Crowd-sourced last-mile providers such as Roadie, Shipt, Instacart, and DoorDash became household names during the pandemic by delivering groceries to consumers who remained at home due to COVID-19. According to an impromptu survey conducted on social media over the holidays, more than half of the respondents indicated that crowd-sourced last-mile providers were a viable alternative delivery solution.
Several retailers turned to these providers in 2020 to provide an additional last-mile option to consumers, same-day delivery, and supplement capacity requirements that were not met by FedEx and UPS. For example, Dick’s Sporting Goods and Five Below partnered with Instacart; Petco and Chico’s partnered with DoorDash; besides Target, Shipt (acquired by Target in 2017) also partnered with Bed, Bath & Beyond and some Dollar Generals; and Roadie has partnered with such retailers as Tractor Supply, Home Depot, as well as Delta Airlines for luggage delivery.
Target highlighted its same-day delivery options (order pick-up, drive-up, and Shipt) in its third-quarter earnings announcement, which increased 217% year-over-year. Meanwhile, DoorDash issued an IPO citing as its mission “to grow and empower local economies.” Indeed, going back to the survey conducted over the holidays, more than one-third of the respondents noted that crowd-sourced last-mile providers were a viable alternative delivery solution in cities.
The crowd-sourced last-mile delivery market is a diverse, fragmented one in which DoorDash’s IPO prospectus provides us with some insight. Based on total sales, in January 2018, DoorDash’s US market share was estimated at 17%, behind Uber Eats with 39% and Grubhub with 27%. By October 2020, the market shifted primarily because of COVID-19, allowing DoorDash to capture 50% of the US market in terms of sale. Uber Eats’ market share fell to 26%, and Grubhub’s market share dropped to 16%. The dramatic shift was attributed to DoorDash’s investments in technology and its partnerships beyond grocery stores and restaurants.
Despite a 50% market share in September 2020, DoorDash noted that US consumers represented less than six percent of the US population, leading it to believe that it is in the early phases of broad market adoption.
In 2019, DoorDash’s revenue was $885 million with a gross profit of $335 million, and through the first nine months of 2020, its revenue was $1.9 billion with a gross profit of $944 million. The sharp increase in DoorDash’s 2020 revenue has led many industry analysts to question the sustainability of DoorDash and other crowd-sourced delivery providers post-COVID; however, expectations from many experts are that the growth will likely continue, albeit at a slower pace as more consumers return to stores post-COVID.
However, costs associated with crowd-sourced delivery providers have also raised questions. According to a recent Wall Street Journal article, grocery stores indicate that they aren’t making money through Instacart primarily because of Instacart’s commission fees of 10% or more on each order through its app. Some of Instacart’s retailer partners also indicate that the service holds too much control over customer interactions.
Shippers looking for additional capacity beyond FedEx and UPS will need to weigh the benefits against crowd-sourced last-mile providers' costs. To offer same-day delivery services via these providers is undoubtedly a benefit, but shippers will need to decide if the costs are worth it. For example, many retailers offer the service at a price to consumers, typically $9.95 or free if consumers subscribe to a subscription from a retailer such as Target’s annual $99 subscription for free deliveries via Shipt. Most important, though, shippers, especially retailers, need to consider the importance of their brand and their connection to the consumer through the last mile.
John Haber is founder & CEO, Spend Management Experts. He can be contacted at solutions@spendmgmt.com.
This article originally appeared in the January/February 2021 issue of PARCEL.
