The ultrafast delivery wars are heating up.
Amazon said last week that it’s testing a 30-minute delivery option in Seattle and Philadelphia, while Walmart said it managed to fulfill a Black Friday order in 10 minutes and is expanding its drone service to the Atlanta area.
The race is on to get online orders to shoppers’ doorsteps as fast as possible, but we can’t help but wonder as companies pour money into the infrastructure to support it: Is 30-minute delivery overhyped or under-appreciated?
Business Insider’s senior retail reporters Alex Bitter, who primarily covers gig work apps and groceries, and Dominick Reuter, who mainly covers big box stores, sat down to hash it out.
Dominick: I’d say 30-minute delivery is the future. Are you saying it’s an already-failed past?
Alex: The fundamentals are not there. Unless there’s some massive other piece that we’re not seeing, I don’t get why Amazon is doing this.
Dominick: I definitely think it only works as part of a larger strategy where this service builds and strengthens customer relationships. It does not fly on its own.
Alex: A few years ago, we saw some startups try to do something very similar. You had companies like Gorillas — a German grocery delivery concept — pop up to deliver items in 15 minutes.
It was the same pitch: Is there an ingredient or two that you forgot for dinner tonight? No problem. We’ll deliver it to your door, fast.
Now, though, many of those startups either no longer exist or have scaled back significantly. Getir, an ultrafast delivery company from Turkey, left the US. Gopuff is still around and raising money, though reportedly at a lower valuation than it did during the height of the pandemic.
Grocery is already one of the lowest-margin categories in retail. With delivery this fast, you’re making it even less profitable.
To be fair, Amazon has a lot more money and experience than those startups did. But that does not change the fundamental truth that this is a challenging business model.
Dominick: Scale is everything here — the biggest players have a shot at making this successful. Even though it didn’t work out for the startups, their very existence shows the consumer demand for fast service.
But it takes such an astonishing volume of inventory to support that speed of fulfillment. Companies like Amazon or Walmart already have that inventory, which eliminates one of the biggest hurdles to making 30-minute delivery work.
It’s working in China, it’s working in India, and it’s gaining momentum in other global markets. The big challenge in the US is suburbia, but that’s solvable.
Although I will say 15 minutes is wildly unrealistic.
Alex: When we reported on the ultrafast delivery startups a few years ago, an analyst told me that a 30-minute delivery promise is more reasonable than a 15-minute one.
But Amazon already has fairly fast delivery. Not 30 minutes, obviously, but you can get orders from Amazon Fresh or Whole Foods in as little as a few hours.
Also, this is yet another grocery offering for Amazon. It feels like it has too many now. Consider Whole Foods Daily Shop, a small-format grocery store that’s designed for the same kind of fill-in trips that Amazon seems to be targeting with its 30-minute delivery option.
Dominick: When it comes to adding more stores and fulfillment centers, that’s exactly what Amazon needs to be doing, and it needs to get people going to those brick-and-mortar stores and counting on Amazon-exclusive products.
Walmart and Target are proving that having lots of physical locations can get you way closer to making these ultrafast deliveries successful. Walmart has 4,600 stores, Target has 2,000 — that counts for a whole lot.
There are 25,000 Amazon drop boxes, but those obviously can’t contain what’s in a typical Supercenter. Amazon is working on it, though.
Alex: Maybe this is Amazon figuring out how it can compete with Walmart — and Albertsons and Kroger, for that matter — without having the same store footprint. This also puts it in more direct competition with Uber Eats, DoorDash, and Instacart.
Many US consumers live in smaller towns or suburbs. I don’t think 30-minute delivery works well in those areas. People drive themselves to stores — something the retailers love because it’s cheaper for them than making deliveries.
Amazon is not yet in a lot of those areas, like it is in the densest cities in America.
I could see this 30-minute idea working in Manhattan, though people in such densely populated urban areas already have lots of options for a quick grocery run (bodegas, anyone?).
Amazon has been trying for years to boost its market share in grocery. I’m not sure this is it.
Dominick: The last thing I’ll say is I see ultrafast delivery as a key complement to the marketplace strategy that Amazon and Walmart are leaning on.
When customers need something now, that lets the company serve up an ad or some other exposure to the marketplace for a later purchase.
If Amazon and Walmart can get you to check their app first to get that missing ingredient, they could also sell you on some higher-margin product that might take a couple of days to arrive.
Alex: You need toothpaste, onions, and eggs right now, but that Christmas gift you’ve been meaning to buy can come this weekend.
Dominick: That, I think, is the reason it’s going to be these two giants driving this shift: you need to be very big to offer 30-minute delivery in the first place, and then you need to be very big to see any benefit from it as well.
