Delivery Startups Are Back Like It’s 1999
nytimes.com
nytimes.com
So is this what is happening in the SF startup world then? You get funding, get absolutely huge by selling your product at massive loss, bleeding money out with every product/service sold, and then show to investors how much you grew -> proceed to get more money? Is that it?
In India, the following lower caste laborers have been doing business with their mobile phones for at least a decade:
* Laundry/Dry cleaners
* Drivers
* Grocery Delivery
* Home cleaning
These folks have been doing the same work for a long time, and as cell phones got cheap in India they just started using them. Their standard of living may have gotten better, but their social standing really has not.
In my occasional travels to SF, I am starting to see a similar caste system emerge. And it's pretty depressing.
You're not going to see a Tenderloin drug addict or one of the Mexican day laborers waiting outside Home Depot make their fortune here. Nor will you see someone like Kevin Rose reduced to working at Burger King, however much value he destroys.
Your original comment was very much on the mark.
That's pretty significant. In a small town in Minnesota, people won't follow that path because it would be completely outside their experience. Not so here.
No, the worst case is that Rewinery took out your favorite mom and pop shops and now you have to go to walmart to get your second favorite wines.
Somebody orders their favourite wine from Rewinery. That wine is, by your own admission, not available at Walmart. But the wine still gets delivered, right? So somebody, somewhere, went to a store and bought that bottle of wine. If they're not getting it from the mom and pop shops, where are they getting it? Surely Rewinery isn't stockpiling bottles of wine from wineries all over the country, just waiting to deliver them.
So there clearly must be some store, somewhere, which is getting a lot of business because couriers from Rewinery keep on buying wine there. Right? It may not be a mom and pop store, but it assuredly has the selection that the deliveree is looking for, otherwise Rewinery wouldn't be offering his wine. So there must exist someplace close by where he can buy his favourite wine, even after Rewinery shuts down.
I think you're confusing online retailers with courier delivery services; you can argue that Amazon drove Borders out of business, but if I'm paying somebody to drive to Barnes and Noble to get some books and bring them to me, it's hard to see how my use of that service will lead to Barnes and Nobel losing business.
Rewinery is the same with respect to mom & pop shops. They both order from the same distributors by the caseload and pay wholesale prices. Those cases of wine get delivered to each of them by the distributor and they, in turn, each maintain their own inventory, whether on luxury handcarved hardwood shelving in a mom and pop's retail store or scattered on concrete floors in a warehouse for delivery to the consumer by truck. The distributors don't care if the mom & pop goes out of business because their other customer, Rewinery, is ordering just as much.
In other words: the revenue up-and-to-the-right graph (the fetish of the moment) is misleading. There's a broad class of crappy businesses that can easily generate revenue, but will never be able to generate profit.
We're back to the 1999 strategy of giving away dollars for 95 cents, and making up the difference on volume.
1) Increased pool of unskilled labor-- manufacturing industry tanked, increased immigration.
2) Proliferation of internet connected, smartphones.
3) Avoiding obvious mistakes: no free deliveries for a bottle of coke, like in webvan days.
4) Doing direct store to consumer deliveries, avoiding warehouses, getting 20-25% cut from retailers (who see this as savings in marketing cost and reduced in-store staff cost)
That being said I think the ones that will be most successful will put the burden of service and delivery on a 3rd party.
Go Giants!
If I could miraculously solve a TSP in linear time, that would be an amazing accomplishment. But what good does it do you if the fixed costs of loading and unloading at each node are in the 5 minute range? That limits you to a hard max of 12 deliveries per cycle with the quoted 1-hour cycle time. At that N, even a shitty algorithm with off-the-shelf heuristics would suffice.
Furthermore, logistics is far more complicated than just transportation; It heavily depends on sortation. If I have someone shopping for 1 person, there is no sortation problem. As soon as I tell that shopper to pick for 2 orders, I introduce a sortation problem, as those two orders need to be kept separate. And the sortation problem becomes a distribution problem: Do I have the shopper pick a list of items and then later sort them into orders? Do I have the shopper pick into different baskets on the same trip? Do I send the shopper on different trips for different orders? Distribution tradeoffs absolutely matter...distribution affects the level at which an atomic sortation action takes place. With wildly different costs for different types of sortation actions, ignoring this potential for optimization could be deadly.
They don't seem to have learned much about economics either. When considering the costs of making a delivery, you can be assured that the variable cost components is weight/volume/highway-distance, and the fixed costs represent the cost of the last mile. Using this simple rule, you can extrapolate (or interprolate) the costs of a given amount of market share. To appoximate the fixed costs of delivery, get the cost of sending a tiny item to your neighbor. For example, sending a postcard via US Mail (with US Mail representing an approximate 99.9% market share and delivery density) costs you $0.34. To do the same with UPS, you are typically running into the $2.00 range. UPS has a much lower market share (delivering to maybe 5% of all addresses in a given delivery day). And UPS has $50B in revenue! To make matters worse, these companies (at least instacart) are promising one-hour deliveries. This means that the delivery vehicle physically cannot contain all of the items of two orders where one is placed at 0600 and an order placed at 0700. The implications of this are huge. If UPS switched to this model, sending out a new truck every hour, you can rest assured that the $1-2 last mile cost would balloon to the $20 range, because you have now reduced their delivery density proportional to the number of trucks you have to send out. The costs of the last mile of delivery are so dominant that they are the reason why fixed-price postage works as a pricing method! If you need 100% market share to reduce your last mile delivery costs to $0.34, and 5% market share to reduce it to $2.00, where does that leave Instacart? They are away from UPS size by several orders of magnitude, and they promise hourly deliveries on top of it! They have the right philosophy (growth matters), but that is a bit like saying that if I keep building my sand castle, I can eventually reach the moon.
In my opinion, Instacart is DOA. Hopefully, the next time this trend pops up, they'll hire some experienced OR professionals from the very beginning.
EDIT: The discounts come from the cost savings stores will see from delivery companies, to clarify to people commenting margins are not that high in grocery business.
1) These delivery services are become sales and marketing channel for stores.
2) Cut down time it takes for cash register scanning each product and bagging them, pick up guys do that for stores.
3) Bulk pickups-- e.g., if I can have delivery company gather milk directly from back store, my store staff does not have to spend time replenishing the shelves.
> "The average profit margin for grocery stores is 1.3 percent" says Jeff Cohen, a grocery industry analyst with IBIS World.
-- http://www.marketplace.org/topics/business/groceries-low-mar...
[1] http://mixergy.com/interviews/brick-mortar-retailers-herb-so...
Net income after labor, distribution, and fixed costs ranges 1-6%, depending largely on market share and fixed cost control
Reference: I helped traditional retailers with price optimization for almost 20 years
They don't need to explain anything. Most of the time the founders and investors are in on it together. Just get an exit.
Next, there's the problem of sorting, and order processing. If we have the orders early enough, our algorithm can process a decent delivery route, but with all the one way streets, it's never the most efficient route, it's just the most allowably efficient route, and so again I spend time, energy, exhausts driving around blocks to get somewhere that was just around the corner from my previous stop. Delivery doesn't have the power to change the street system, and the street system was never designed to optimize delivery. The reality of the street is a huge obstacle towards any real delivery efficiencies.
This becomes increasingly complicated when we get late orders - which we do all the time - where dispatch sees if we can 'fit another one in'. Once that happens, the perfect solution to the TSP is gone, out the window. A last minute order (especially a big order) can easily add 30 minutes to a simply route.
Then there's the issue of the actual delivery. We try to get them to our clients 'hot and steaming' but that can be a challenge. And often it gets there acceptably hot.
Then there's the actually logistics of getting the food into the buildings. Some buildings have doors that have to propped open while you are unloading. Other buildings have burdensome security measures that take extra time. Other buildings require that all deliveries be made in the delivery entrance, using the freight elevator, etc. None of this is actually on the logistics, it's only something that you discover during your route. Again this means that you have another layer of information - call it security information - that reduces all attempts at optimization.
Finally, it can't scale. No matter how efficient the point of purchase is, or the wheel and hub distribution, or the route, I can only make 16 deliveries in a shift. That's my absolute max. I can't make more. I've tried, but I can't. And I get paid a set amount every hour. What that means is that each delivery, at a minimum, has to pay half my hourly wage to receive their delivery. There's no other possibility.
The fact is that this type of delivery is extremely elastic. Fatally elastic. A tiny drop in income will result in two things - 1. Less ordering. People will simply buy fewer restaurant meals from their 'favorite' restaurants. & 2. More take out. Because in the end we are competing with take out, and while the number of restaurants a company can order from is not as large as the number of restaurants that we deliver from, the reduced price will justify the reduction in choice.
Can I see the writing on the wall? Not yet. Orders are consistent, but the nature of the business should give anyone long term pause.
As for Amazon's delivery - well they are in a completely different game, competing against a completely different segment, and so I think that they are in the strongest position to reap the benefits of same day delivery services. In fact from my perspective, I'm seeing more Amazon trucks than Office Max, Office Depot, UPS trucks. And I'm seeing Amazon boxes everywhere.
I've also been surprised at how much Ikea delivery I'm seeing. I think that they are mostly being delivered by FedEx, but we might see stand alone Ikea delivery in some cities in the future.
Those companies deliver at the end of their service structure, they already do everything else up to that point. Those are the companies that I think will come through this delivery game strongest.
So the question is who else has massive warehouse infrastructure that could just add on local delivery? Costco?
This restaurant delivery is a fools game.