If you haven’t been watching, you may be missing one of the most interesting and important battles in retailing and freight transportation – – – the clash to deliver shipments to consumers on the day they are ordered. Here is how the battle is shaping up.
At this point, the names of some of the key players are pretty familiar to most residents of North America. Amazon, Wal-Mart, Google, Target, FedEx, Walgreen, eBay and Best Buy are moving forward with same-day delivery services in the United States. In Canada, four major retail brands and Canada Post are launching a same-day delivery service for online orders in the Toronto area. The Delivered Tonight e-commerce service is a pilot project with Best Buy, Future Shop, Indigo and Wal-Mart.
For now, the strategy seems to be more about creating a customer expectation of same-day service than answering consumer demand. As Amazon has done before, it is working to create that demand with same-day shipping in 10 cities, while it also builds warehouses near major metro areas, paving the way for same-day delivery service on a much broader scale. Currently, Amazon is able to reach 15% of the market in America’s top 20 metropolitan areas. It is making a major to push to add warehouses close to these markets that would allow it to reach 50 percent of Americans.
Another feature of same-day delivery is convenience. The major retailers are testing various same-day delivery models. Wal-Mart is offering in-store, same-day pickup for online orders. Amazon is exploring the “pick-up” model as well with its new Amazon Lockers in convenience stores, grocery stores and drug stores in selected cities. eBay is testing an “eBay now” mobile app, available in San Francisco and New York City, that relies on couriers for same-day delivery of products ordered online from existing partner stores.
Back in 2005, Amazon introduced its expedited-shipping program, Prime, that provides two-day service for $79 a year plus $3.99 or more per order for same-day or one-day delivery; non-Prime Amazon customers pay $8.99 and up for same-day delivery. Wal-Mart charges $10 to deliver an online order from one of its 4700 stores within the day; eBay charges $5 for same-day delivery from retailers including Target, Walgreen and Best Buy.
To make a same-day service work takes a variety of assets and skill sets. For companies seeking to play on a national basis, there is a requirement for large, highly efficient warehouses. Amazon is now building warehouses significantly bigger than they did 4 or 5 years ago and they now hold twice as much product. They are also mastering the process of designing them and building them more quickly than in the past.
Three other attributes are market density, carrier management and technology. To make money, there have to be large numbers of consumers in the areas receiving the service. Anyone who has worked in the LTL or small parcel sectors knows how critical density is to profitability. Closely aligned with freight density is route and warehouse optimization technology. The products have to move to the warehouse door expeditiously and the trucks must take the shortest miles to minimize the cost of fuel.
The small parcel carriers are taking notice. FedEx has introduced SameDay service while UPS offers Express Critical service. Google Shopping Express is offering a similar service from local stores in the San Francisco area. Canada Post has launched a trial in Toronto. FedEx provides its same day service in all 50 US states.
It is very important for suppliers, wholesalers, retailers, carriers and consumers to see the “big picture.” Jeff Bezos at Amazon is not positioning his company just to take control of the same- day market; he is organizing his troops to take business away from retailers of all shapes sizes that don’t see what is happening. The plan is to replicate what was done to the music and books industry but on a much bigger scale. The intent is take business away from the local convenience and drug stores and from many other sectors. Here is how they will do it.
First, the big boys will give away the transportation. In other words, they will provide free delivery. They are pretty close to doing that right now.
Second, the consumer won’t have to go to the local store to buy milk, bread or toothpaste. They will order it through a mobile app the way we buy groceries today from grocerygateway.com. Why would you bother going to a local store to buy these items when you can have them delivered to your home or office within an hour?
Third, they will go “down and dirty” on price. Amazon is mastering the operation of its warehouses. It will save on “bricks and mortar” expenses since it won’t need handy stores, drug stores or any other type of stores. It will supply products directly from its strategically positioned warehouses. This will keep its real estate, supply chain and personnel costs low. This will enable it to keep its retail prices low.
It should be clear to all of us how various types of technology (e.g. smartphones, tablets, E-Commerce) have transformed various industries over the past 10 years. Same-day shipping will do the same thing. This is the time for all retailers to take stock of their capabilities and the changing dynamics of their marketplace, identify a business model that will work for their size and type of business and find those supply chain partners that will allow them to survive the next ten years.
To learn more about Retail Supply Chains: Future Trends for Retail and Consumer Packaged Goods End Users, come to the 2013 Surface Transportation Summit (www.surfacetransportationsummit.com) where this will be one of the featured tracks.
