Ecommerce giants are trying to build out same-day delivery services – but why are they taking on this challenge, and which companies are poised to win? Grand Junction founder and CEO Rob Howard has answers to these questions and more. His company is reinventing the local delivery industry through the cloud, and he also co-founded Ensenda, a firm focused on last-mile logistics.
In an interview with EcommerceBytes, Howard explains the crucial differences between services from Amazon, eBay, Google and the USPS and how those differences impact their chances of surviving in this space.
EcommerceBytes: Can you give me some background on your company Grand Junction?
Rob Howard: Grand Junction is the leading Software-as-a-Service (SaaS) platform for accessing and managing local delivery. To date, we have managed more than 67 million local deliveries. Our software provides everything that’s needed to have real-time visibility and control over quality for shippers implementing and managing same-day, storefront, scheduled, and two-person delivery programs through couriers.
The software has a unique approach among supply chain software providers in that it allows a shipper to give their courier partners tools to self-manage quality, reducing work for the shipper and improving the customer experience. Grand Junction reduces shippers’ spend by up to 40% and reduces delivery issues by 25%.
We have an integrated marketplace that gives both consumers and businesses access to couriers and drivers in every market of the United States and Canada.
EcommerceBytes: Which retailers are using your service, and what’s their key to being able to offer same-day delivery at a price acceptable to both retailer and customer?
Rob Howard: We help companies design their local delivery programs and our software helps them streamline their day-to-day delivery operations, control spend and, most importantly, ensure a high-quality customer experience.
Our customer base ranges small to mid-sized to Fortune 500 enterprises in a wide variety of different industries. Regardless of company size and scope of its local delivery programs, the key to making the economics work are based upon the service levels they offer.
The standard service level companies widely offer with same-day delivery is an AM/PM service – order in the morning get by end of day and vice versa. This two-cycle approach is cost effective because they can optimize the number of drivers they need, create density (i.e., group nearby deliveries to take place at the same time) and efficiently fulfill orders. Rates with this approach can get down to levels comparable to next- and two-day rates for UPS or FedEx. They then offer two- and four-hour delivery, which is essentially what eBay Now is doing, as a premium service.
EcommerceBytes: eBay (eBay Now), Google (Google Shopping Express), Amazon (Amazon Fresh) and the USPS (Metro Post) are among the companies testing same-day delivery. Apart from USPS, why are they trying to build their own service?
Rob Howard: For Google, it’s about ad revenue: get people to search for products and then have retailers pay for ads. Typically, people first search for products on Amazon because of the depth of selection from their marketplace of sellers and their customer reviews.
For eBay, it’s about getting a slice of local commerce – their CEO has said this several times. eBay will eventually go to their retail partners and say, “I’m a sales channel offering a value-add service, and I want a percentage of the order value from customers I send your way.”
Amazon views logistics as a differentiator and a sales and marketing tool; they are fundamentally different from any other retailers in this way. They aren’t concerned about cost in the near-term, and same-day delivery is the natural evolution of Prime and other categories they’ve gotten into over the past few years including groceries and industrial supply.
EcommerceBytes: Do any of them have a chance of succeeding at least a break-even point?
Rob Howard: Of everyone, Amazon can do it. They have the volume today and the density that makes it work in all the major markets. Frankly, they’ve outgrown UPS, as evidenced by the service delays many of their customers experienced over the holidays, and they’ve known it was coming for years. It’s because of this that they’ve increased their use of couriers over the years. They also have enough volume in several markets that they can make the cost of operating a fleet – the Amazon Fresh model – work.
EcommerceBytes: What about existing courier services, where are they in the mix?
Rob Howard: Couriers are right in the mix because they are doing same-day work today – from the “on-demand” 2-hour model to scheduled deliveries. Amazon has used couriers in almost every major market in the country to do Prime deliveries and today they find themselves with the only national local delivery network in retail. eBay’s purchase of Shutl shows that they are committed to using couriers long-term as opposed to their dedicated drivers, or “valet” model, and I expect Google to head in the same direction once they expand into other markets.
EcommerceBytes: With these firms in particular, is same-day delivery a solution looking for a problem?
Rob Howard: The biggest advantage local retail has is its ability to get you what you want, whenever you want it – but, of course, you still need to leave the house.
Same-day is a natural evolution for e-commerce. We live in a world of immediacy. People expect things to happen faster. When Amazon Prime launched, the majority of people thought, “I can wait. Do I really need it in two days?” Of course, we now know that consumers do need it in two days and in fact, will pay a premium to have it in two days. Amazon set consumer expectation and will continue to drive it through innovation.
EcommerceBytes: Does it makes sense for the USPS to get into this space?
Rob Howard: It’s tough to see the Post Office being able to handle local delivery on an operational level. They essentially have the same model of “one-size fits all customers,” with hard cut-off times for deliveries to be injected into their system, sorting facilities, holidays and hours due to union contracts that FedEx and UPS have. These realities make them slow moving.
The local delivery and courier industry is full of small, nimble and highly flexible companies – there are over 4,000 in the US – and they’re used to operating nearly 24/7, on most holidays and meeting their customers’ needs as opposed to requiring their customers to meet their operational practices.
EcommerceBytes: Compared to eBay and Google, Amazon actually has a logistics infrastructure – does that give it an advantage?
Rob Howard: It’s a huge advantage, but they do have one weakness, which eBay and Google are trying to exploit at great cost. Amazon has the fulfillment, or the “pick-and-pack” side, nailed. In most cases, eBay and Google need to have their driver walk into a store, find the product and wait in line to buy it. Partnerships with retailers using a “will call” approach will drive out this cost in the long-term, but eBay and Google will need to show retailers that they are driving significant business to them in order to make this happen.
Amazon’s one weakness is that they cannot offer a quick, premium service like eBay Now does. Amazon’s fulfillment centers are situated mostly in suburban or rural areas, making it difficult to deliver products to urban areas in a short time-frame. eBay and Google’s leveraging of retailers’ storefronts becomes a huge advantage.
EcommerceBytes: Will same day delivery ever move out of the city and into the suburbs?
Rob Howard: Yes, and Amazon will be able to reach scale rather quickly because of their existing volume, and the fact that they have started to locate new distribution centers in the suburbs. When you look at suburban delivery, particularly during the business week, the two-cycles-a-day approach is really what you need: ordering during the day while at work, and when you get home, your order is waiting for you. Fulfilling from a distribution center, as opposed to picking up from a storefront will also help the service be cost effective.
EcommerceBytes: Online merchants and marketplace sellers recognize shipping presents a lot of challenges. Why would some of these firms want to increase those challenges by increasing buyer expectations?
Rob Howard: Over the last decade, Amazon has set consumer expectations with their shipping innovations, released their own marketplace, went mobile immediately and spread across virtually every category. In doing so, they became a threat to almost anyone selling anything, and today they find themselves facing an Amazon that is gaining ecommerce market share. Online merchants and marketplace sellers can’t afford to react slowly again.
EcommerceBytes: A sandwich, groceries, a printer cable, a couch – can one service reasonably provide same-day delivery for all of the above?
Rob Howard: Looking at this mix, you really are talking about different service levels. The sandwich, for example, is a one-hour or less delivery by car; the groceries are a scheduled delivery by a van; the couch is a two-person scheduled delivery.
Amazon is the closest to being able to offer same-day delivery on all of these items because of its national local delivery network and technology they’ve needed to put in place to manage quality. Most of the couriers they work with can provide all of these services today.
EcommerceBytes: Which is better, hiring valets to deliver items or using a marketplace model (like Shutl)?
Rob Howard: The only way the fleet model – i.e., having dedicated drivers or, as eBay Now has called them, valets – works is at high volumes and densities. Amazon is the only one, at this point, that has the scale to do this.