The “last mile” of retail refers to the last leg of the delivery getting the product in the hands of the consumer.
The speed and convenience delivery to the home is now a major differentiator in winning customers. Consequently, reducing delivery costs of the last mile has become incredibly significant for retailers. Most have heard of Amazon’s plans to use flying drones, but what may actually be more practical are ground based droids for delivery. Droids versus drones … the race to win the war to your door is going to scale rapidly, get very competitive.
Why this is important: Home delivery costs were not an issue when you had to go to the store. In today’s omnichannel age, the delivery for the last mile has become both a strategic differentiator, and a competitive advantage if costs can be lowered.
The changing face of retail – the last mile is a key consumer expectation
In the not too distant past, there was little concern about delivery for the “last mile.” Consumers were forced to primarily come to stores both to shop and acquire their goods. The golden years of the big box hypermarkets like Walmart were focused on driving down supply chain costs, and streamlining logistics to stores, so that big box stores could sell cheaper.
Omnichannel has changed everything. We are now in a world where consumers are very comfortable shopping and purchasing online. They have become accustomed to the convenience of home delivery from a brand, e-tailer or from their local store to their door. The tremendous accelerator for home delivery is the increasing capability of players like Amazon to deliver in a day, or within hours in major cities. With same-day delivery to your door, the hassle of driving to stores is causing consumers to highly value home delivery. However, with the convenience and increasing speed of home delivery comes increasing challenges and costs in delivering purchases that “last mile” to your door.
Last mile of delivery comprises up to 40% of delivery cost
In a store-based model, logistics are focused on pallets of goods with truck deliveries. The objective is delivering adequate bulk supply to stores at the lowest cost. When the purchase is made in store, consumers essentially become their own delivery vehicle and bear the cost of getting the purchase to their homes.
What changes dramatically with ecommerce home delivery is the additional complexity and cost of getting a single product in your hands at your home. There is no economy of scale — individual products have to be delivered to separate addresses one at a time. This home delivery gap has been primarily filled by third-party services like FedEx, DHL and UPS. But, that is expensive. As much as 40 percent of the U.S. delivery costs is for the “last mile.” While it’s great to differentiate on home delivery, even the biggest players like Amazon must develop more cost effective ways to complete delivery in the last mile.
Droids vs drones: The race for the last mile in western retail
In India and Asia, home delivery is most often accomplished by those brave enough to ride bikes and motorcycles through insane traffic to deliver everything from furniture to hot meals. What makes this freelance system possible is the relatively low labor costs for the drivers.
In the U.S. and western countries, delivery drivers are a significant cost driver in serving the last mile. The last mile war in western retail is shaping up to be a clash of developing driverless technology: droids vs. the drones. The early prototypes are just begin launched, so it is a bit early to pick a winner. But given the amount of activity, investments and imminent launch plans, it is clear a critical new frontier in the future of retail will be the last mile of delivery.
Enter the droids — ground robots for last mile door delivery
If the term “droids” conjures up Star Wars, the metaphor is not far off the mark. While not as cute as BB-8, the latest “picnic like cooler” from Starship Technologies is already making deliveries today. It literally looks like a cooler box on 6 wheels that can navigate via GPS to your home or office.
Advantages of Droids:
- Can haul multiple small packages to multiple locations
- Two-hour battery life for longer route deliveries
- Lower cost to develop and build versus drones
- Uses GPS location navigation, minimal or no driver assistance
- Can safely drive on paths and sidewalks
Limitations of Droids:
- Can’t compete with large vehicles and use streets and roads
- Potential to crash with people, pets and moving targets
- Limited mainly to certain suburbs, not for high density cities
- Major challenges with foul weather, especially snow
Big bets on drones — the shortest last mile is through the air
You have to be living under a rock to not have heard about Amazon’s drone delivery strategy. Essentially, drones are small “choppers” that can airlift a package to a designated landing zone (not always right at your doorway). While Amazon is aggressively testing, another company in Europe has actually made a drone delivery to a real consumer.
Advantages of Droids
- Anywhere — not limited by streets or sideways to make delivery
- Fast — can carry packages up to five pounds up to 60 miles per hour
- Low delivery cost — potential of less than $1 per package, or $0.10 per mile
Limitations of Drones
- Getting regulation approval for flights in crowded cities
- Limited battery life = limited delivery distance, typically one location
- Package constraints — five pound limit and size restrictions
And, the winner of the race for the last mile is …
While drones get a lot of the current press, there are a lot of compelling reasons for the cheaper, simpler ground based droids. However, the reality is that due to the differing conditions of climate, roads, distance and a host of other factors, the race to deliver the last mile will probably be a combination of both droids and drones.
If you are a betting person, watch the investments of Walmart and Google. Both are betting heavily on driverless vehicles, which could easily be morphed into full scale driverless vans. With services like Uber, there could easily be an “app for that” so you might schedule delivery on the next driverless van headed your way. The original delivery disruptor FedEx could be disintermediated from the last mile entirely.
The real winner is the consumer. What an amazing time to be a customer who can purchase any time and everywhere … and have the convenience of extremely low cost delivery to your home within hours. The real losers will be the bricks and mortar retailers that don’t realize they must compete in offering low cost solutions for the last mile, especially from their stores to your doors.