Same-day delivery: Small niche or big disruption?
Last week, in an answer to a question from Morgan Stanley analyst Bill Greene, FedEx Corp. chairman-president-CEO-and founder Frederick W. Smith rejected the notion that crowd-sourced ride service Uber should frighten him.
“Well, there’s a great country and western song called 'I Was Country Before Country Was Cool.' We were Uber before Uber was there, in our Custom Critical,” Smith said. “So, Uber is a great company and a great concept. And I think where the shoe fits, there’s certainly some demand for moving a package across town in Uber or Lyft or the taxi services that have been in business for a long time have been able to do that, or some of the local same day businesses."
"But," he continued, "I think there’s just an urban mythology out there that the app somehow changes the basic cost input of the logistics business or changes the circadian patterns or the underlying business situation, and that’s just incorrect."
"So great company, great concept, but I don’t think it’s likely to be a major player in the logistics business.”
'Great company, great concept'
Smith gave props to Uber within his answer, but he clearly doesn't seem to think that Uber's getting into the delivery game — the company in late 2013 changed its tagline from from "Everyone's private driver" to "Where lifestyle meets logistics" — could be disruptive to his business.
And that’s funny coming from the guy who himself disrupted delivery in the early 1970s, Deliv founder-CEO Daphne Carmeli told Retail Dive.
“FedEx said ‘overnight,’ and everyone said it was crazy,” Carmeli said. “History has proven that if you offer something to someone at a comparable price but faster, they’ll take it.”
'It’s not the app'
Deliv partners with retailers and malls to provide same-day delivery. Drivers use their own cars and make their own hours, much like those who drive for Uber or Lyft. But, unlike Uber or Lyft, Deliv is simply a shipping option that customers see after they place their orders, along with standard delivery, overnight, or pick-up. While customers can use its app to track a package, they’re not the ones employing Deliv — retailers are.
“Fred Smith said an app is not going to change the logistics, but he’s looking at the wrong end of the app,” Carmeli said. “It’s not simply the app. It’s what the app is accessing and what the app is enabling. What he’s ignoring is a fundamental change in the supply chain. It’s not the app!”
In his answer to Morgan Stanley, Smith also dismissed same-day delivery as a niche market.
“So, the demand for moving things same day or from one point to another as fast as possible in the goods moving business is a much smaller market than the business of moving things that are processed during the day, boxed and shipped on the circadian pattern that we all live by,” Smith said. “You know, go to work at eight, come home at five. A huge part of the e-commerce marketplace, for instance, are orders that are processed after 8:00 p.m. in the evening until midnight.”
Indeed, a 2013 survey by The Boston Consulting Group found that free and low-cost delivery is more important to consumers than same-day delivery of online orders and that a mere 9% said same-day delivery would improve their online retail experience.
But Carmeli again says that this is looking at things from the wrong angle. “More important than speed is predictability,” Carmeli says. “The real value proposition of same day is predictability and flexibility.”
Retailers that offer same-day delivery, like pick-up in store and other options, are making it more convenient to shop at their sites or in their stores. Deliv helps them make that happen at a good price.
For retailers, Carmeli says, shipping has become a way to please customers, not simply a cog in the supply chain. “Another thing that Amazon has done is pushed the notion that shipping is a marketing expense,” she said.
Where the disruption is
And that's where the disruption is. As retailers have melded their e-commerce and brick-and-mortar operations, logistics and supply-chain shakeups have followed. They’re increasingly using stores as mini-warehouses, allowing faster movement of inventory and the blurred lines between channels. Any retailer going down that road is a ripe customer for Deliv.
“Retailers are moving their inventory closer,” Carmeli says. “It’s happening, it’s here. The expectation is changing. It’s not the app, but the business model it enables. I believe that stores are the distribution points of the future.”
The problem for FedEx, she says, is that at retailers where Deliv operates, same-day delivery is cheaper than next-day delivery. “Now the disrupter is getting disrupted and they don’t like it,” she said.
Where the future is
It may be true that Fred Smith is being clueless about the disruption lurking in the startups like Uber and Deliv, or even Amazon, that are gunning for chunks of its business, at never-before-seen prices to consumers. But it’s not like it’s all over.
It’s hard to know how long crowd-sourcing will work. The model depends on on-demand workers who can sign up for work as last-minute, drive their own cars, are willing to work for an indeterminate “up to” $22 per hour, and will likely not hang on to the “side hustle” for long.
Right now, Carmeli is fine with these limitations. She loves the idea that drivers make their own hours and are free to take or leave the work as they please. She believes that as drivers stop working for Deliv, others will sign up because it's all a win-win. She owns no cars, employs no drivers.
It's worth noting that other on-demand services say similar things about the happiness of their workers. Uber even published a study purporting to demonstrate how happy its drivers are; many Uber drivers beg to differ.
There may come a time, though, when a more permanent workforce is needed, at least as a core and at least in some markets. If the economy improves enough, fewer people may be satisfied with these kinds of in-between jobs.
FedEx itself, in its FedEx Ground division, has learned that there can be real legal problems when a company begins to demand too much from its contract workers.
Finally, FedEx and UPS are logistics companies, not simply delivery companies. It may be that its delivery services will have to adapt to the disruptions that are currently being honed by the likes of Deliv, by lowering prices or abandoning certain levels of service. But there are a host of other logistics that FedEx provides that so far Uber, Deliv, Amazon, or others don’t much seem interested in.
Or maybe Smith's answers weren't clueless at all, but the result of a hard look at these matters. It's hard to know. In answer to Retail Dive's questions, FedEx re-sent the question and answer from last week's conference call. That's how things are now; it will be interesting to see how Fred Smith answers the same question in future.
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