strategy+business is published by PwC Strategy& Inc.
 
or, sign in with:
strategy and business
Published: July 1, 2000

 
 

The Last Mile to Nowhere: Flaws & Fallacies in Internet Home-Delivery Schemes

Entrenched Competitors

The biggest challenge to the local deliverers may be competition from both traditional package delivery services — notably the U.S. Postal Service and United Parcel Service Inc. (UPS) — as well as bricks-and-mortar retailers like grocery stores.

UPS and the U.S. Postal Service have the most to lose should local deliverers find a way to make a business out of same-day service. Today, 85 percent of catalog products are shipped via one of these two services; a little more than half of consumer catalog shipments go through the U.S. Postal Service alone. To date, business-to-consumer Internet commerce appears be falling to the same duopoly, albeit in reverse: UPS made 55 percent of online deliveries, according to Zona Research Inc., while the U.S. Postal Service garnered 32 percent. Federal Express Corporation retained the 10 percent share it also holds in the catalog world.

The U.S. Postal Service appears reasonably secure. Unless the federal government pursues the unlikely path of privatization, it retains the sole legal authority to place items in mailboxes, thus monopolizing the base business of mail delivery. Moreover, after investing more than $200 million in a delivery tracking and confirmation system for its Priority Mail product, the U.S. Postal Service has now closed the gap on a key issue limiting its competitiveness with UPS.

Whether the U.S. Postal Service can rise to the challenge of same-day delivery remains to be seen, but national mail services in other countries do so. The Royal Mail provides same-day delivery for Amazon.co.uk throughout London; orders received by noon typically reach the consumer before the end of the day.

UPS, for its part, faces more opportunity than threat from consumer Internet sales. Despite the ubiquitous presence of its brown trucks in suburbia, business-to-business (B2B) delivery still drives the company. Only about 10 percent of UPS's revenue comes from home delivery. Well aware of the upside, UPS has announced plans to provide complete logistics services, from warehousing to order fulfillment, to small- and medium-sized e-commerce startups through its UPS eLogistics business. In informal discussions with major e-tailers, UPS has also described a possible plan to provide aggregator services in 60 cities across the U.S. Both moves indicate a clear unwillingness to concede the last mile to the startups. With an existing infrastructure and the B2B base volume, UPS appears a formidable competitor — one well positioned to partner with category-killer e-tailers, instead of competing against them.

Existing bricks-and-mortar retailers also pose a major challenge to the local Internet deliverer, especially those using groceries as their base-load business. Leading grocery chains, like Lowe's Food Stores Inc. based in North Carolina, now offer online ordering with curbside pick-up at the local grocery store. 

The consumer gains the advantages of efficient 24/7 online ordering with no checkout lines, and the grocer avoids the high investment requirements of a home-delivery network. Nongrocery clicks-and-mortar players are also getting in on the game. In May, Barnes & Noble Inc. launched same-day delivery in Manhattan of books ordered online, matching the capability of Kozmo.com and Urbanfetch, and finally linking its physical stores and online presence, thereby leaping ahead of the still-virtual Amazon.com. You can expect more such announcements from category killers in coming months.

The rapid evolution and spread of wireless Web devices might further shift the balance back to the traditional players. A consumer could place an order using a handheld device for pick-up at the nearest store as determined by a Global Positioning Satellite signal. Imagine an out-of-town business traveler looking for a gift to take to her kids back home. Searching the Toys "R" Us Web site, she finds the perfect gift and places the order for curbside pick-up at the store most convenient on her route to the airport. In such a model, retailers with the greatest number of physical outlets could be the most advantaged. And though only 25 million users employ hand-held Web devices today, forecasts suggest a total as high as 1.5 billion in only five years.

 
 
 
 
Close
Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.

Close