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As Amazon Expands Same-Day Delivery, Who Stands To Win and Lose?

August 5, 2014
Profitero
Written By
Profitero

As Amazon expands its same-day delivery to six new cities in the US, Profitero’s Keith Anderson asks whether Amazon’s offer is compelling enough against emerging competitors Google Shopping Express, Deliv and Instacart.

Post by Keith Anderson – VP, Strategy & Insights at Profitero.

Amazon’s expansion of same-day delivery to six new cities is a clear extension of Amazon’s commitment to enhancing convenience for its heaviest users. And Amazon’s selection (1+ million eligible items) is likely the largest available for same-day delivery from any single source in more than 10 local US metros.

But versus emerging competitors like Google Shopping Express, Deliv, and Instacart, I’m not sure Amazon’s offer is as compelling on a standalone basis.

Start with the delivery speed. Unlike Amazon’s “get it today” positioning, Instacart is “get it now”–as quickly as 12 minutes after ordering for its fastest-ever delivery.

And at least in the short term, delivery fees for these alternatives are lower. Instacart charges $3.99 for 2-hour delivery or $5.99 for one-hour delivery, and that’s without any upfront membership fee required. (Instacart does offer a $99 Instacart Express membership that helps diffuse the per-order delivery costs throughout the year.) GSX is offering 6 months of free delivery.

Given the asset-light logistics model of these urban delivery networks, they may be able to expand faster than Amazon on a local metro level. Compared to AmazonFresh, Instacart is expanding to new cities (and within cities) much more quickly. That’s possible when you’re leveraging existing brick-and-mortar stores and their existing inventory as opposed to building capital-intensive, dedicated fulfillment centers as well as recruiting warehouse staff and building out a delivery fleet.

For now, these premium conveniences collectively appear to be limited in their appeal to affluent households who value their time and have a high willingness to pay. But over time, the increasing competition will almost certainly drive delivery fees lower, just as happened with fees for traditional ecommerce shipping. GSX has an explicit strategy to “democratize” same-day delivery, clearly jabbing at Amazon in its positioning.

For store-based retailers, partners like GSX or Instacart may help minimize the threat of Amazon’s same-day delivery expansion and could help them capture transactions with specific shoppers or on specific occasions that they aren’t already meeting. It is encouraging that Instacart is helping retailers develop both same-day delivery and click-and-collect capabilities, for example.

But the rules of engagement between retailers and these intermediaries will be key. What data will be shared with the retailer? What rights to re-market to shoppers will each party have? Who “owns” the customer? The answers to these questions are highly strategic.

On the supplier side, there is high potential in categories with some degree of urgency or impulsivity–OTC medication, gifting-oriented products (flowers, greeting cards, toys, jewelry, media), indulgences and rewards, and meals.

As GSX, Instacart, and other urban delivery networks expand, they are almost certain to build a revenue model focused on extracting marketing dollars from brands. Which budgets will fund those promotions? How will the trade respond?

Brands have also spent considerable resources developing strategies and capabilities to optimize their digital shelf presence on Amazon, Walmart, Walgreens, Costco, and other retailers’ sites. As intermediaries like GSX and Instacart capture more demand, how will brands monitor and manage how they’re presented and how they perform?

Interesting days ahead, no doubt.

Follow Keith @KeithAnderson

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