The Last Last MileDecember 17, 2021
On Black Friday, we wrote about the dangers of the Buy Now Pay Later industry, which takes advantage of our psychological makeup to trick us into spending more than we can afford. From our lips to Uncle Sam’s ears: Yesterday, the Consumer Financial Protection Bureau announced it is collecting “information on the risks and benefits of these fast-growing loans” from five leading BNPL companies. It’s not (yet) the breakup of Big Tech, but it’s something.
OK, enough told-you-so. On to the post.
As I age (happening more and more recently) it feels as if the call from the Old World grows louder. We’re in the U.K. checking out boarding schools for my oldest (I’m a wreck over this) and telling my boys stories of their grandparents and the war. My mom and dad were born and raised in London and Glasgow, respectively. It’s the perfect vacation: We’ve watched 1917, Dunkirk, and the Blues (Chelsea Football Club) draw with the Toffees (Everton). Tomorrow we’ll see Tottenham face off against Liverpool. I love it here and want our soon-to-be teenage boys to be somewhere besides Florida for a few years. But that’s another post.
The U.K. is responsible for some of the world’s greatest innovations, including chocolate bars, the hovercraft, Adele, and … next-day delivery. Not Jeff Bezos, but a 19th-century Welsh flannel-maker. In 1861, Pryce Pryce-Jones (great name) began accepting mail-in orders for his flannels and promising next-day delivery nationwide. By 1880 he had more than 100,000 customers. One of them was the Queen, who later knighted him.
Sir Pryce-Jones leveraged the British railway network’s expansion and brokered a deal with the North Western Railway Company for three carriages on the Newtown-Euston line. These carts moved the flannels across the country daily. He then closed the gap between production and distribution. This meant building a warehouse next to the Newtown station. Then a factory next to the warehouse and a post office next to the factory. Pryce-Jones realized people liked his flannels but loved immediacy. Speed was the differentiator.
A century and a half later, Pryce’s impact has manifested in Jokr, Buyk, Gorillas, and Fridge No More. These firms were all birthed during the pandemic and may be points in a line of the prosperity often registered post-crisis. New York City has become a petri dish for dozens of budding delivery startups. They’re recrafting the supply chain with hundreds of millions in venture capital to achieve (roughly) the same thing:
Get you your shit fast, really fast.
The Need for Speed
These companies erect hyperlocal grocery stores — “dark stores” — that are only open to employees. Each hub serves an area no greater than a mile in radius. Once your order is processed, pickers collect and package your groceries in 3 minutes and a courier e-pedals them to your doorstep within the next 12.
The final step in delivery, handing a product to the consumer, is known as the last mile. Historically, the mile has been rhetorical. The nearest UPS hub or DHL warehouse might be 10 or 20 miles. These businesses, however, have dispersed their distribution networks to within an actual mile. The last last mile.
VCs recognize the opportunity. Gorillas has raised more than $300 million since its founding last year and is valued at over $1 billion. Jokr, which started delivering groceries eight months ago, has raised $350 million at a $1.2 billion valuation. They’re two of the fastest zero-to-unicorn firms in history.
It’s a global phenomenon. Spain’s Glovo raised $528 million in April ($2 billion valuation). Turkey’s Getir raised $550 million in June ($7.5 billion valuation). America’s Gopuff raised $1 billion in July ($15 billion valuation). Prague has Rohlik, London has Zapp, Moscow has Samokat … the list goes on. In the first quarter of this year alone, instant-delivery startups raised nearly $8 billion — more than in all of 2020.
Delivering at these speeds is similar to supersonic travel: expensive. It means operating hundreds of distribution hubs and hiring thousands of full-time couriers. (To get the reliability they require, these companies put their delivery staff on salary, in contrast to Uber’s gig-economy model.) That’s on top of enormous marketing budgets. Buyk will spend a fifth of its new capital on marketing this year. Jokr lost $13.6 million on just $1.7 million in revenue. You read that right — it had losses equal to eight times its revenue.
In 1999, Webvan went public at an $8 billion valuation (a big number back then). The company promised grocery delivery to your doorstep in 30 minutes thanks to state-of-the-art fulfillment centers manned by robots. At its peak in 2000, Webvan was registering $180 million per year. Unfortunately, the cost of processing, fulfilling, and delivery was … half a billion dollars. Delivery in 30 minutes is compelling. But the concept was ahead of its time, and though capital was cheap, it was expensive vs. today. Webvan filed for bankruptcy within two years of listing.
While we’re strolling down memory lane, Kozmo.com raised $250 million in 1999, promising free one-hour delivery for small items like DVDs, magazines, snacks, and coffee. It made $3.5 million in revenue that year, but lost $26 million and went bust in 2001. Urban Fetch (a Kozmo rip-off) was another: It raised some cash in 1999, burned it all, and shut down in 2000. At the San Francisco office of my consulting firm, employees would order a pint of Ben & Jerry’s or a pack of gum from Kozmo rather than walk to the convenience store. Again, the value proposition was there, just not the capital to achieve requisite scale.
Bezos felt speed could be the skeletal structure of a megalodon. In 1999 getting everything you wanted within a day of ordering was expensive. And with only a third of Americans using the internet, the customer base was sub-scale. Books were the placeholder. The real product, speed, would take decades and tens of billions of dollars to develop.
At the time, shipping costs at “catalog” companies such as Williams Sonoma were steep: 30% or more of the product price in some cases, just for “regular” delivery, which might take several days. Two-thirds of larger retailers made a profit on shipping, but retailers relied on third-party providers (UPS, FedEx, and the postal service), marking an era of great brands with little underlying product differentiation — FedEx didn’t offer The Marvelous Mrs. Maisel.
Amazon.com began the same way. In 2004 it charged $9.48 for two-day shipping on a book and $16.48 for overnight. Bezos envisioned another way — the way of Pryce-Jones. Both men understood speed was a differentiator worthy of investment. The next year, he turned unlimited two-day shipping into the core feature of the most accretive innovation in business history: Amazon Prime.
After achieving a monopoly on speed, Amazon began turning it into a profit center and became a platform for other retailers, charging them for its best-in-class fulfillment. Then, once Amazon got these third-party sellers on the platform, Bezos started extracting more from every sale. In 2014, Amazon took 19% of third-party seller revenue. Today it takes 34%. That number’s mostly a mix of the company’s referral fees (what you pay to be on the platform) and fulfillment fees (what you pay for your product to be delivered). An increasing share is now coming from advertising fees — and the rent for visibility on Amazon is rising. People posit the economic value of beachfront real estate in a/the metaverse. It already exists. It’s the results page in the online retailer’s metaverse that retailers are paying for, and it’s likely worth tens (if not hundreds) of billions.
Amazon’s toll road on third parties generated $90 billion in revenue last year — if it were a stand-alone business, it would rank 31st on the Fortune 500. This year, it’s projected to clock $120 billion, ahead of both FedEx and UPS.
Watch Your Back
Some instant-delivery companies say they’re competing with supermarkets. Jokr’s co-founder says he’s coming after Amazon. That might sound crazy, but when your valuation is 706 times your revenue … you need to articulate a big vision and assure investors you are hunting elephants.
The market’s growing, and so are our expectations. In 2015 most consumers defined fast shipping as three or four days. The next year, it was two days. If these companies normalize 15-minute delivery, we’ll likely develop a taste for last-last-mile flesh. And that could reshape the $1 trillion grocery market.
That might be enough to scare the delivery behemoths into action. In October, Uber launched a 15-minute grocery-delivery program in Paris. Last month, DoorDash acquired Finland’s ultrafast service Wolt for $8 billion. Instacart is reportedly launching its own trial program, as is … Amazon.
This is part of a larger trend that’s bigger than just physical delivery. Everything is getting delivered. Streaming brought the box office into the home; roughly half of pre-pandemic moviegoers aren’t buying tickets. Telehealth brought doctors and therapists into the home; telehealth claims are up 37 times from before the pandemic. Yet more evidence of the Great Dispersion.
Over the past two decades, the dispersion of retail from shelves to porch fronts has created and reallocated trillions in value. A similar tectonic shift is likely to occur in grocery and restaurants at the hands of ghost kitchens, ride-hailing companies, and well-capitalized last-last-mile firms. The question is, will new giants be birthed or will the existing behemoths grow new heads?
Slow … Down
Something is lost in the rush towards the instant distribution of everything. There’s something unmistakably human about a doctor placing a hand on your shoulder when they break good or bad news, or a therapist looking you directly in the eye when you start telling them what’s on your mind, or being part of a collective when you see a bunch of old people sending young people to die (see above: 1917 and Dunkirk). We’re losing these moments by the day, minute by minute.
Yet something is gained, as well. Innovation in the last mile has likely created more shareholder value in the past two decades (e.g., Apple Stores, Amazon Prime, streaming) than any innovation in any era. Why? Because they help us make the most of our time. The same is possible in our personal lives. We, too, would benefit from an investment in going the last mile. Do we get to the love and admiration we feel? Do we tell our spouse we appreciate the life we’ve built together? Do we show our kids, every day, that they are wonderful? Do we practice citizenship, every day, in ways that supersede partisanship or empty recognition from media algorithms? Most of us feel all these things, but do we say at the same rate what we think and feel?
Take it from two of the clearest blue flame thinkers in business history, Mr. Bezos and Sir Pryce-Jones: The only real asset is time. And at the end of this sentence you’ll be closer to having … less. The unlock in many of our own lives is the last last mile.
Life is so rich,
P.S. This February in Miami, the heat is on. Kara Swisher and I debut Pivot MIA, a new type of conference that will challenge convention. Join us in America’s most vibrant and future-forward city February 14-16 as we assemble the hottest names in fintech, media, entertainment, education, climate, and more. You don’t want to miss this.
P.P.S. My goal with No Mercy / No Malice is to make you more successful, both professionally and personally. That’s also the goal of my upcoming Business Strategy Sprint with Section4, kicking off January 10. Join us.
I’d love to peek under the hood of some of these grocery delivery companies to see how efficient they are with inventory. I wonder if this is increasing or decreasing food waste?
Profoundly disagree with the conclusion. This sort of thing doesn’t give you any time back, it simply allows you to live your life with even less planning, even less forward thinking, than you were using last week. In the end, this costs you time, because you’re just blundering around like a doofus all day every day.
In the same way cell phones and texting make it possible to rendezvous with friends without doing any planning beforehand, this sort of thing will let you just YOLO every second of your life.
Time that’s valuable is typically time you’ve carved out, set aside, reserved for whatever it it. If you’re just YOLOing everything, you never take that time. Everything is superficial, immediate, unplanned.
This is bad.
Sorry but gotta ask, I know this wasn’t the focus of the piece but you mentioned your sons…Boarding school? An ocean away? Don’t see a “last mile” there. Whatever horrors(?) Florida has on offer these days, compared to not seeing their father day-to-day? That can be a heck of a trade-off…for both sides.
huh? The future of MIA is DOA: debajo del mar, buey. But, there is a lot of ‘money’ there right now, I guess. And the weather! PERFECT for a indoor confab …
Yes, time if you can afford it.
For the person delivering it it is two jobs at 80 hours a week to live in sh*t on minimum wage…
I hope that what’s next includes ORCHESTRATION of all these services! I work from home and live with 3 hyper-consumers so my dog literally barks all day at UPS, Amazon, Doordash, Wegmans, USPS, Drizly, Slice….
There are actually quite a few order consolidation companies coming up. I forget the name of the specific company that I came across an article about, but the idea is that all your orders are sent to their facility and they consolidate everything to be delivered at one time, once a week.
Last last mile has great value for the customer.
But isn’t the real question: Will the last-last-mile value be larger then the cost-to-serve this last-las-mile?
And there will be the core challenge.
Groceries need to be picked and delivered by bike. This costs salaries including social security cost, cost for standing-by until the order comes in, overhead cost for HR, controlling etc.
Only if this cost is covered, these business models survive.
How many people are willing to pay the true cost + profit for such a last-last-mile company? (today each delivery is highly cross-subsidized by the investors in those business models)
And here comes the biggest challenge to overcome in last-last-mile models: You cannot build a tiny global niche. You have to work with the people in you 3-mile radius. So you need affluent neighbourhoods that are willing to pay enough for delivery to make a profit.
But then the model is not scalable enough.
We saw that in Germany with Car-sharing models. Everybody who used it loved it, but nobody was willing to pay the “real cost” of this model.
And of course: If a Gorillas driver delivers faster and cheaper as I ever could do it myself, then they will grow like hell in the market.
But I could also grow like hell if I buy something for x and sell it cheaper.
There are so many examples: Concorde? Everybody loved to travel between Paris and New York in 3 hours. But very few were willing to pay it. Offering it for the regular economy price? Yeah, that model will grow. 😉
I must say I am a heavy Gorillas user. I love the customer experience and the product. But unfortunately I cannot see how this can become a profitable model. Because the key competitor of Gorillas is the customer himself. And he has no overhead, low marginal cost for using his own bike, no social security cost added to his time etc…
Concorde was operationally profitable and well used for most of its last 15+years approx. Just not enough to fund development of a equivalent replacement. The real limit was inability to overfly most land masses due to sonic boom, which immediately limited sales of airframe (to serve a market that was there to be served), and limited nonstop range.
The competitors of the fast delivery companies are the traditional retailers, who have very high costs, rent, employees, utilities, marketing, etc. With a dark store model, the costs are even lower than those of a traditional retailer. well executed model can be profitable and change the buying habits.
By the way – I would add the “Jinn App” (shut down in 2017) to the list. Delivery startup, operated in London, raised >20mn in funding back in 2016/2017.
It all works when supply chains are predictable and commercial property is fairly priced and well distributed, but the developed world isn’t going that way.
Editorial point: it’s ‘Sir Pryce’ or just ‘Pryce-Jones’. The UK is a decreasingly relevant country so forgive us for obsessing over idiosyncrasies.
Hope the boarding school works out well.
One of your best, Scott
As Kazantzakis says ” life lasts like a thunder…but still there is time”
Nailed it. Gig economy employees will be full-time with benefits employees and delivering in company vehicles. Uber needs hybrid vehicles delivering passengers and packages that can run constantly. Combining delivering people and packages seems possible with similar infrastructure.
Egypt had perfected Mcd’s home delivery service long before it went global. That’s because Cairo with its heavy traffic and sprawling roads had been privy to the convenience and comfort of home delivery since back in the early 90’s.
Recently a local baking goods startup began delivering fresh “bread-fast” to our doorsteps as early as 5am in the morning.
It quickly expanded to include other baked goods then in a brilliant pivot began to also sell basic supermarket goods on its app.
In Nov this year it raised 26mil USD to expand its dark stores across the country promising 20min delivery time.
The combination of their private label and third party goods keeps the margins attractive and fuels their acceleration of their bakeries/ distribution points.
Their is a new startup on the block called Rabbit who’s building their entire model on dark stores and 20min delivery time and who just raised 11mil USD.
I can’t deny that it’s convenient to have things delivered, particularly right when their needed, but I equally find it critical for my kids to experience the traditional fresh food market where they get to pick and choose their own fruits and learn to stay within budget as they do so.
I find the infiltration of tech into all aspects of our lives in the guise of making our lives more comfortable a sickening prospect whose endgame is humans who detest any form of discomfort even the healthy kind.
Your emphasis on time and the minutes earned to help us value and pursue real human connections might be the best indication of whether a new tech is worth it or not.
Still it’s easy to manipulate every new gadget’s benefit to claim it saves you time to pursue life.
I think it is up to each and every individual to monitor their dependence levels. But at the risk of sounding plebeian I would still cheer any regulation to help stem the invasion.
This reads more like dystopia than an advance of civilization (instant delivery, not boarding school). We are a nation of overweight, bored consumers who don’t want to get off the couch. It’s getting worse, and what we really get is a lot more disconnection and depression. Buy hey, we get our cheap plastic crap right away, so theres that.
I agree! It reminds me of the movie Wall-E… seen it?
Somehow this vision/concept needs to applied to the ports and all of those ships waiting in the Pacific for space to be unloaded. The current model is ripe with opportunity for disruption.
👍 Yes but…
You use only 1 angle for TIME 👉 SPEED
⏩ Now look for “JUST-IN-TIME” 👉 Quality & Cost of time saved
⏩ Rethink organisation “UPSIDE DOWN”
Spend time with our children = Manage 1stly OWN TIME
Speed is 1 old solution for Mail Order
Time is our greatest asset? Not so fast. Time is the one thing none of us can buy and which has a depreciation rate of 100% per second. When viewed through that lens we can see why speed is important. Time is certainly precious but infinitely elusive. IM (Not) HO.
I recall trying to use WebVan multiple times. Each time, the soonest delivery they offered was *two days* out. I later discovered their warehousing system precluded any orders arriving within less than a day of placing the order. The two day wait was common.
Few people plan their grocery needs that far ahead. No wonder it failed.
Few people *in the US* plan their grocery needs that far ahead. (And I suspect most people go to stores similar times each week with some preplanning)
Future grocery delivery has been very successful in the UK for about 20 years now, pre pandemic was in low double digit % of all grocery sales, much higher since.
Key reasons why: 1/ customer books a 1-4 hour time slot up to 3 weeks in future (can have several slots booked at same time). Slots sometimes available next day, and can be changed (subject to availability) up to night before
2/ order has to be started when slot booked, but can be changed up to night before. Some allow just one item in order to “claim” the slot (e.g. typically a cheap staple item), others have a minimum order (hack: order a placeholder expensive item and remove it once you order enough others to meet minimum).
Many customers add/change order daily up to night before. 60+ separate changes on order is pretty commonplace.
Sounds like Webvan didn’t offer this.
Worlds largest egrocer by any measure used to be Tesco in the UK (one of the oldest, Safeway also used Tesco software and processes). But others have probably now surpassed Tesco.
20 years ago, the Royal Mail routinely delivered next day for letters and overnight for packages. Then the government defunded it.
Appreciate the Mercatus citation on our research. In as much as grocery consumers value speed in delivery, they value precision and control more. In our research, we see a clear and dominant preference for curbside pickup in grocery retail. This trend has been steady over the last 12 months and repeat intent purchase is strong because ultra-fast pickup offers consumers the convenience they want with the control they demand. https://www.mercatus.com/newsroom/mercatus-survey-reveals-75-of-online-grocery-orders-to-be-fulfilled-at-grocery-stores/
Disingenuous of the federal government to clamp down on “buy now and pay later” businesses when Congress is totally running the country on that approach.
Reference boarding schools check culture
Start with the Clarendon nine and decide what you want some of the supposed successes are little more than over priced sausage machines.
School leadership matters a lot. I went to a less well known school with a great leader and did well. (Dyson was also a pupil there, earlier but with same leader I think)
More recent leaders at the school have been placeholder careerists and it shows.
A decision for you Prof Galloway: Ibac or (increasingly devalued) UK qualifications? Going on to a UK university or elsewhere?
Great article! A lot to digest.
It’s ironic to me that just as we’ve brought the complexity and brittleness of the global supply chain to light, we are adding yet more layers to it.
The quote that struck me the most is “We’re losing these moments by the day, minute by minute”.
As a 30+ year tech industry veteran, I’ve yet to see an example where prioritizing the mandate to maximize shareholder value yielded beneficial results to customers / users. Not just first-order items like product & service quality, but second-order items that actively harm people in the name of profit *coughfacebookcough*.
Buying on Amazon is a GREAT experience. No argument there. But what price speed and convenience? What do people do with the rest of their time, when they are being unconsciously conditioned by Big Tech to expect simple, rapid solutions? I can personally attest that over time I’ve developed the tendency to be less patient with everybody and more easily distracted with even closest friends and family. I doubt that I’m the only one. (Very deep topic. I do not pretend to be an expert – but I’ve read enough about the harmful impact of tech-driven instant gratification culture to be afraid.)
I’ll leave it there. Personally, I’ve been reclaiming my time and attention – buy less, barter and reuse more, read a frickin’ book once in a while, consciously spend time and attention with family and friends, and like Don Quixote, boycotting Bezos’s behemoth.
What about wisdom and patience?
Miami is Future Forward, you must be kidding me? You mean Future Underwater.
Consider Winchester—intellectually superior to Eton
Love the thinking in your posts. Would appreciate you adding to this by examining the environmental cost for our greed for speed.
Loved Post-Corona, but you guys trafficking in tech at first-tier universities are leaving behind the vast middle inhabiting fly-over country. Why not put your talent to linking benefits for low-income college students: https://www.upstartbenefits.com? There’s an entire universe of opportunity in upgrading, facilitating, and, yes, expediting public benefits for poor college students. If TurboTax can develop software that simplifies the U.S. tax code, why not take that innovation to social welfare, Pell grants, and tax refunds as well?
Although it’s taken a few minutes to read, it’s always good to be reminded about time!! I’m a surgeon and I see it as the most precious of commodities! The last mile is interesting for me….with my patients, they sort of want to be seen ASAP once referred by their general practitioner, but are suspicious if you can give them an appointment within a week or so….”he cannot be very busy”….or “he cannot be any good”!! But maybe I’m not “selling” my superior time management system for new patients??!! Anyway, I at least know your father is a Glaswegian….I spent time at the University and in Canniesburn…..they’re great folk! Keep up these very interesting posts!
The “rapid” (under 2 hour) operators in the UK are Zapp, Getir, Gorillas, deliveroo (partnering with coop convience stores and others), Sainsbury’s (Chopchop) and Ocado (Zoom). But in many cities they will have to work hard to compete with Tesco, Sainsbury, CoOp and Waitrose who have fairly pervasive convenience store networks with wider range at lower price (and many independent corner shops who are more variable).
If you live within 500m it is probably quicker start to finish to walk to nearest shop to get a bagful and walk home.
Do we show our kids, every day, that they are wonderful?
Not in blue states, where the “adults” and hypochondriac neuroticism has destroyed their mental health and education – especially in economically disadvantaged communities. Closing schools and masking children was an unscientific, avoidable catastrophe. Our children were robbed of precious time and development by the woke laptop class. Parents around the country will be practicing their citizenship on leftist teachers unions and their Democrat enablers.
Each week I wait for the right wing political screed. Thanks for not disappointing me.
Anytime the left wing doesn’t have an argument, they just say it’s a right wing screed or conspiracy theory. Ironically the “smart” people in our country can’t make rational arguments or understand data to realize how much they are abusing kids and being lied to. Keep locking yourselves down like hypochondriac clowns while the rest of the country, and what remains of the sane free world, laughs.
What does it show about a “rational argument” when it is an off-topic non sequitur?
Love how you just snagged some time off me and left a lot more. Thanks for all your sharp AND poetic thoughts and writing