Ready to bet on the urban delivery market?

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Countless millions of pounds, dollars and euros are being invested in innovative (and sometimes not so innovative) urban delivery systems. The risks in these ventures can be high – but then so can the rewards.

Now a study by consultants McKinsey sounds a warning note for anyone thinking about betting the family home on an urban delivery start-up.

The report, The urban delivery bet: $5 billion in venture capital at risk? points out that a completely new set of competitors – on-demand urban delivery providers – has entered the B2C delivery market.

Malory Davies FCILT, Editor.

Malory Davies FCILT, Editor.

“These start-ups, including Deliveroo or Foodora in Europe and Postmates or DoorDash in the US, are delivering a new form of service: they integrate demand aggregation via their own mobile platforms and dedicated in-house operations that usually enable (almost) instant delivery.

“These innovations in the go-to-market approach and logistics model have attracted almost $5 billion in venture capital since 2014 in western markets alone.”

However, it says, winners in this space are already emerging and their dominance is clear. “For the many runners-up, a new hunting ground is needed, yet hard to come by. Markets like groceries or non-food retail do not offer the same rare combination of high gross margins and high urgency like hot food does. At average variable costs per delivery as high as $7 to $10, profitability will hence remain out of sight for these start-ups in the broader market…”

It argues that to achieve this they will have to switch from a point-to-point delivery model to network-based consolidation. This may be more efficient, but it is distinctly “old-fashioned” – after all it’s the way virtually all the major parcel carriers work. Not surprisingly, McKinsey thinks that most of these new entrants will fail to make that switch.

However, it calculates that all this activity has opened up a same-day delivery market worth more than $200 billion – and the organisation best equipped to benefit are the “old industry” players – the bricks and mortar retailers and parcel giants.

For the retailers this would mean using technology to enhance their operations and integrating their stores into urban delivery networks.

Life on the leading edge of these developments is certainly exhilarating – but not for nothing it is also known as the bleeding edge.

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