3 Things You Need to Know Before Starting a Delivery Service Business
Demand for food and home product delivery services are at an all-time high. Here are three issues to consider before launching your own.
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Online food delivery is a natural progression of ride-hailing services like Uber and Lyft that use crowdsourced labor as the delivery provider's own infrastructure. The pandemic has caused a spike in demand due to health concerns and shelter-in-place. The hiring spree is eye-popping: Instacart announced in April that it's hiring 300,000 shoppers while Amazon is looking to employ 175,000 new workers for its fulfillment centers and delivery network. Walmart is adding 50,000 people for distribution and FedEx is hiring 35,000 workers.
Entrepreneurs may consider starting a delivery business in their city. Startup costs can be low by using independent contractors and by licensing an appropriate app. Demand is certainly high. If done right, an operator may coordinate with grocery chains and distribution centers to sync systems. Or a small business could integrate with a large company's IT infrastructure. One option that increases profits is to charge a mark-up for purchased items in addition to shipping fees. Or perhaps certify orders as prepared using stringent health practices to gain new customers.
But what can go wrong? Here are some things to be on alert for.
1. Customers want near-perfect execution
Business owners may think that a 95 percent success rate for deliveries is good enough. It probably isn't. Not with Amazon's extreme disruption of the industry via Amazon Flex and Amazon Prime. For example, Prime has one-day shipping for over 10 million items, according to the company's website. Thanks to Jeff Bezos's constant striving for flawless logistics, consumers too have increased their expectations for gig drivers. Thus, only a tiny fraction of deliveries can involve wrong items, damaged goods, delayed drop-offs, etc. if you want your startup to succeed.
"Delivery services involve more than just dropping off items," says Vanessa Gabriel in an interview. She's cofounder and CEO of Drop Delivery, a cannabis delivery management software. "A critical success factor is the overall experience for the customer. From browsing items, placing an order and finally receiving it. Customers expect cannabis delivery to be convenient, reliable, safe and on-demand. Drop Delivery allows cannabis retailers to provide that great experience."
Customers are looking to avoid long lines and getting exposed to infected people. But their hired gig grocers may not find items or products may be sold out. Other disruptions include worker strikes such as those that hit Instacart, Amazon and Walmart during the pandemic. A mobile app can have security and privacy flaws such as those that plague video app Zoom.
2. A small business must optimize for last-mile logistics
If you're not experienced or disciplined to optimize operations, it could be tough competing in this business. An operator can do almost everything right and still see problems near the finish line. Hot food can be delivered cold. There can be payment errors. An app can direct a driver to an adjacent but wrong address. A user isn't notified of an arrival. A thief signs the order. The car runs out of fuel.
A delivery provider must optimize for last-mile logistics. After a gig shopper buys the ordered items, last-mile logistics involves bringing the goods from distribution to an office or personal residence as fast as possible. No excuses during the final lap, especially with perishable food. An independent contractor must have the passion or initiative to find routes that overcome traffic, pinpoint the exact location, rely on the mobile app to work seamlessly (such as no connectivity issues), and send user notifications to receive the order.
"Our software clients have successfully delivered over 51,000 orders and have seen an average repeat customer-purchase rate of 76 percent," says Vanessa Gabriel. "Because of the new normal, clients have seen a 31 percent increase month-over-month in deliveries since February. We're always looking to provide the best technology to help our clients be as efficient as possible when it comes to delivering."
3. Being careless with pandemic safety protocols
Finally, gig shoppers must have the discipline to follow new health protocols like social distancing and wearing personal protective equipment. Safety practices can include barcode scanning and contactless delivery confirmations and payments.
It's hard to believe that Uber is 11 years old. Given Uber's status as a multibillion-dollar unicorn, it's not surprising that technologists have copied its crowdsourcing approach in industries as diverse as home-stays (AirBNB) to groceries (Instacart, DoorDash, GrubHub and Uber Eats).
Amazon and other big players are preventing delivery services from becoming a commodity: Their investment in infrastructure is continually increasing consumers' expectations from shelf to doorstep.
The industry's hiring spree coincides with struggling Americans turning to gig jobs for a paycheck. In March, Uber Eats saw a 30 percent increase in independent drivers signing up to deliver food. Delivery, transportation and logistics are contributing to the U.S. economy adding a record 2.5 million jobs in May. (Although this number will be revised due to a "misclassification error" reported in June by the Labor Department.)
An entrepreneur can capitalize on the high demand for online delivery service if she runs an efficient operation.