The New Convenience: Instant on Demand
“Retail is a customer business. You’re trying to take care of the customer solve something for the customer. And there’s no way to learn that in the classroom or in the corner office, or away from the customer. You’ve got to be in front of the customer”- Erik Nordstrom, President, Nordstrom Direct
In 1984 infomercials were born in the United States derived from regulatory changes. Television featured commercial advertisements for products that users could purchase by dialing a telephone number, paid with their credit card, and the company sent them the product by traditional parcel after several days. This was the first application of product delivery at home.
In April 1993 the European Organization for Nuclear Research made the internet public domain, and in that same year internet browsers such as Mosaic began to emerge. A year later with an investment of USD$10k Jeff Bezos had the audacity to found Amazon with the aim of facilitating the purchase of books through the internet without having to physically go to a bookstore like Barnes and Noble. Initially, shipments were made through recognized couriers such as FedEx and UPS. That same year Pierre Omidyar started a site called Auction Web which would later become e-Bay.
Kozmo.com, founded in 1998, promised customers to deliver movies and snacks to their customers’ doorstep in an hour or less. Due to the lack of a minimum purchase receipt, in many cases the shipment was more expensive than the product. This led to the bankruptcy of the company. Seven years later, in 2005, Amazon launched its Prime service where it ensured the delivery of its products in a maximum of 2 days.
In 2004 Grubhub was founded as an alternative to physical menus, connecting restaurants with consumers by sending food to their homes. This model would be replicated by several companies worldwide in the years to come.
In 2011 Postmates was founded with the objective of satisfying the demand by aligning the inventory of the suppliers with the needs of the customers through a mobile application.
And in 2014, it opened its application for small businesses to compete with their products against large companies such as Amazon. In 2015, the application made it possible to track packages in real time. This same year Uber launched its food delivery service UberEats.
In 2012 a former Amazon employee, Apoorva Mehta, launched Instacart, a platform that allowed the consumer to order groceries online through a single application. In emerging economies such as Latam, companies replicating these business models such as Rappi (2015) and Cornershop (2015) were born.
Currently the express delivery model has evolved in two ways. On the one hand, there are those players who are dedicated to provide convenience, based on a logistics and integration service without owning assets, such as Instacart and Rappi. On the other hand, there are companies that, in addition to convenience and logistics service, own the assets to provide these services. For example, the already established players such as Boxed, GoPuff, Walmart and Amazon, or the new born players, such as Jokr, Gorillas, Getir, Fridge No More, and Flink.
The main differences between these models are as follows:
A representative of the asset less model is Instacart which operates as a home delivery platform for groceries on demand. Its technology allows deliveries to be made in one hour. The Instacart model works as follows:
- The customer registers the groceries order and pays in the application
- A personal shopper receives the order and begins to collect the items on the list
- The personal shopper pays with an Instacart pre-paid debit card at the physical store
- Finally, the shopper heads to the user’s home to deliver the order
Instacart makes money by:
- Commissions: Charged under the label “shipping” that varies depending on the size of the order and the urgency of the order, more than 2 hours of USD$4-8, less than one hour of USD$6-10
- Annual Membership: The client receives their free shipments for one year in exchange for this membership for an approximate price of USD-$-99
- Mark- up: The prices of items purchased on Instacart may have an increase of 15% or more against the price of the physical store.
GoPuff exemplifies the asset intensive model which is an on-demand grocery shipping platform where the customer can order from a selection of +3,000 products. GoPuff operates as follows:
- Registered customers select the products to buy on the platform and make the payment in the application
- GoPuff receives the order, picks the product in its warehouses and prepares the order for shipment to the customer
- The driver associated with GoPuff collects the order from the warehouse to deliver it directly to the consumer in less than 30 minutes
GoPuff makes money by:
- Product mark up: GoPuff directly buys products, stores them and sells them at a higher price to consumers through its app
- Shipping Commission: Charges a fixed commission of USD$1.95 and an additional USD$2 if the order contains alcohol. This commission is used to cover the cost of shipping and not as an additional revenue stream of the company
- Monthly membership: GoPuff offers the GoPuff fam service which consists of a monthly paid membership of USD$5.95 providing free shipping and a loyalty program as a benefit
- Advertising revenue: GoPuff sells advertising space to brands that want to promote on its platform
The big differences between the asset-less and asset-intensive models is that in the latter, companies manage inventory and other companies send products from other supermarkets or convenience stores. Therefore, models like GoPuff can be much more lucrative. In addition, by owning the products they have real-time information on their availability which speeds up the fulfillment and delivery of an order. Company warehouses are open 24 hours a day creating a window of opportunity. The risk that this business model has is the high investment needed to launch warehouses and own the inventory.
Currently there are business models that deliver the product in less than 10 minutes, such as Getir, Gorillas and Dija. These companies operate with a Dark Stores or micro warehouse (asset intensive) model; that is, points of sale that handle inventory without providing direct service to customers in each of the areas in which it serves. In addition, companies like Dija and Gorillas hire their delivery drivers directly instead of using workers from the gig economy.
The pandemic has accelerated technology adoption and online business development. The future is being created right now, we will continue to see spectacular technological changes that increase convenience and make life easier for people.
“The advance of technology is based on making it fit in so that you don’t really even notice it, so it’s part of everyday life.”- Bill Gates
“People like consistency. Whether it’s a store or a restaurant, they want to come in and see what you are famous for.”- Mickey Drexler, Former CEO and current Chairman, J. Crew Group
Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.
Ricardo Latournerie. VC Investor at ACV.
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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