TOPICS > Economy > Making Sen$e

Why companies are racing for almost-instantaneous delivery

April 9, 2015 at 6:25 PM EST
From the Pony Express to Federal Express, the delivery business keeps getting faster and faster. Now there's an explosion of same-day or sooner services, including the promise of home delivery by drone. But there's debate about how many customers are really interested in ultra-speedy delivery. Economics correspondent Paul Solman reports.
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JUDY WOODRUFF: Let’s turn to a story that shows how apps and the tech economy are delivering a jolt to the traditional world of retail, with the growth of same-day delivery. It’s on the rise in a number of metro areas. And just today, Amazon announced a plan to expand these services into Austin, Texas.

Our economics correspondent, Paul Solman, looks at this changing business model and the questions around it.

It’s part of our ongoing reporting Making Sense, which airs every Thursday on the NewsHour.

PAUL SOLMAN: The much ballyhooed courier of the future and, according to the Amazon, the near future, the home delivery drone.

Now, package transport technology has been speeding up for quite some time, from the mule to the railroad to the Pony Express to Federal Express. But suddenly there’s an explosion of same-day or sooner delivery ventures. In December, Amazon premiered Prime Now, a new perk of the $99-a-year prime subscription. In four cities and counting, one-hour delivery costs $8. Wait two hours, and you pay nothing. Next to launch? Drone delivery. Get your package within minutes.

And where Amazon rushes in, Google fears not to tread.

MAN: Hi, Mr. Brandon, Google Express.

MAN: Hi.

MAN: There you go.

PAUL SOLMAN: Google Express same-day delivers items from dozens of retailers like Toys ‘R’ Us, Costco, and Walgreens in six cities. What’s the hurry?

To Google’s Brian Elliott, it’s just the pace of modern living.

BRIAN ELLIOTT, Google: It used to be that waiting seven or 10 days was fine. Increasingly, people’s expectations are that they will get faster and freer delivery.

MAN: Great. Thanks.

PAUL SOLMAN: So, maybe I should pick up the pace. Freer doesn’t mean free. You can pay Google as you go $5 an order or a $95 annual subscription fee, and also at your speedy service, startups like Instacart, which delivers groceries. Postmates provides food and coffee in an instant, or, if you need a stiffer drink, Ultra will bring booze in an hour.

PRAV SARAFF, Owner, 1 West Dupont Circle Wines & Spirits: These are customers that we may or may not otherwise see. So, we look at it as all additional business.

PAUL SOLMAN: Owner of 1 West Dupont Circle Wines & Spirits in Washington, D.C., says his business has grown each month since he started fulfilling orders for Ultra last summer. He pays Ultra a 7.5 percent commission on each order, passes some of the cost to the customer.

PRAV SARAFF: It’s a $50 minimum for an order and a $5 delivery charge. The reason for that is, let’s say you want two six-packs of Miller Lite. Even if you’re willing to pay me $5 to deliver that to you, I will end up losing money because, A, opportunity costs. My driver could be making other deliveries that are more profitable. And, B, it costs money to have him go over there, to have him park. And I’m paying him for his salary. So at that point, I’m losing money on the transaction.

DAPHNE CARMELI, Founder, Deliv: Every retailer today has to respond to the threat of Amazon.

PAUL SOLMAN: Three years ago, Daphne Carmeli founded Deliv, a crowdsource service which uses a network of average Joe and Jane drivers in eight cities to deliver for 250 retailers and six mall operators whose very existence is now threatened by the same-day giants.

DAPHNE CARMELI: It’s providing a way for all the Macy’s, the Bloomingdale’s, the Foot Lockers, the Nordstrom’s an ability to really what I call out-Amazon Amazon. You can buy something and rather than have that item shipped to you in California from a distribution center in Atlanta, Macy’s can identify that that item is available in a store two miles away from your house. Our driver comes picks it up and delivers it to you.

PAUL SOLMAN: Deliv’s business model? To be the UberX of same-day delivery.

DAPHNE CARMELI: I don’t own warehouses. I don’t own trucks. I don’t pay for drivers I don’t use. I don’t buy inventory.

PAUL SOLMAN: So Leslie Gibbons, for instance, drives only when a delivery is needed, earns up to $20 an hour, according to the company. She considered driving for Lyft or Uber, but:

LESLIE GIBBON, Deliv Driver: It’s nice to have packages vs. people in my car. I love people, but it’s much more relaxing to be driving on my own.

KIM HOLLAND: Hello.

LESLIE GIBBONS: Hello.

PAUL SOLMAN: As for customers like Kim Holland, well, she paid $5 to have Deliv bring the present she ordered for a friend on Macy’s.com to her door.

KIM HOLLAND: A lot of times, I don’t have time to go to the store or I don’t have time to wait for Fed Ex. And so this is much more convenient and it’s much more reliable.

PAUL SOLMAN: So, yes, it appears there are customers for instant delivery.

BRENDAN WITCHER, Forrester Research: If you ask consumers if they want same-day delivery, 29 percent of them say that they do.

PAUL SOLMAN: But few people can or will pay for it, says e-commerce analyst Brendan Witcher.

BRENDAN WITCHER: End of the day, same-day delivery only works if enough customers are willing to pay for that service. And we just don’t see that happening. The fact of the matter is, it’s not needed most of the time.

I mean, sure, if I’m a parent and I need some diapers — we can call imagine that situation — or maybe some medicine for my child, but do I really a salad spinner, do I really need a toaster that fast? Do I need that shirt right now? No, probably not.

PAUL SOLMAN: Witcher notes that reports of the death of brick and mortar are greatly exaggerated; 90 percent of shopping, he says, is still done in person.

BRENDAN WITCHER: Customers like to go to the store. If it’s close enough for you to be delivered same day, it’s close enough for you to go get it.

PAUL SOLMAN: Indeed, eBay put the brakes on its service last year. Its customers just weren’t that interested. The U.S. Postal Service’s Metro Post pilot program in San Francisco failed due to low participation.

But the USPS hasn’t given up. After all, its traditional business, first-class mail, is dying. Package delivery may be its last great hope.

New York City Postmaster Elvin Mercado:

ELVIN MERCADO: We need the assistance of the package services to continue to grow to help us be sustainable.

PAUL SOLMAN: Sure, same-day delivery is not exactly new to New York City. But the Postal Service they already have the trucks and the carriers in place to help even more stores and Web sites provide quick delivery.

Jesse Garrett runs the pilot program.

JESSE GARRETT, U.S. Postal Service: We were able to deliver about 97 percent of the packages that people ordered today this evening.

PAUL SOLMAN: So, what are you delivering same day here in New York City?

JESSE GARRETT: Children’s clothes, medicines, electronics as well, and, sometimes, of course, we don’t know what’s inside the package at all.

PAUL SOLMAN: The Postal Service says they have signed up 20 to 30 local retailers in New York, among them beauty and hair care store Ricky’s. Order something here by 2:00, and for $6, a Metro Post courier will deliver it to your door by the end of the day.

What are the most popular same-day items here?

MAN: I would say nail polish.

PAUL SOLMAN: Well, I actually don’t wear nail polish, but why would anybody need nail polish on the same day?

MAN: I couldn’t give you the reason. All I can tell you is that I can get it there the same day if they need it. Whether it’s nail polish or mascara, we have to get it to them.

PAUL SOLMAN: So, will same-day delivery rescue the post office? Will Amazon’s investments and ever-faster delivery pay off? The company even holds a patent for anticipatory delivery, which would predict future orders and prepare them for delivery before a purchases is even made.

The answer will depend on how many customers feel the need for speed and are willing to pay for it.

This is economics correspondent Paul Solman for the PBS NewsHour.

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