The Ecommerce Killer Is the Logistics Layer of the Local Stack
This is the fourth in a five-part series on “The Local Stack” in local commerce that appears on Mondays. This piece focuses on consumers’ “buy” stage. Read an overview of the full stack, and check back next Monday for the fifth layer in the local stack. The full series is being underwritten by Yext.
Here’s something interesting: Of the eighteen questions that analysts asked Amazon executives during the company’s second quarter earnings call in July, five dealt with the company’s same-day delivery program, Fresh, that the company is piloting in Seattle and Los Angeles. Again and again, executives rebuffed questions about the grocery delivery effort, offering little detail outside of calling the program “early” and “exciting.”
Same-day delivery is making a comeback from its early efforts in the dot-com era, and the focus is on getting goods from local businesses to local consumers. This is the ‘Retrieve’ layer of the Local Stack, in which consumers obtain goods purchased from local businesses in more efficient and digital ways than in the past. It has emerged along with other rapid innovations in commerce at the local level as local businesses are increasingly equipped with commerce software — the ‘Buy’ layer of the stack — capable of supporting features like inventory search and digital payment processing, which form the foundation online ordering. At the same time, large firms like eBay and a host of smaller startups are rethinking the way we move goods locally, creating advanced local logistics networks that allow brick-and-mortar businesses to offer intra-city delivery without hiring a single delivery person.
‘Sustaining Innovations’ in Getting Goods to Consumers
The business of local logistics — the hard slog of moving goods from point A to point B within a city — hasn’t changed much in the past decade. Companies like Seamless and GrubHub have rethought food delivery for the web, helping customers order online and merchants’ manage and process those orders digitally. But the orders eventually filtered down to the same legions of delivery people who had scurried around the streets, bringing food to customers for years.
To borrow from Clayton Christensen, these were sustaining innovations. They were technologies that provided a better way to execute an existing feature rather than reshape the way the industry conducted business. Online ordering systems did little to help brick-and-mortar retail — an industry that has been somewhat undercut by remote fulfillment (via ecommerce) over the past decade — build a viable local delivery business. Missing was the technology to synchronize their constantly changing inventory with a web property necessary to make online shopping a viable service for most stores.
But thanks to innovations in the software that local businesses use to manage their back-office and to process payments — the ‘buy’ layer of the local stack — brick-and-mortar businesses can now publish inventory and process remote orders with relative ease, effectively opening the market for local ordering and delivery in restaurants, retail, and beyond. Subsequently, large firms like eBay and a host of smaller startups are rethinking the way we move goods locally, creating advanced local logistics networks that allow local retailers to offer intra-city delivery without hiring a single delivery person.
Food Delivery and the Unbundled ‘Retrieve’ Layer Cannot Survive
Earlier this year, Seamless and GrubHub, the two largest online ordering destinations, merged in a likely nod to an inevitable push by Yelp and other search properties into online ordering and other commerce-related services.
Within two months of the merger, Yelp made its move. The reviews company rolled out a local delivery product, partnering with Eat24 and Delivery.com, and then, weeks later, bought its own back-end reservations system. The launch came as part of a wider effort called Yelp Platform, a broad business development initiative aimed at integrating the reviews company with the scores of scheduling, payment processing, online ordering services that have emerged in recent years.
For the yet-to-be-named Seamless/GrubHub combination, the news put an IPO on ice. The market for restaurant delivery was teetering on the edge of too-small-for-the-public-markets even with huge market share, and now, with Yelp positioned to divert substantial traffic across a bevy of competitors, the prospects for a public offering have dimmed. More importantly, Yelp’s strategy merely accelerates an unbundling of the digital services, already in progress, within mature local markets like restaurants that could lead to an eventual degradation of the all-in-one model that enabled Seamless/GrubHub to come about well before the rest of the ecosystem.
Local Logistics: The Local Stack’s First Killer App
The shakeup in food delivery is just a first tremor amid a tectonic shift in local. The adoption of payment, point-of-sale and other commerce-related software by local retailers opens the door to a rethinking of the local logistics model, and the way we transport goods locally.
Generally, logistics networks require lots of automation and optimization — not an easy task in a traditionally digitally-backward local marketplace. Every link in the chain that can be automated — from order processing to fleet management — shaves down the operation costs and expands the margins. That’s exceedingly important in local delivery where the typical point of leverage (mass transportation routes where companies can ship at scale) are harder to find, and the cost-intensive “last mile” is more abundant.
Empowered by a smarter brick-and-mortar back office, large firms like eBay and a host of smaller startups such as Postmates and Shutl have started to create those efficiencies. These companies can source real-time inventory, process payments ahead of arrival, and avoid time spent looking for products in-store by having store associates pull the goods before they arrive. Meanwhile, mobile devices enable firms to push orders to couriers on-the-go and cheaper mapping and analytics services allow platforms to optimize routes in real-time, using public transportation and traffic data to find the most efficient routes possible.
But it’s a slow technology. The growth of local delivery networks are more dependent on the development of a number of other layers in the local stack than each of those layers is on the others. The ‘Retrieve’ layer, as the Seamless/GrubHub merger illustrates, cannot function without being integrated into the ‘Buy’ layer.
At eBay, its other assets — namely, Milo, the company’s local inventory tech, and its budding offline payments ecosystem — will likely help accelerate adoption early on, but the significant growth needed to make local delivery a meaningful layer in the local stack will take time.
The Key That Turns the Lock
The “Retrieve” layer very well may be the missing link in local. After years of losing market share to e-commerce, there’s a feasible scenario in which a brick-and-mortar retailer could undercut Amazon at its own game, competing with the e-commerce giant for the e-commerce shopper. And, by bundling features unique to local businesses like in-person customer service and repair, the price advantage that Amazon will continue to hold could become less influential in the consumer’s buying process.
The traditional e-commerce model — a centralized system of warehouses operating under a single provider like Amazon — will now have to compete with a decentralized network of local businesses that control their own supply lines and for whom delivery is one of a number of serviceable markets, coordinate through software and independent logistics services. The advantage, which e-commerce brands have had over the local market will quickly slip away. And competition from local businesses online will put even more pressure on the Amazons of the world, and their ongoing struggle to find the black.
For five weeks, Street Fight will take a deep dive into each layer of the local stack, detailing the dynamics and key companies that will help to build the future of local commerce. This series, which is underwritten by Yext, is aimed at educating industry players new and old on the inner workings and ecosystem of the new local stack.
Steven Jacobs is Street Fight’s deputy editor.