millennials who earn six figures or more annually, among cities popular with
millennials, according to data from Nielsen.
But same-day delivery services will be most scalable in areas with a high degree
of density. We analyzed US Census data to identify the cities where there is the
greatest concentration of consumers who would pay for same-day delivery.

Among the 10 most populous US cities, New York has, by far, the greatest
number of same-day delivery-minded customers per square mile. (See chart,
below.)
We calculated this by looking at the percentage of people in each age group in
the Harris study who said they would pay for same-day delivery and applied that
to US census data on the percentage of people from each demographic group in
each of these cities.



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 Crunching the numbers, we find that nearly 2,000 people per square mile
in New York would be potential same-day delivery customers.
 That's followed by Chicago with just over 1,300 people per square who
are the most likely to pay for same-day delivery. Philadelphia is in third
place.

Taking an expanded view of the best market for same-day delivery, we looked at
the data through another lens: the relationship between population density and
concentration of millennials in various cities, including the 10 most populated
cities, some of the densest cities that aren't among the most populous, and some
smaller cities notable for their concentration of high-income professionals. (See
chart, below.)
Boston, Austin, Seattle, and San Francisco are all promising markets
for scaling same-day delivery services. Each of those metro areas has
disproportionately high concentrations of residents who fall under the
millennial age category. And in the cases of Austin and Seattle, these are two



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cities whose lack of density is offset by its concentration of high-income
residents. Even a city like Stamford, Connecticut, might have a surprisingly large
appetite for same-day delivery services because of its combination of high-
income and millennial residents.

It's worth noting that residents in densely populated cities are also likely to place
a higher value on having large bulky items delivered for them, according to the
Boston Consulting Group study, and these happen to be many of the same items
that people are most likely to be willing to pay extra to get the same day.
In cities like New York, it can be extremely inconvenient to transport large or
bulky items on the subway or up flights of stairs. And if you're going to pay to
have those items delivered anyway — and often at a cost — there's a much
greater incentive to pay just a little bit more to get that item the same day.




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Barriers To Same-Day Delivery
Despite all the excitement around same-day delivery, there's a reason same-day
delivery didn't work in the 1990s and why it's only becoming more widely
available now. The cost and complexity of same-day delivery have made the
service hard to scale. Fulfillment and logistics costs are high and quickly eat into
profit margins. This is why businesses offering same-day delivery services are so
focused on dense urban markets.
The other problem is infrequency of demand. As we said, same-day
delivery services address specific shopping needs. Even if 18% of American
consumers overall say they are willing to pay for same-day delivery that doesn't
mean they will do so very often. For the average purchase, the bulk of online
shoppers are surprisingly patient when it comes to waiting for their orders to
arrive. Ninety-two percent of US consumers say they are typically willing to wait
four days or longer for their online purchase to arrive, according to the United
Parcel Service.




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This will keep same-day delivery services confined primarily to items where
convenience is key — a gift for a party that day or a bed that the buyer wants to
sleep in the same day he or she moves into a new apartment.
In addition, even if shoppers are willing to pay extra for same-day
delivery, they're not willing to pay much. There are few instances when a
consumer would pay more than $5 for same-day shipping.
Though we noted earlier that there are a few product categories that consumers
are willing to pay $10 or more to have the same day, Boston Consulting Group
found there are still 12 categories out of 17 for which the majority of consumers
said they would not pay more than $5 for same-day delivery. This is a problem
for same-day services like WunWun and UberRush, both of which charge more
than $5 for each order.
These issues already seem to have forced eBay to scale back its eBay Now same-
day delivery service. The service failed to expand to 25 US cities in early 2014 as
the company said it would. "We are focused on supporting eBay Now in its
current markets [San Francisco, San Jose, New York, Chicago, Dallas], and we
are not announcing any market expansions at this time," an eBay representative
said.
Companies like eBay might eventually settle on a model where they
push same-day delivery during peak shopping times. "I think around
holiday time the service becomes pretty popular and useful," said a former eBay
employee who spoke with VentureBeat. "[O]utside of that, they don't have
enough orders on a consistent daily basis to keep it alive."





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Companies Leading The Charge Into Same-Day
Delivery Services
The obstacles to same-day delivery still have not stopped top tech companies
like Google, Amazon, and eBay from building out their services, even if in the
case of eBay the pace of expansion has not been as fast as anticipated. At the
same time, newer entrants like Uber, Postmates, and WunWun are leveraging
the peer-to-peer economy to connect convenience-seeking shoppers with people
willing to earn some money by picking up and delivering goods.
These services operate under a different model, in different markets, at varying
costs, and with a very different set of product selection. Each is looking to tweak
its business model to make same-day delivery efficient and cost-effective enough
that more consumers sign on. Not all of these businesses will survive, but for
now, each offers a different value proposition to consumers, and a different set
of incentives for ditching the in-store experience.
 Amazon Local offers same-day delivery in 13 cities for about $9 per
order plus $1 per item (it's cheaper for Prime members) and offers
customers a large selection of goods from its online local store.
 Google Shopping Express, on the other hand, operates in five cities,
charges a flat fee of about $5 per order, and lets people select items from
local retailers.
 In the case of Uber, operating in Washington, D.C., there's no flat fee
but items are marked up and selection is limited to just over 100
pharmacy-type items for now.
 WunWun operates in New York, charges $10 per order and will pick up
anything from local stores. Postmates works similarly for $5 per order.
 Wal-Mart has same-day delivery in certain markets and for specific
store locations. Target has a similar program.




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Here's a close look at how the top same-day delivery services stack up:

While these services may take a long time to turn profitable — if they ever do —
they achieve more than just adding a new revenue stream to companies' bottom
lines. In the case of Amazon, they provide another way to wean customers off of
brick-and-mortar shopping and make buying online an even more ingrained
behavior. For Google, which reportedly just made a $500 million investment in
Google Shopping Express, it's a strategy that will help the company win back
search market share in the online shopping category, which it has lost to
Amazon. Google's objective to win back search market share is why it's
partnering with local retailers, rather than competing against them.





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What’s Next For Same-Day Delivery
Even as these companies tweak their same-day delivery business models, the
most promising development in making same-day deliveries commonplace still
hasn't debuted yet commercially — drone technology. Amazon and Google are
both developing drones that can deliver packages to shoppers in 30 minutes or
less. Some of these unmanned couriers can travel over 50 miles per hour while
carrying five-pound payloads, which account for 86% of products sold on
Amazon.
Both Amazon and Google have had to take their drone-testing programs abroad
for now, since the Federal Aviation Administration forbids the commercial use
of unmanned flying vehicles in the US. But tech giants will continue pressing
regulators to approve delivery drones, arguing that the technology will vastly
improve the lives of consumers. Unmanned aerial vehicles (UAVs) will likely
take to the skies for limited commercial flight tests as early as next year, after
which drone delivery could gradually become viable.
Once drones do hit the skies, companies like Amazon and Google may be able to
deliver almost anything the same day — and likely at a fraction of today's costs.
The convenience of instant gratification without the added delivery costs would
create a tremendous incentive to shop online.






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THE BOTTOM LINE
 Same-day delivery is a likely source of e-commerce sales and
revenue growth: Offering shoppers quick gratification means
capturing online sales that might otherwise go to local offline stores.
 Consumers are beginning to use same-day delivery and expect
it as an option. In dollar terms, we estimate that roughly $1oo million
worth of merchandise will be delivered via same-day fulfillment this year
in 20 US cities. This figure will grow at a five-year compound annual
growth rate (CAGR) of 154%, surpassing $4 billion in 2018.
 Deep-pocketed tech companies and startups — including
Amazon, Google, eBay, and Uber — are competing fiercely over
same-day delivery with prices wars and super-fast
fulfillment. Consolidation is inevitable.
 Millennials (people aged 18-36) are the core demographic for
same-day delivery services. Consumers of same-day delivery
services tend to be men, live in urban areas, and earn above-
average incomes.
 Same-day delivery services address specific shopping
needs. The most common purchases that people make using same-day
delivery are gifts as well as heavy or bulky products.



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