The Real Reason Why the US Delivery Industry Is Shouting 'Ultra-Fast' in the Post-Corona Era [Next.Jjin]

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] "We have only just begun to test the limits."

Christopher Payne, CEO of DoorDash, the number one food delivery company in the U.S., said this during his keynote speech at the Shoptalk retail conference held in Las Vegas on the 29th of last month (local time), referring to the 15-minute ultra-fast grocery delivery service launched in New York last December. When CEO Payne mentioned "limits," he was talking about delivery speed. He said, "I don't know if 15 minutes is appropriate or 30 minutes is appropriate," adding, "What is clear is that if you cannot build a large-scale logistics system that works, you could lose a tremendous amount of money." In addition to the 15-minute experiment, DoorDash is partnering with U.S. retailers to provide 30-minute ultra-fast delivery through more than 300 stores in over 20 cities across the U.S.

DoorDash is not the only one competing in the ultra-fast delivery race. Following DoorDash, Uber Eats, ranked second in the U.S. food delivery industry, has partnered with U.S. grocery delivery company Gopuff and the French retail giant Carrefour to offer ultra-fast delivery services. The same goes for U.S. grocery delivery company Instacart. Dara Khosrowshahi, Uber CEO, also stated, "I believe every local grocery store will need fast delivery."

The core of ultra-fast delivery is 'profitability'... Can it be secured?

CEO Payne described ultra-fast delivery services as a "game changer." But is that really the case? Will ultra-fast delivery become the future of the delivery industry? Many questions have been raised about this. In fact, in the U.S., startups offering ultra-fast delivery have recently been failing one after another. Last month, startups Bike and Freeznomore, which provided fast delivery services mainly in New York, laid off a large number of employees. CNN reported that these companies faced financial difficulties, suggesting that the Russian invasion of Ukraine had an impact, but emphasized that there are fundamental problems with the business itself.

The core cause lies in the profit structure of delivery companies. Delivery companies must generate revenue through commissions received for providing delivery services. If the commission is too high, it will affect delivery demand, so an appropriate level must be found. Moreover, during the COVID-19 pandemic, food and grocery delivery became a basic necessity, and restaurants or customers bore the commission fees, leading regulatory authorities to intervene and limit commissions. In New York, delivery fees were regulated last year so that they could not exceed 15% of the food price, and China also issued guidelines to reduce delivery commissions, which eventually forced the major Chinese delivery company Meituan to lower its fees. Recently, in Korea, amid controversies over delivery fees, a government-led "delivery fee disclosure system" has been implemented, but there are criticisms that its effectiveness is limited.

Britten Radd, a food supply chain consultant, described ultra-fast grocery delivery services as "the worst business model created so far," evaluating that these companies have survived only by relying on venture capital without generating profits. Lina Hurst, Chief Business Officer (CBO) of Shipt, which provides same-day delivery services in the U.S., also said, "(Ultra-fast delivery services) are costly businesses," adding, "Speed for the sake of speed is not the answer." This implies that being fast at all costs is not the solution.

COVID is over... "How to secure profits?" concerns

Regardless, the ultra-fast delivery competition is one of the attempts by the delivery industry to address growing concerns about profitability. Although the success of the business cannot be guaranteed, the industry is trying to find points where customer demand exists under the judgment that something must be tried. The delivery industry has grown more than threefold since 2017, having experienced the COVID-19 crisis, but the market expresses concerns about growth potential as delivery companies have yet to find answers. For example, DoorDash's stock price has plummeted nearly 50% since its peak in November last year and has not improved significantly despite strong Q4 earnings. Uber's stock price also dropped more than 20% since November last year despite the recovery of the sharing economy. Grocery delivery company Instacart postponed its initial public offering (IPO) last year and lowered its valuation from the originally estimated $39 billion to $24 billion last month.

Global consulting firm McKinsey predicted in a report last September that the areas of competition within the delivery market would diversify. They foresee that as the industry restructures in this market involving many stakeholders, it will rapidly evolve into sectors beyond food. Regarding the potential of delivery platforms, they stated, "If logistics, operational requirements, and last-mile delivery issues are resolved, the business scale will grow, generating corresponding profits." They emphasized that carefully examining the situations of stakeholders will uncover hidden opportunities for profit generation.

The rapid growth of the delivery industry during the COVID-19 era is not unique to the U.S. In Korea, various delivery applications such as Baedal Minjok, Coupang Eats, and Yogiyo have also expanded their presence. Along with this growth, issues such as profitability, high delivery fees, and delivery workers' treatment have surfaced. To address profitability issues, companies are expanding into various businesses such as grocery and alcohol delivery. An industry insider said, "Delivering a single avocado is not a profitable transaction." It will be interesting to see whether the delivery industry can find answers to overcome the crisis and alleviate such concerns.

Editor's Note[Next.Jjin] means 'looking ahead to the real next of business' and is a section that delivers overseas news related to future businesses such as metaverse, artificial intelligence (AI), robots, and startups of major companies. We will uncover and explain not only the big issues on the surface but also small yet important hidden issues in an easy-to-understand manner.

This content was produced with the assistance of AI translation services.