In an intriguing move, UPS announced on February 24 that it has put cash behind a same-day-delivery startup called Deliv, which Fortune speculates could someday become a UPS competitor.
A UPS spokesperson said that the company sees same-day delivery as a growing segment and contends that its investment would be “a better use of resources … than to test ideas internally.”
The move certainly isn’t unprecedented. In fact, it’s somewhat common for the carrier, according to Forbes, who says this strategy is used often with UPS’s venture capital fund, called the Strategic Enterprise Fund.
Regardless how the relationship unfolds, the move shines an unavoidable spotlight on the same-day sector, which seems to be gaining traction despite the fact that UPS doesn’t “see the economics for same-day delivery for retail packages as currently fulfilled by Deliv.”
It’s no secret that UPS, FedEx and Amazon, along with just about every other package carrier, are pulling out all the stops in their respective attempts to keep up with increasing e-commerce demand. That area of the market has been consistently difficult to efficiently capitalize on for UPS and FedEx, especially during the holidays. And as competition across virtually all industries increases, the race to the bottom line often boils down to which companies can put their products in customers’ hands the fastest, even if not necessarily at the lowest cost.
To fully understand the same-day scenario, it’s necessary first to understand the difference between the impulse consumer’s willingness to pay a premium for faster service and the more cost-conscious one’s desire to still receive an order quickly, but for a lower price.
E-commerce has substantially lowered barriers to entry, allowing entrepreneurs to thrive collectively in the face of conglomerates. While one small business that sells t-shirts online could never compete with companies like Walmart or Target a decade ago, the sheer volume of those individual small businesses now provides strength in numbers, allowing sustainability mainly by enabling precise, targeted focus. These specialty markets have experienced enough growth through e-commerce that many of the individual businesses are able to leverage just enough discounts from their primary small package carriers to siphon customers away from bigger retailers with clever marketing strategies, comparable products and quick turnaround times.
One thing those companies likely could not afford, however, would be the steep prices associated with same-day services from major carriers like UPS, FedEx or Amazon. Even though these costs probably would be passed on to customers, lagging volumes still would result in higher base costs. This would price many smaller businesses out of at least some business, depending on just how specialized their specific target markets are.
Davids vs. Goliaths
Further complicating the way ahead for smaller shippers is the leverage larger companies have with omni-channel distribution. The ability to fulfill orders from neighborhood brick and mortar stores, combined with larger discounts for shipping services, leaves large retailers, for instance, more than capable of competing directly with smaller companies selling the same products.
All is not lost for the small business, however. There are several very important facets of the supply chain for which the Davids of the world still have the upper hand; mainly cost to serve and customer service. While a larger competitor may be able to fill orders from any or all of its stores, there is, of course, great and complex cost associated with the resources required to do so. Staff, assets and technology have tangible, hard-dollar costs, while implementation, strategy and execution have soft-dollar costs that many companies still struggle to manage efficiently.
Undoubtedly, a large part of big box retailers’ plans is to afford online customers the same ability to make an impulse purchase as in-store shoppers. Store displays and in-store layouts and promotions are things we’re all familiar with. How many times have you seen a child throwing a tantrum in the checkout line? There’s a reason the candy isn’t stocked next to the area rugs.
Grownups are impulse buyers, too, especially those of us who are still young enough to sometimes wonder whether we’ve grown up or not. The modern consumer wants the best of both worlds – the convenience of shopping online and the access to instant gratification.
And while it’s not quite instantaneous yet, same-day delivery is a move in the right direction.