The Delivery Giants Are Throwing a Pivot Party

How to make money in delivery

In the days leading up to Shoptalk, the annual e-commerce convention held this week in Las Vegas, nearly every on-demand delivery company wanted to make a splash.

DoorDash Inc. announced it was bringing a wide selection of household items and grocery products from national warehouse chain BJ’s Wholesale Club onto its online marketplace in 17 states. And Uber Technologies Inc., in the midst of its Cousin Greg ad campaign declaring that Uber Eats is about more than eating, said it had forged a partnership with gas station giant BP to deliver convenience store items.

Both of these deals take businesses known for delivering restaurant meals into even fiercer competition with one known for ferrying groceries: Instacart Inc. “It’s an attractive market,” said Instacart Chief Executive Officer Fidji Simo, when I asked her at Shoptalk about the company’s circling rivals. “They are trying. It’s cute.”

But Instacart has recently made its own moves, too. Last week, the company announced something called Instacart Platform. As my colleague Jackie Davalos wrote, it’s an attempt by the San Francisco startup to expand into the lucrative realm of software as a service (SaaS) by offering a range of technology tools to grocers to help them run their digital businesses. Uber CEO Dara Khosrowshahi also wants in on the action here, and told Bloomberg’s Emily Chang on Tuesday that the industry should “think of us as a local (version of SaaS-company) Shopify. We can help you power your local online commerce.”

Making sense of this Pivot Party can be a bit dizzying. So here’s what I think is happening: As the world emerges from the pandemic, demand for online delivery appears to be softening and valuations are falling. DoorDash shares have cratered by 40% over the last six months; Uber’s by 17%. And as we reported last week, Instacart (which delayed its IPO last fall and remains private) slashed the value of its own shares by 40%. Investors are souring on future growth possibilities for these upstarts, so naturally they’re seeking out the greener pastures of new market segments.

A second factor is that some large retailers may be starting to question their reliance on Silicon Valley platforms, which exact significant fees and tend to dominate the relationship with their customers. This is a dynamic we saw in the early days of e-commerce, when big retailers like Toys “R” Us initially outsourced their e-commerce businesses to companies like Amazon.com Inc. and GSI Commerce (now called Radial Inc.), then decided those operations were too valuable and brought them in-house.

“Many of the retailers I’ve talked to that have a relationship with Instacart are looking to move away from Instacart,” Gary Hawkins, CEO of the Center for Advancing Retail & Technology, told the online publication Grocery Dive earlier this week. That may be why Instacart’s new software business is targeting the small- and mid-size grocery stores that don’t necessarily have the resources to coordinate their own delivery operations.

The last and most important factor driving companies’ strategic pirouettes is that they’re getting squeezed from multiple directions. On one side, there’s Amazon. The e-commerce behemoth has invested billions over the last two years in delivery centers and smaller local warehouses to make speedy deliveries of almost anything. On the other side, there are a raft of younger VC-backed “quick delivery” startups like Gopuff, Gorillas and Jokr. They’ve raised hundreds of millions from venture capitalists, have none of profitability pressures of public companies like DoorDash and Uber, and they all offer the prospect of delivery in minutes instead of hours.

This leaves the older players in a weird limbo. Running a profitable 15-minute delivery business may not even be feasible, DoorDash President Christopher Payne told me at Shoptalk. To make the math work, all these companies are using their vast amounts of data on how customers shop to add advertising to their apps and on the websites of their retail partners. It’s a lucrative revenue stream that could help the companies take on the newer players, and Amazon, in the rapid-delivery game.

And so the race is on – to offer “everything, everywhere, all at once,” to borrow the name of the new Michelle Yeoh film. As Khosrowshahi told Emily at Shoptalk, Uber’s new mission is to use all of its logistics and transportation expertise to “to essentially out-Amazon Amazon on a local basis.”

Not every company will make it. In fact, analysts increasingly believe a storm of mergers is inevitable. “Five years from now you are not going to see DoorDash, Uber and Instacart all standing,” said Jason Goldberg, the chief commerce strategy officer at Publicis. “They are going to consolidate. I’m not smart enough to know who the winner will be yet, but it will probably be based on the strength of customer relationships.”  —Brad Stone

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