The last mile delivery service has traditionally been the Achilles heel of e-commerce, and companies have been scrambling to find sustainable business models while trying to meet customer expectations. E-commerce has grown from 2% to 15% of retail spend in a few short years, triggering the creation of start-ups that aim to provide creative solutions to last mile challenges.
Last mile delivery has evolved rapidly over the last two decades, with Amazon, Walmart, Target, DoorDash, Instacart, and UberEats leading the charge. However, a lot of these companies capture just a small percentage of each order while incurring huge overhead marketing expenses, among other costs. They also act as middlemen between merchants and consumers, which complicates their product mix and pricing control.
As a result, many of these businesses are struggling to be profitable, and a lot of them have gone bankrupt. Understanding the consumer and trying to deliver a consistent customer experience has been elusive for many of these companies. But, companies that have found success in the last-mile delivery sector, such as Gopuff, have adopted unconventional models that have set them apart from the rest of the pack.
Gopuff, an on-demand delivery service, uses a vertically integrated supply chain and fulfillment operations to operate their business. They have created their network of micro-fulfillment centers (MFCs) which are placed closer to the customers to enable ultra-fast deliveries. Having control over their MFC operations, pricing, and assortment has given Gopuff an advantage over their competitors who rely on an asset-lite model.
The Gopuff MFC network expanded by 518% from 2018 to 2021, and they’ve invested heavily in core operational capabilities such as optimized batching and routing solutions. They have also horizontally integrated their supply chain systems to determine the flow of goods from vendor to customer. These integrated systems determine what products to order, allocate inventory, forecast demand, and plan for labor capacity for picking, packing and delivery operations.
While Gopuff has demonstrated that their vertically integrated business model produces results, other companies still vie for a slice of the last mile delivery service industry. What consumers want, including flexibility and selection, will not change, but companies must streamline their supply chain, infrastructure, and technology to capture and retain customers and streamline their operations. It remains to be seen which of these models will stand the test of time.