Delivery of just about everything is exploding, and new app-based technology certainly does make it a lot easier to receive just about anything at your door, in what literally may be a life saver in this pandemic-focused lockdown.
However, fast and easy does not a business model make, and the fact is adding delivery still costs money, and someone has to pay. For some high-ticket items, this makes sense; for others it does not, and as long as delivery depends on flesh and blood drivers, financial reality sooner or later has to set in, just as it has in bygone days.
I thank Mike Antich of Automotive Fleet Magazine for his September 2020 editorial, “Are Vocational Fleets Futureproof?” It reminded us that one of the largest commercial fleets from the late 1940s to the early 1960s was for milk/dairy delivery.
While this may be shocking news to some who think Silicon Valley invented the concept of food delivery, dairy trucks were purpose built, with “the reputation of employing cutting edge technology,” such as refrigeration and yes, even electric models. “By 1967, England had the largest electric fleet in the world, with the lion’s share of the segment comprised of EV milk delivery vehicles.”
What happened here may be a harbinger of things to come in the booming delivery business, clearly instigated, outside of dense cities at least, by COVID-19 social distancing.
In the 1960s, with the advent of suburban sprawl, geographic coverage dramatically increased and costs rose as trucks were forced to go longer distances, milkmen had to raise prices and, with supermarkets and increased home refrigeration and personal vehicle ownership, it became far cheaper and convenient for households to buy milk at the supermarket. Today, there is virtually no dairy home delivery (except with the recent push for all-grocery deliveries).
Clearly, the “home delivery of everything” growth, in part, is due to the COVID-19 scare and rightly so. But when the pandemic passes, is this growth curve, and even delivery itself of a lot of products outside densely packed cities, sustainable?
Look past the hype, and certain trends dictate that even with an app, the cost/benefit of delivery, absent self-driving delivery vehicles or drones, is in question.
For example, many restaurants, such as Chipotle, reeled in record sales, up 14% last year, yet profits fell 19% partly due to delivery costs – Chipotle says the delivery fees it charges don’t fully cover commissions it pays to DoorDash, Grubhub and other partners, and would much rather you pick up your takeout order instead.
At the same time, delivery costs are even harder on the consumer. A recent Wall Street Journal article, “Food-Delivery Fees Can Eat at Your Wallet” (Dec. 21, 2020), pointed out that in many cases, delivery fees can more than double the cost of the food itself – for example, a double ShackBurger from Shake Shack in San Francisco that costs $8.99 costs you $18.91 delivered!
While delivered grocery markups to the consumer, as outlined in the article, aren’t quite as bad, it seems like the 10% or so fee the delivery companies charge to supermarkets are not sustainable as well.
I note another recent article in the Wall Street Journal (Dec. 28, 2020), “Instacart Looked like a Savior. Now Stores Aren’t So Sure.” Grocery chains are chafing at these fees, though the expansion of delivery is necessary during the pandemic – but after we get past these times, again, is this sustainable?
What about the delivery drivers? They are complaining worldwide that they cannot make enough money to survive on the fees kicked back from the delivery app operators, who themselves have been losing money.
So the reality is, home delivery for many items such as prepared food and groceries are costing everyone more money, and everyone is losing: the merchant, the delivery company, the driver and, most importantly, the consumer, who quite willingly is paying more now, given the inherent health risks in alternatives.
But when the sun comes out and we are under a pandemic threat no longer, will this delivery growth continue? The probabilities seem to be against it.
Ecosystems that cost more for everyone, even with economies of scale or the use of an app, tend
to fade away. When was the last time you saw a milk truck? I’d make sure you had a vehicle or two in the garage.
John F. Possumato (pictured above, left) is an attorney and the founder of DriveItAway, which creates platforms and applications enabling automotive retailers to offer new app-enabled mobility options, including remote rental and rent-to-purchase.