The last mile has long been the bugaboo of e-commerce. Getting stuff from a fulfillment center to a metropolitan area is relatively easy in comparison to putting a box on a particular doorstep. The former allows for scale and efficiency; the latter is necessarily at a smaller scale and requires coordinating lots of little details.
Now we have two stories on how Amazon is dealing with that tricky last stretch — one from the US and one from India. First up is Amazon’s effort to develop its own delivery capability in San Francisco, Los Angeles and New York (Amazon, in Threat to UPS, Tries Its Own Deliveries, Wall Street Journal, Apr 24).
The new delivery efforts will get Amazon closer to a holy grail of e-commerce: Delivering goods the same day they are purchased, offering shoppers one less reason to go to physical stores. With its own trucks, Amazon could offer deliveries late at night, or at more specific times.
The move is a shot across the bow of United Parcel Service Inc., FedEx Corp. and the U.S. Postal Service, which now deliver the majority of Amazon packages. It is also a challenge to Wal-Mart Stores Inc., eBay Inc. and Google Inc., each of which is testing deliveries.
Ultimately, a delivery network could transform Amazon from an online retailer into a full-service logistics company that delivers packages for others, according to former Amazon executives. They caution that any such effort likely is years away.
So why should Amazon want to get into the business of schlepping stuff when there are multiple quite competent firms willing to do the heavy lifting for them?
One issue is cost. As the chart below shows, delivery costs have been eating into Amazon’s earnings.
A second issue is control. As the talking heads below discuss, Amazon is ultimately going to be blamed if a package fails to arrive (particularly during the holidays) and owning the delivery process allows them more say in making sure that happens. (Jump to the 1:23 mark.)
These are obviously reasonable issues to be concerned with but I am not sure that forward integrating into delivery is the answer. Take concerns about holiday delivery. The real issue here is the amount of work that needs to be done in such a short period of time. That creates a massive pain in the neck for UPS and it will similarly be painful for Amazon. If Amazon wants to do a considerable amount of its own delivery between Thanksgiving and Christmas, it will need to be able to scale up rapidly around the holidays — that will require both additional costs and some loss of control as temporary workers take on some of the tasks.
More generally, it is not clear that Amazon can have lower costs than the established players throughout the year. UPS and FedEx will always have more shipments going into a major metropolitan area than Amazon will have on its own so they will always have the benefit of scale. Add in years of experience in designing delivery routes and such, they are going to be hard to beat in terms of cost.
I can see two other considerations at play here. If Amazon really wants to offer same day delivery, then they are asking for something that neither UPS nor FedEx currently does. That may warrant taking on delivery. Second, as the article notes, Amazon is also in the grocery delivery business in SF, so it already has some trucks and drivers. Adding regular Amazon products on top of fruit and pasta may then make better use of those resources.
Our second story is from India, where Amazon is taking a different approach to delivery (Amazon takes kirana route to deliver goods, The Times of India, Apr 24).
This week in Bangalore, Amazon, in what’s a first in India, started piloting the concept of enlisting kiranas as delivery points. The move can help it overcome the problem of failed deliveries, a pain point for most e-tailers globally, making the last-mile logistics less complicated.
“We are continually innovating to find solutions that enhance convenience and experience for our customers. We are running a pilot for in-store pick-up service in Bangalore. We have identified and trained staff at small kiosks and stores, run by individual entrepreneurs, to be our shipment pick-up points,” Amazon India country head Amit Agarwal told TOI last week. …
Amazon will pay a fee to these smaller brick-and-mortar retailers, but the world’s largest online retailer did not give details of its financial arrangement with the offline stores.
The project is an indigenous improvisation on Amazon Lockers, which the company operates in the US and some other markets. Amazon Lockers act as self-delivery locations to pick up parcels from.
Kiranas are small, usually family owned stores. These are typically located in dense residential areas. One can then see the attractiveness of this set up to Amazon. India lacks established large-scale delivery firms outside of the post office (which Amazon also works with) so minimizing the delivery locations to be served greatly simplifies the task of delivery.
Now what is in it for the kirana owners? Beyond pay from Amazon, this draws people to the store. In the US, Amazon lockers have been somewhat problematic since some of the stores hosting the lockers (e.g., Staples) compete with Amazon in several categories. To the extent that kiranas focus on food and basic goods, they are not directly threatened by Amazon selling electronics and books.