Who will pay for the last mile when your customers won’t?


Who will pay for the last mile when your customers won’t?

December 12, 2018


The introduction of free delivery has created an expectation from consumers that any item can and should be delivered as soon as possible for no additional cost. But there is a cost - drivers need to be paid. So who’s paying them?

While going to shops is a social occasion giving people the option to try before you buy, allowing people to sit at home on their laptop and have anything delivered for free is a much more appealing offer to time-poor, cash-rich consumers.

Yet the introduction of free delivery has been detrimental to retail businesses, says Steve Knight, CEO and founder of last mile delivery service Productiv Delivery.

Knight should know - he spent more than six years working for food delivery stalwarts Just Eat and Hungry House owner Delivery Hero before launching Productiv Delivery. He ran delivery pilots for them and saw the percentage of orders and brands exploring home delivery grow massively.

Consumers are time-poor but cash-rich so they want something that won’t hinder their lifestyle. When you look at fashion retail, for example, you can now order from Next by 9pm and it arrives the next day.

But in order to meet consumers’ growing demands for free delivery, the cost of delivery has to be covered in some way whether that be added to the product cost like Deliveroo, a subscription fee like Amazon Prime or Next, or built into a minimum order rule.

A word of warning however: Quality doesn’t come cheap, which is something brands must acknowledge.

According to Knight, “we have major brands that want to offer delivery to customers but for as cheap as possible. The profit margin is very small for companies taking a risk by putting drivers on the streets. There needs to be a mindset change - businesses need to be prepared to pay for a good delivery service.” He likened it to when you shop for a car; “if you went to buy a BMW you’d be prepared to pay for that rather than a Ford Mondeo. Currently, businesses want a Gold delivery service for a Bronze price.”

While companies like JustEat absorb the cost of delivery by taking a certain percentage from each order, delivery companies like Productiv Delivery don’t have that option. They make 5-8% profit but not on every ride. Some rides even lose money as it depends on variables such as time and fuel.

It’s worth noting though, whilst the majority of the market wants “gold service at bronze pricing,” that there is a premium end of the delivery sector - including the likes of dpd, DHL and Citysprint - with payment of £4-8 for deliveries.

However, the opportunity for companies working in the delivery sector is huge. “Demand for delivery is growing massively; we’re currently gaining 130% growth month on month,” says Knight. “Two weeks ago we did 6,000 deliveries, while this week we’ve done just under 10,000. And we’re a relatively small player in the field.”

Productiv Delivery is currently raising investment to expand to other cities, which needs significant investment to build up and create the operational resource required. And they’re getting a lot of interest because they know the growth is there - they can currently switch on a city and go from 0-1000 orders per week in just three weeks.

For independents, the phone is still a delivery company’s biggest rival, taking 50% of orders. However, the more seamless online delivery becomes, through partnerships between tech, logistics and brands, the sooner all deliveries will be done online.

Gone are the days of five to seven day deliveries, as delivery democratisation takes hold - anything you want at the click of a finger delivered to you wherever you are in minutes or hours, not days.

Nicole Lyons