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Same-Day Delivery: Delivering Profits Or Just Parcels?

Brendan Witcher
Brendan Witcher
Vice President, Principal Analyst
February 13, 2015

Instacart’s recent $2 billion valuation suggests many believe same-day delivery to be the next standard for fulfilling online orders. Online and mobile food ordering service GrubHub recently showed its commitment to delivery by announcing the acquisition of two players in the food delivery space, DiningIn and Restaurants On The Run. Amazon, too, has been expanding its already robust same-day (and same-hour) delivery initiatives in an effort to compete with the immediacy of in-store shopping, and a number of large multichannel retailers have followed suit in the hopes of beating Amazon at its own game. But can same day delivery models be used efficiently in retail without having a negative impact on profitability? Despite the hype and flashy headlines, the business case for same-day delivery remains largely uncertain—and key questions such as, “Will customers use it?” remain unanswered.

Our newly published report, Avoid The Rush And Deal With The Realities Of Same-Day Delivery, addresses these questions (and more!) for eBusiness leaders thinking of taking the same-day delivery plunge. We find that:

Paying a premium for shipping presents a significant barrier to consumer adoption. Although same-day delivery piques consumer interest, shipping costs continue to dwarf delivery time as a top purchase consideration. With the exception of certain time-sensitive occasions—such as running out of diapers or purchasing a last-minute gift—consumers are generally unwilling to pay a premium for faster shipping. This is particularly true given that many retailers offer free delivery in some form in addition to promising delivery within a few days. With volume being a key requirement for achieving the efficiencies necessary for success, retailers must be prepared to subsidize costs if they expect to see the service reach sustainable levels in the B2C market.

A third-party fulfillment partner can dramatically reduce overhead and mitigate risk. With few exceptions, organizations must evaluate a third-party fulfillment partner when rolling out their same-day delivery offering. This has a number of benefits to the retailer: In addition to reducing the business’s capital expenditure by providing delivery vehicles and delivery associates, these vendors aggregate customer orders, helping to amass the scale necessary for the service to be economically feasible.

Certain types of retailers are better candidates for a same-day delivery program. While 29% of online US consumers are interested in same-day delivery, most wouldn't pay extra for it. Same-day delivery is not the be-all, end-all of eCommerce fulfillment. In order for a same-day delivery service to make sense, retailers should make sure the right business and market conditions exist. Indeed, many retailers would realize better returns investing in competencies like omnichannel fulfillment such as ship-to-store and buy online, pick up in store.

Have an opinion or experience with same-day delivery? Let us know in the comments below. 

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