Dropoff

Getting things delivered has never been easier. With the help of software and algorithms, one can get restaurant food, grocery items, booze and even laundry dropped off at their front door, sometimes less than 30 minutes after placing the order.

Pitched a couple of years ago with a never-before-seen business model of ultra-fast delivery, angel investors pounced on the chance to be first to fund the next big thing. Startups in the industry received a total capital injection of US$18.5b in the U.S. in 2021 alone. 

Unfortunately, in a number of cases their risk did not pay off. Several of these companies burned through their cash in an unsustainable fashion, with many now defunct and no longer operating.

So what headwinds were they riding into?

Firstly, ultra-fast delivery is a business model with a major challenge: consumers will only pay so much in fees or markups before deciding to just get up and pick up the item themselves. This results in a low price ceiling that eats at profit margins. 

The second difficulty is that, for deliveries to be completed at their promised lightning speeds, companies need to have internal warehouses and inventory that come with extremely high fixed costs. This means that breaking even requires a tremendous number of deliveries, perhaps at levels unfeasible for a growing startup. 

Lastly, despite now having software to cut costs by making routes efficient, deliveries still can’t be done without one thing: labour. With even established companies such as Uber ($UBER) and DoorDash ($DASH) unable to hire enough drivers to cover demand, imagine the challenge for a relatively unknown market entrant. Not only that, labour costs are high (e.g. $24 an hour in NYC). With the low price ceiling mentioned above, drivers and riders have to complete an at-times unrealistic number of deliveries for the company to profit.

Presently, American ultra-fast delivery companies Buyk, Fridge No More and 1520, as well as Australia’s Voly, are among those that have shut down permanently. The survivors of the industry have laid off at least 8,250 employees just in the U.S. in order to cut costs. 

With e-commerce giant Amazon ($AMZN) soon starting a new drone delivery service, competition is only about to get fiercer. So will the wheels turn fast enough to stay in the race?